Amazon’s Power Position

Several interesting observations are surrounding Amazon as the company briefly became the second company to reach a trillion dollar valuation. While Amazon’s market cap has dipped back below, they will inevitably get back to the trillion dollar cap and beyond.

What stands out to me about Amazon reaching this market cap is how much headroom they still have to grow. In nearly every category they compete for their market share is nowhere near to being saturated. In most parts of the world where Amazon competes like US, UK, and India, E-commerce represents a small percentage of overall retail leaving a lot of growth ahead and Amazon being among the best positioned.

While not the sexiest market, cloud computing is poised for growth and while Amazon is among the market share leaders, there is still plenty of share to go around and growing. Putting Amazon in a growth position in cloud as the world transitions to cloud platforms as a foundation to run their business.

New media among TV, movies, and even music remain a growth area as many consumers begin to embrace new types of online content packages and leaving traditional ones offered by content service providers.

Lastly, and the area I want to explore today, is Amazon’s potential in the growing digital advertising market. Digital advertising is close to a $90 billion market and growing. While it is true Facebook and Google control roughly half of that budget, Amazon seems well positioned to capitalize and some recent research we did highlight this reality.

Consumers and Product Discovery
We recently explored how consumers feel about online advertising, and which mediums they believe serve them best in finding and discovering new products or services. When it came to the most common ways, consumers discovered a new product or service it was no surprise that word of mouth and friend/family recommendations top the list. For reference, here are the top five drivers for product or service discovery:

  • Word of mouth – 57.38%
  • Recommendations from friends or family – 55.91%

  • Online advertising – 43.88%

  • Television advertising – 41.98%
  • Amazon – 40.30%

Search engines, browsing retail stores, and Facebook came on the heels of those top five. When I look at this list, and how I phrased the question focusing specifically on discovery, it is interesting that discovery seems like more of an organic process and not something consumer go hunting for. Which makes some sense, and is a bit different than what we found in our App discovery study. In that research we found, more often than not, consumers go hunting for an app when they feel a pain point and start looking for a solution to their problem. Word of mouth certainly played a role, but there seemed to be more ambition from consumers to go search out apps that fill a need. Perhaps this is thanks to the “theirs an app for that” marketing which led to an expectation that an app must exist to fill a need. Interestingly, there is not a “there is a product or service for that” mindset in goods or services the same where there is for apps.

We also asked consumers overall how they felt about advertising and, in general, most consumers had a positive opinion and sentiment toward ads. They overwhelmingly agreed, they enjoy discovering useful and valuable new products and services and overwhelmingly agreed that advertising is the best way for brands to reach them. Despite some bad actors allowing too much lousy advertising and consumers having some bad experiences related to ads, it seems clear the ad market is not going away and if anything can still become more relevant to consumers.

We asked consumers when it came to advertising mediums which most influenced their purchase history, television advertising remains king, but interestingly both Facebook and YouTube were in the top five most influential mediums.

Having a sense that consumers do enjoy discovering new products and services, but also don’t necessarily go searching for new products or services at a whim, we tested the idea of an opt-in service that once you tell it your passions and interests would help surface products or services that align with your interests or needs. While a total hypothetical, it was interesting that 61% of respondents answered favorably to this idea either saying yes they would use such a service or interested but need to learn more. We then presented consumers with a list of companies they would trust for such a service, and that is where Amazon stood out.

Amazon topped the list with 35% of consumers saying they would trust Amazon the most to offer such a service. No other company, including retailers, Google, Apple, etc., even came close. The results here underscore the trusted position Amazon has become when it comes to commerce and how Amazon may be a better place for direct to consumer advertisers to spend their time than on Facebook. Especially since we found that while Facebook ranks solidly as a place to discover new products or services it does not play a role in the transaction part of the equation. Amazon could handle both discovery and the transaction if they play their cards right.

I’ll end on this point. I recognize this would be a delicate balance for Amazon. Should they go down a path of allowing advertising to become more of a distraction or a nuisance to their customer experience then they run the risk of losing or eroding the trust they have built with their customers. Amazon has to implement this in a way that truly links up buyers and sellers in a way that leads to truly valuable discovery experiences. I believe Amazon has all the underlying platform infrastructure pieces to pull this off and take significant share from Google and Facebook in the digital advertising market, but they will be well advised not to rush this effort and make sure it reflects the best customer experience possible.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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