Published on: November 30, 2016
Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.
This week's topic: The challenges that vendors (first party) and sellers (third party) find when working with Amazon ... and lessons that retailers can learn.
And now, the Conversation continues...
KC: I read a piece in the Seattle Times the other day about how third party merchants often are using outside consultants to help them navigate the Amazon system. I actually wasn’t surprised by this, in part because I know this is a small part of what you do. But I also wasn't surprised because I think it is fairly common knowledge that as focused as Amazon has been on creating a great user experience for the customer, it has been, shall we say, less focused on making it a great experience for vendors big and small. What are the common complaints that you run into … and do these shortcomings create opportunities for Amazon’s competitors?
Tom Furphy: When we left Amazon back in 2009, we wrote an investment thesis as to where we saw the future of retail and e-commerce heading. One of the themes of that thesis is that Amazon would grow at breakneck pace through $500 billion in volume. We recognized that such growth would create business opportunities to help vendors (first party) and sellers (third party) work with Amazon because Amazon is much different than traditional retailers. To capitalize on the opportunity, we’ve since built a suite of technologies and services inside Ideoclick to help vendors and sellers be more effective on Amazon.
This is important because Amazon thinks of itself first and foremost as a platform. We’ve talked here about the fact that Amazon doesn’t like to rely on “humans” because “they are variable”. They would much rather deliver the model through a platform combination of data, systems and processes. This makes them challenging to work with for traditional human-based businesses that want to interact with them like a traditional retailer.
As you noted, the Seattle Times article focused on consultants that help Third Party Merchants with Amazon. This is the side of the house where Amazon already has invested heavily to offer pretty good tools to support sellers. Also massive businesses, such as publicly-traded Channel Advisor, have built technology platforms to help sellers optimize their results on Amazon. The fact that there is still a burgeoning network of consultants despite these tools speaks volumes about how daunting Amazon can be. It also shows how significant the opportunity is on the “first party” side of the business, where the tools are years behind. To their credit, Amazon does realize this and is building new tools to close the gap with the third party side.
KC: Are there common frustrations?
TF: That it’s hard to speak with and work with their buyers, that Amazon is an expensive retailer to serve, that they are not transparent, that they are constantly asking for more funding, that it’s difficult to properly manage content on Amazon and that pricing and third-party competition makes it a difficult environment to preserve brand equity.
KC: But other than that, it is a perfect vendor experience.
TF: To be fair, not all vendors voice all of these frustrations and not all of it is necessarily valid. Much of it comes down to how much the manufacturer has adapted to Amazon or how naturally suited their products are for the e-commerce model.
Amazon knows what it takes to deliver a great customer experience and they’ve built a platform to support that. They don’t endeavor to make it difficult on vendors, but they don’t want to train them all either. They insist that vendors conform to their way of doing business because they have proven that doing so will enable the platform to perform as designed and will result in the best customer experience. This requires manufacturers to develop new skills and capabilities in house or to work with external partners that have demonstrated the ability to work effectively with Amazon.
KC: This seems consistent with Amazon's customer-first ethic ... it isn't like Amazon is making these demands in an arbitrary fashion. It seems to be focused on doing everything possible to making the consumer experience as positive as possible. I guess the next question is whether Amazon's approach creates a window for competitors to create better vendor relationships that actually allow them to pass Amazon on the competitive track.
TF: I’m not sure that this in itself creates an opportunity for competitors. I think there was a window from probably two to five years ago where other retailers’ human staff could have worked closely with vendors’ human staff to build effective competitive programs. But Amazon’s machine has such a lead now that it would best behoove competitors to double down on their customer focus and build their own platform capabilities as soon as they can, and get them in front of customers as soon as possible. I think what Wal-Mart is doing with Jet is a good example of such a move. The jury is out on whether it will be successful, but I think it’s the kind of bold move that competitors need to make.
KC: My argument always has been that while competitors such as Walmart/Jet and Target are simply focused on selling more stuff, that’s checkers compared to the chess game that Amazon is playing in creating an ecosystem that will be shoppers’ first best choice. But the downside of that, I would imagine, is that size sometimes means that a company pays less attention to its core businesses … and when that happens, companies often run into problems. To what extent do you think Amazon's size could end up being a problem?
TF: Let's go back to something you said before, and that we've focused on a lot here on The Innovation Conversation - that first and foremost, Amazon is about focusing on the customer. Everything the company does is geared toward driving a better customer experience and sequentially solving as many of their customers’ needs as possible. As they’ve grown, that naturally evolves from being a straightforward online retailer, to welcoming more third-party sellers, to offering streaming content services, to creating content, to expanding into categories like AmazonFresh. It means adding services like IoT ordering, voice assistance and ordering via Alexa and Echo, drone delivery, two-hour delivery and beyond. While this may appear to be moving away from the core business, it’s really just a continuation of the fundamental proposition of starting with the customer and working backward.
To be more efficient, effective and to enable scale and consistency, Amazon takes a platform approach to the business. To accomplish this, Amazon relies on machine learning, systems and rote processes to deliver its services. Everything they seek to solve for the customer works back into the platform so that the platform can best deliver the solution consistently at scale.
Where many companies risk becoming distracted by diversification or expansion, Amazon focuses on continually making the platform more effective. Small tweaks throughout the platform can then be replicated across the business at scale. It’s less about training humans and more about letting the machines do the learning, make the adjustments, and then leverage the adjustments at scale. All while their people obsess over the customer experience and work to improve it with every move. This approach doesn’t dilute focus, it actually improves it.
KC: That's extraordinary, and I think it points to a core difference between Amazon and everybody else. And we'll follow up on this subject in our next Innovation Conversation with a discussion of what kind of infrastructure vendors need to develop in order to do business on and with Amazon ... and the lessons that this offers to other retailers.
The Conversation will continue...
- KC's View: