Disrupting Amazon

I was catching up on the excellent Critical Path podcast, and was struck by Horace Dediu’s encapsulation of the last 100 years of retail. The gist of his argument is that revolutions in retail shopping always ride in on the back of infrastructure improvements:

  • Railroads enabled long-distance distribution, and with that came catalog retailers such as Sears, Roebuck
  • Streetcars, steel, and elevators enabled skyscrapers and intra-city transit, and with that came urban department stores like Macy’s
  • Cars and freeways enabled suburbanization, and with that came the shopping mall
  • Bigger freeways and longer distances enabled exurbanization, and with that came the “power center” anchored by stores like Best Buy
  • And finally, the internet and modern logistics enabled internet shopping, and with that came Amazon.com

Dediu wonders what will come next, and whether it will disrupt Amazon the way the internet disrupted Best Buy, or the freeways disrupted department stores.

What I wonder is whether mobile computing potentially represents that next disruption. Is the ability to shop in a store, with a smartphone, revolutionary enough? Mobile phones are going to change in-store radically in the next few years. iBeacons are just the beginning. Google Shopping Express is also interesting in this regard. Does it constitute disruption? Time will tell.

Amazon became the biggest retailer on the web by providing three main services:

  • Discovery – if you search for anything, you’ll find it on Amazon
  • Purchase – 1-click shopping and stored credit cards
  • Fulfillment – a massive network of efficient warehouses

Each of these is a potential “attack vector” for a competitor.

In the discovery space, Google is the only serious contender, which is why Amazon is keenly interested in Google Shopping and at one time launched its own search engine, A9. Thus far, Amazon has done a good enough job of being your “front door” to shopping to keep Google at bay.  Could a physical retail store with sufficient technology provide a similar discovery experience? it’s a tall order, but not impossible. Mobile presents some interesting opportunities here.

With purchase, there are several well-funded competitors in market, including Apple, Square, Google, and PayPal. Each of these is intensely focused on mobile. Expect Amazon to introduce its own mobile payment service to compete here as well.

That leaves fulfillment. This would appear to be Amazon’s ace-in-the-hole. No one has yet been able to match the scale and speed of their distribution network, their investments in automation, etc. The risk is that this fulfillment service rides on the back of infrastructure that Amazon does not control – the trucking industry, the road system, and logistics suppliers like UPS. And as Dediu argued, changes in infrastructure beget disruptions in retail.

If Amazon wants to survive the next disruption, then, their best bet is to control more of the infrastructure over which their products travel.  Amazon Web Services is one way of doing that for  internet infrastructure.  As for product distribution, well… send in the drones.