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How Amazon Become Ordinary – The Big Picture

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“I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition — but of our customers.” -Jeff Bezos, 1998 Amazon shareholder letter.

 

We all know how much FAANMG stocks have faltered this year, but there is a bigger story brewing: The companies themselves seem to have…lost their way. What once made them great has slipped into their historical legacy, with less innovation and far less delight to its end users.

Excepting Netflix and Facebook, they are no longer run by their founders. Many are experimenting with new business lines and products that could maximize revenue short-term, but at the expense of user experience, loyalty and spending. These behemoths have become victims of their own success, seemingly forgetting what made them great in the first place.

Each of the actual businesses of at least 3 of the giants – Amazon, Facebook and Google – are moving away from their basic founding principles. Grabbing short-term profits could cost them substantially over the long term. Microsoft and Apple seem to still be doing what made them giants; Netflix falls somewhere in the middle.

Let’s use Amazon as an example, but we could easily run the same exercise for all six of the behemoths.

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I’ve been an Amazon customer since my college roommate gave me a gift certificate in 1998. Between my home and office, I spend an obscene percentage of my discretionary budget at Amazon. For the past 20 years, they have been the default choice for consumption. And it’s not just Amazon Prime: I replaced my old AppleTVs with Amazon Firesticks; there are Alexas all over my house and office; I subscribe to Amazon Music.

Generally speaking, I am a I have been a satisfied Amazon consumer – at least up until the pandemic. That was where signs of a shift began to show. Here are the biggest areas of contention:

Advertising: I needed a simple lithium battery for a car key fob. I searched for the exact product number “CR2450 Lithium” and bought the first result, a Duracell. But it wasn’t the 2450, it was a paid placement. This has happened increasingly in recent months.

I suspect Amazon algorithms will eventually figure this out, but meanwhile, it reveals that advertiser dollars and not consumers are the retail giant’s newest priority. As Juozas Kaziukėnas of Marketplace Pulse has observed, Everything on Amazon is an Ad:

“Advertising has replaced product recommendations and personalization on Amazon and other retailers’ websites. They are no longer trying to guide product discovery, letting ads instead lead the journey.”

This was once useful; now, it’s cluttered and invasive and annoying.

Thirds party sales: the proliferation of third-party sales as opposed to Amazon as your retailer has led to a general degradation of quality. Products are worse, shipping times are longer, prices are higher, customer satisfaction is mixed. That’s been my experience — your mileage may vary. But it is undeniable that Amazon is now filled with third parties often selling fake items or of dubious quality, occasionally at gouging prices.

Schmucks selling crappy products that are potentially fake? That’s what eBay is for.

Extended Warranty: Why does every single $20 product I put into a cart at Amazon pitch me an extended warranty? WhoTF needs an extended warranty on a $25 iPad cover?

Between college and grad school, I worked in a retail electronics store. The highest profit SKU in the entire store was the extended warranties. The reasons for this are simple: If you already have a repair and warranty division to manage ordinary warranties, it costs you next to nothing to repair or replace the stuff off warranty. This leaves lots of room for profit.

Consumer Reports have looked at extended warranties repeatedly over the decades, by surveying consumers. Many people who purchase extended warranty never use them. There are arguments over what’s covered. Generally speaking, few are happy or very happy with extended warranties. They are bad for consumers but good for the retailer’s bottom line.

The biggest problem is that warranties are treated as insurance, and every insurance claim involves pushback. How much time do you wanna spend arguing with an underpaid overseas phone rep over the repair of a disposable $50 piece of electronics?

Extended warranties are sucker plays, a sign the retailer disrespects their customers. Hard pass.

Prices & Inventory: How many times did this happen to you during the pandemic: You need a product and go to Amazon, but they either don’t have it in stock or had it at a silly gouging price. For the longest time, Amazon was THE low-cost provider; today, this is no longer true.

They seem to have frittered away their biggest advantage: The friction of setting up a new account. The lack of inventory, higher prices, and just general degradation of the user experience sent many consumers scrambling to find alternatives. The beneficiaries of this during the pandemic include Walmart, Target, Chewy, Instacart, Google Wallet, and more.

It was once a huge advantagefor the retailer to have your credit card + address information on file; because of the decline of the entire Amazon experience, people set up accounts at their competitors

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The FAANMG companies are going to be revenue monsters for a long time to come. Will they still be the innovative geniuses and Wall Street darlings they once were? It’s tough to see this continuing indefinitely.

Amazon was never going to maintain a 50% market share of online retailing growth forever; I suspect 2020 accelerated the growth of its retail competitors’ online businesses substantially. The firm’s decision-making in terms of advertising, third-party sales, pricing, and general user experience is hastening that market share loss.

I still use Amazon a great deal, but less than I once did; the trend is to look elsewhere rather than just assume Amazon was the best selection and lowest cost.

I wonder how many people are having similar experiences…

 

 

 

Previously:
Which Companies Won or Lost Your Affection During Pandemic? (January 12, 2022)

2021’s Surprising Laggard: Amazon (January 5, 2022)

Unprecedented Access to Bezos +Amazon Execs (June 15, 2021)

Amazon.Bomb, May 31, 1999 (June 3, 2019)

HQ2: Understanding What Happened & Why (February 19, 2019)

 

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