business news in context, analysis with attitude

by Kevin Coupe

The Wall Street Journal has an excellent analysis of the competitive bind Amazon finds itself in these days.

Part of the challenge is the growing numb er of competitors in its core e-commerce space.  The Journal writes that these include "Chinese e-commerce players Temu and Shein, which have surged in popularity globally and even on Amazon’s home turf. The Wall Street Journal reported last month that the two—which specialize in ultracheap products and apparel produced in China—are now shipping an average of a million packages a day each in the U.S.

"There is also TikTok, which has integrated online shopping into its popular social network that now claims more than 150 million users in the U.S. The company owned by Chinese tech giant ByteDance is even setting up its own warehouse and fulfillment network in the U.S., potentially giving it more muscle to compete with Amazon’s delivery speeds. Bloomberg reported earlier this month that ByteDance aims to grow TikTok’s U.S. e-commerce business to $17.5 billion in gross merchandise volume this year—a 10-fold increase from 2023."

Amazon founder Jeff Bezos used to say that "your margin is my opportunity," but there are fewer opportunities when competing against entities that operate on slim margin selling cheap (and dare I say, largely crappy) imported goods.  

While none of those competitors is yet approaching the kind of volume that Amazon does, management almost certainly has to be concerned about its flank - those upstarts may see Amazon's margins as their opportunity.

At the same time, Amazon has to preserve its margins and growth levels, because that's what the investment community has come to expect.  The Journal writes that "the company’s stock price boomed 81% last year and is finally getting back near the record range it enjoyed in mid-2021, when Bezos handed over the chief-executive reins to Andy Jassy. Wall Street is banking on a beefed-up bottom line; analysts expect Amazon’s operating income to average 36% annual growth over the next three years while revenue is expected to average just 11% annual growth in that time, according to FactSet."

And unlike during the Bezos era, Amazon seems to be a lot more focused on the investment community these days, as it continues to look for ways to grow its margins and find new revenue streams - like adding advertising to Prime Video, which generates ad dollars.

This is all part of being a Day Two company.

I think many of us naively thought that Amazon would be able to maintain its Today-Is-Day-One ethos forever, that somehow its business model would be able to defy both gravity and physics.  I'll plead guilty on that score.

Maybe the trick will be figuring out how to balance a sustained Day One mentality in its innovation culture with a Day Two (or even Day Three) sensibility elsewhere in the business.  That may actually be harder in the long run, and the degree to which Amazon can accomplish it may be the real Eye-Opener.