All right, folks — it’s my turn to fire at everyone’s favorite web target.
Why doesn’t Amazon.com make money?
Here is a company that, operationally, is unparalleled. The folks there do everything right. They market on the web brilliantly. They fulfill virtually flawlessly. They reach out through email without blemish. They deliver everything they promise.
But we all know the analysis drill here. Sales are better and profits are worse than last year. The analysts now find it trendy to slam Amazon.com. And, it still bravely puts the master plan in front of us, saying all shall be well and all manner of thing shall be well: It’s just a question of time, product breadth, and critical mass.
I think it’s a different question. Not a question of when Amazon.com will be profitable, but a question of can Amazon.com be profitable.
And it may just be that the answer to that is “No.” At least not judging by the way it conducts business today.
The problem is not that Amazon.com and many of the other red-ink dot-coms — survivors and failures alike — have failed to achieve a level of excellence in what they do. It’s that there’s a core marketing reality that they have not faced.
People don’t change to meet the capabilities of technology; technology changes to meet the needs of people.
Amazon.com and so many other retail dot-coms have counted on the opposite being true. They have built companies and business models based on the fact that if they deployed increasingly sophisticated and elegant technology to make it easier for consumers to buy online, more people would do it. That instead of simply siphoning shares from the existing mail-order marketplace, they would reach out to the retail market at large.
If you are what Don Tapscott terms a “shopping avoider,” if you’re already hooked on the joy of mail order and QVC, then Amazon.com is perfect for you. But if you like to go shopping, if you enjoy the smells of a bookstore, if you want to compare the glitter of golden watch bands or feel the quality of the fabric on a bathrobe or test the beam strength of your kayak headlight — or if you just plain like to go to malls — then Amazon.com offers you convenience and selection but not the experience you want.
And the experience is what makes a marketplace.
People who like to shop are going to continue to shop. People who like to — or feel the need to — discuss things with salespeople are going to continue to connect face to face. People who don’t like to buy mail order today are not going to like to do it tomorrow, simply because there’s better technology available to facilitate selection and ordering.
And believe me, people like to go shopping. All the numbers agree that today online retail makes up around 0.6% of the U.S. retail market. And it appears to be slowing, not growing.
Technology simply doesn’t change the core marketing reality that people want what they want.
So what’s a dot-commie like Amazon.com to do? Here’s my prescription:
- Stop the expansion into items that have no chance of winning online. There has been no change in the five major products bought online (travel, hardware, software, books, and music) since the first time these statistics were compiled. Garden tools and RV paste wax just don’t cut it. (Besides, all that second-rate content provided by the third-party vendors at the Amazon.com zShops looks pretty cheesy.)
- Accept the fact that profit is and always will be in embedded bricks and mortar. (It’s no coincidence that product vendors that are profitable online are those that exist both on the web and in the real world, like Cisco and W.W. Grainger.) The web and related Net technologies support but don’t supplant the revenue streams of profitable companies.
- Open stores. I see this as almost a certainty and something that Amazon.com could do very well. By integrating its web site with its real-world stores, Amazon.com could let people select a product online and pick it up in the store, where they want to be in the first place.
I know it’s heresy. But it may just be the course of the future, which so often finds us coming back full circle. The next question may just be: Will the Amazon.com folks order the bricks and mortar for the real-world stores from the web, or will they do it in person?