Why Amazon Won’t Eat All of Ecommerce

The Amazon Advantage and how Nuancers, Curators, and Category Shifters will continue to innovate in the eCommerce space despite the market dominance of Retail Behemoths.

I don’t like Amazon. Not just the fact that they’re a behemoth in online retail. It’s the lack of trust between customer and seller.

I’ve noticed in the past year or so, the quality of products on Amazon is going down. So much so that I’ve stopped purchasing on the site completely. I’m also part of communities like anti-consumption and simple living, which generally lead to not buying many things. But even when I wanted to buy a leather wallet recently, I found so many, what I call, nonsense brands, on the site I ended up not buying anything.

My two most recent purchases were both electronics. These items are notorious for being faulty, but when I had three wireless mice and two bluetooth headphones break (both from nonsense brands), I figured I should stop buying from Amazon.

Working with eCommerce owners the past two years, I’ve had a glimpse into what it takes to sell online. Selling on your own site is tough. You have to worry about marketing (ads, SEO, social, content, email), customer service, logistics, product curation and innovation, and building a brand. Although this seems like a lot of work, owning customer data, building a strong brand, and the ability to market are ways eCommerce stores can compete with Amazon’s market dominance.

Currently hovering around 50% of eCommerce market share, Amazon knows it’s the big dog, with 2.6 billion monthly visits, 119,928,851 products (source), and 135 private label brands. But just because Amazon is so big doesn’t mean it will eat the whole online retail space.

There are many things Amazon isn’t so good at:

  • policing insane competitive practices that can lead to legitimate sellers getting their accounts shut down
  • low quality products flooding the market
  • review manipulation
  • lack of brand loyalty.

So what are the things Amazon is good at that has lead to its dominance in the eCommerce space?

What’s Amazon Doing Right?

Amazon is a marketplace, first and foremost. Sellers create accounts to sell their own products whether they’re straight from the factory and rebranded (white label products) or their own invention. There are also resellers on the site for things like used books.

The two categories Amazon dominates are books (which could be a whole article in itself). They started as a bookseller and have captured 72% of e-reader market share in 2017.The second category is toys & games. Amazon has captured 70.4% of this latter category. That’s because this category is brand-conscious and price-focused. If you can find a Barbie Glam Convertible on Amazon for $13.79 with Prime shipping, why would you go to the store and buy it for the same price or more?

Speaking of Prime, there are an estimated 100 million members of the 2-day (often faster) shipping program. Since Amazon owns the warehousing and logistics, they can guarantee shipping times like these, whereas most eCommerce stores can’t. It’s also a great incentive to get people to buy more. If you’re paying $119 a year for free shipping, you want to make sure you actually use it which often means spending more on the site.

Amazon is an innovator creating products like the Kindle and Echo, and also reimagining the shopping experience with AmazonGo stores and the acquisition of Whole Foods. They also experiment with projects like the Fire Phone (didn’t go well) and the Treasure Truck which is a fleet of 30+ trucks in major cities that offers daily deals on particular products.

The sheer scale of Amazon allows it to innovate. They have entire R&D departments working on secret projects we don’t even know about. We’ve seen videos of delivery robots and even a blimp deploying drones. The blimp video was fake, but the fact that so many people believed it was real means that they can see Amazon developing something like this.

The reason people shop on Amazon is mainly free shipping. It’s also a huge reason that people stop a purchase on an eCommerce site. After doing user research on dozens of sites, I know that people will get annoyed if there is a shipping fee and many times will stop their purchase. I’ve even heard people mention they’d rather the price be raised $5 and get free shipping, than have to pay a $5 shipping fee. (We’re not often as rational as we’d like)

The next biggest reason people shop on Amazon is price, followed by convenience. Only 42% say “I bought on Amazon before and I know their products”. I’d like to see more context on this, because I’m curious what types of products they’re buying and if they’re from name brands.

My big takeaway from this survey is that quality of products does not seem to play a big role in shopping on Amazon. They are satisficing, choosing a “good enough” option that is rather cheap compared to getting a “best-in-class” product that is more expensive.

The Amazon Advantage:

  • Price
  • Wide Selection
  • Convenience (fast/free shipping)

What’s Amazon Doing Wrong?

Surprisingly, “number of reviews” is the 10th reason people buy on Amazon. But for many of these unknown brands, reviews are necessary for customers to see if the product is good or bad. With eCommerce sites I have worked with, quite a few don’t have any product reviews because the brands they sell are well-known and a high product quality is inferred.

Competition has become fierce in many categories as prices have gone down and the way to rank on the first page of a search is to have lots of 5 star reviews. Review manipulation has always been an issue, but especially now as Chinese manufacturers have been allowed to sell on the site.

The Washington Post did an analysis and concluded that 61% of electronics, 63% of beauty, 64% of supplements and 59% of sneaker reviews are fake. Fakespot, a website that analyzes online reviews, estimates that 30% of Amazon reviews are fake or unreliable.

Amazon says they’re working on the issue, but I think they need a more robust way to detect these fake reviews. Not only do they manipulate customers into buying a low-quality product, but they also can be used to hurt legitimate sellers.

Amazon’s guilty until proven innocent policy means that if your product listing suddenly gets a slew of 40 5 star reviews, you’ll be flagged for review manipulation. You’d think that so many 5 star reviews is a good thing, but malicious competitors will order fake reviews for your product so your listing will be taken down by Amazon’s system.

For sellers, Amazon can be scary to deal with. They have the final say and if they don’t want to listen to your plea and reinstate your account, that’s it. This article from the Verge is an insightful look into the dark side of Amazon selling and the cutthroat strategies competitors use to oust each other.  

When you have competition like this on the site, you’re bound to have bad actors. People will sell fake items, steal another’s product listings (list hijacking), and sell low-quality products.

Remember in the beginning when I mentioned nonsense brands? These are names like NapaWalli, Casmonal, and Hiigoo (actual names on Amazon). Scroll through an Amazon search results page, you’ll spot them. They don’t stand for any values, guarantee of quality, or the other things typical of an actual brand. They’re just names to use on the site.

After my two bad experiences with nonsense brand products, I’ve sworn them off. Do you want to know why I purchased them in the first place? The overall rating and number of reviews. I used to think if a product had a 4 star rating with 4,663 reviews or a 4.4 star rating with 21,495 reviews that means the products should at least work.

Notice the nonsense brand names? Not sure what a SoundPEATS or VicTsing brand stands for, but the products I’ve received have consistently failed. I’m not saying the reviews for these products are fake, I’m saying that although these products have so many good reviews, it doesn’t meant the products are infallible. To their credit, these companies have sent me replacements multiple times and have also requested that I leave a 5 star review. (As I write this article, the scroll on my 4th mouse stopped working.)

For a product I don’t need to rely on like a flyswatter, I’d consider buying from Amazon. But for products where I need reliability (like the mouse I use daily) I will stick with a trusted brand.

What’s eCommerce Doing Better?

Amazon does many things right: innovative products, new takes on shopping experiences, and a convenient way to shop for millions of products.

While Amazon is great for purchasing things you trust like toilet paper from your favorite brand, it can be hit-or-miss for products you’re not sure who to buy from. That’s why 44% of shoppers start their search on Amazon. It’s the product search engine. Sure, there’s Google but it’s not designed for product search.

With my headphones, I didn’t want to buy Beats or Bose. Without another brand in mind I went to Amazon to find something more within my price range and ended up with a dud. Next time I plan to buy from a known brand and spend a little more.

Since many sellers on Amazon are essentially anonymous brands, they have a difficult time convincing people to purchase aside from reviews.

Ecommerce brands spend a lot of time and money on marketing and branding (website design, logo, other graphic assets) to create a sense of trust in the product. Branding can involve storytelling (founding of the company, reason for selling the products, founder story), shared values (environmentalism, care for animals), and authenticity.

We buy from companies like Allbirds and Warby Parker because the brands speak to us in some way. These companies offer unique, high quality products that get others talking and spread by word of mouth (and PR). I heard about Allbirds from so many people that I automatically assumed they were a high quality brand I’d want to buy from. I’ve never had that happen with a product on Amazon.

The level of trust in a brand is already built in based on their marketing, communicated values, story and authenticity. If you’re purchasing a product from a brand whose story you’ve followed you inherently assume the quality is good. The community policing of bad brands comes in the form of negative word of mouth, bad PR, and critiques on social media. This isn’t the case for products on Amazon. What journalist is going to write a piece on a bad product on Amazon (unless perhaps that item exploded)? It’s the gamble we take when buying from nonsense brands on Amazon.

When buying from a Direct to Consumer (DTC) brand like Allbirds or Native deodorant, we have a good sense of what to expect even before the item arrives. And we know that if the item doesn’t meet our expectations, we can get someone on the phone to hear us out.

Brand building, in part, helped Native deodorant get acquired by Proctor & Gamble for $100 million. Who would think a space as mundane as deodorant would see action from many new players including Kopari (coconut-based products), Native (natural deodorant), and Myro (plant-based stick and refillable container)?

Why eCommerce is here to stay

Aside from the trust that brands build, there are many other reasons that consumers continue to shop on eCommerce sites and not solely on Amazon.

These companies are able to innovate and create more personalized shopping experiences that Amazon isn’t able to replicate due to its massive scale.

Warby Parker changed the way we think about ordering prescription glasses. What was once a painful experience that involved getting a prescription, going to the eyewear store, trying on multiple frames, deciding on a pair and have to wait to get the lenses installed, has become more streamlined and enjoyable.

Casper, the mattress company, innovated on a product that hasn’t changed much in the past few decades. We’re now able to order a mattress from our phone, have it shipped to our door, and can return it stress-free.

Amazon has not innovated on many products, aside from the Kindle and smart speakers, because that is not its core competency. Amazon is a master of scale in terms of data, customers, logistics, transportation, and warehousing.

The Kindle and Echo were major product innovations at Amazon because they help deliver more of their own products to consumers. Amazon is the leader in ebooks that are mainly read on their Kindle e-readers, and the Echo has become one of the most popular voice-controlled home systems that Amazon hopes people will eventually use to order all their products (from Amazon of course). Amazon has no doubt noticed the rise of DTC brands and would like to see the same loyalty for their own in-house brands. But for now they are not innovating much on individual products, rather just creating lower priced alternatives.

Amazon knows how to copy and iterate on the top sellers on their site. Look at the Rain Design mStand versus AmazonBasics Laptop Stand Desk. They look quite similar, don’t they? Although the Rain Design stand has more reviews and a higher rating, the AmazonBasics stand has most definitely taken some customers away from them because of the low price point they’re able to achieve through their massive scale.

I find it highly unlikely that Amazon will start to innovate anytime soon in niche categories like Kopari did with coconut based products or Burrow did with sofas. I see them continuing to iterate on top selling items on their site and selling them under their own private label brand. But hey, maybe Amazon will prove me wrong.

Playbook for eCommerce

What can eCommerce companies do to stay relevant? For current eCommerce sites, here’s a playbook of what can be done right now to keep your market share:

  • Utilize your customer data (learn about your customers, where do they come from, how do marketing channels differ, how can you get repeat buyers?)
  • Invest in branding, story, values, and communicating those
  • Create quality products that stand out (look at DTCs) and have guarantees that back it up (free returns, customer support)
  • Don’t compete on price, you’ll get crushed

For anyone wanting to enter the eCommerce space, the playbook is similar. But the main focus needs to be on what you’re going to sell and how you can provide more value to customers than Amazon could. Don’t start a site selling oven mitts you found on AliExpress, it’s not a defensible product. Sell an innovation, or find a new way to sell something.

Rothy’s is a great example of an innovative product in a crowded space. They sell washable, woven flats made from recycled plastics. These speak to consumers worried about the environment and provides them with a stylish shoe.

Rothy’s Website

How can you be the next Rothy’s?

Where eCommerce is going

Amazon is the largest eCommerce marketplace but it’s not the only way eCommerce will be done in the future. Although Amazon has mastered logistics, fulfilment, warehousing, and customer retention (Prime), they still lack some of the necessary components of the shopping experience that customers and sellers want. These include branding, creating a sense of trust in the product and company, ownership of customer data and site experience, and ability to innovate in marketing and customer experience.

Many Amazon sellers are building big businesses that they might not have been able to do on their own site. Although Amazon dominates the eCommerce space and is eating up many small sites, it won’t become the only place to sell online. Amazon’s drive to be customer-first and push down prices is making the remaining eCommerce sites aim for a higher quality of service and product in order to compete. This is making the non-Amazon eCommerce space even better for customers.

In the chart above, I outlined how the eCommerce space can be thought of in terms of quality, convenience, selection, and product innovation.

The Retail Behemoths like Amazon are best at carrying a large selection and having a convenient buying experience, but they’re not necessarily good at innovation on products or having the best quality.

In the opposite corner are The Nuancers. These are companies selling only one or a few types of products, but those products are high quality and tweaked to improve the design, material, etc. Untuckit didn’t invent the button down shirt, but they did innovate on the product to make a shirt that looks great and doesn’t need to be tucked in.

The Curators are those that sell other brands’ products but they differ from The Retail Behemoths in that they’re selective. DWR sells high quality furniture from top brands, they won’t be selling a $300 futon.

Lastly are the Category Shifters. These are companies that went into a product category and unpended it. Think Dollar Shave Club, and how they revamped the shaving market. No more going to the store, asking for the razor section to be unlocked so you can buy overpriced razors. Dollar Shave Club told consumers that razors can be cheap and of a good quality. Warby Parker shifted the eyeglasses space and Casper created a brand new way to buy mattresses.

Walmart was thought to be the death of small mom and pop stores, and it was to an extent. Smaller stores that couldn’t compete with Walmart’s low prices went out of business. But stores that offered something that customers were willing to pay more for have stuck around (Nuancers, Curators, Category Shifters).

Amazon will continue to acquire more services, maybe Spotify, to grow their Prime subscription base. But other eCommerce stores that don’t have free 2-day shipping will still stick around so long as they can communicate why their products are worth the price (think Native deodorant vs. Dove), and can convince customers that it’s worth waiting 5-7 days for shipping instead of just 2. For certain products, shopping outside of Amazon is worth the wait and the increased cost.

I would much rather purchase a new set of bluetooth headphones or a wireless mouse from a brand that is known for quality even if that means spending more or waiting longer. Not everything should be bought on Amazon. I believe that many other consumers have had this realization too, or soon will.