Amazon has slowly become one of the largest companies in the e-commerce business and other large businesses are beginning to catch wind of their success. And their success progressed through many different processes.
- Amazon's first big success was dominating online shopping (arguably one of the big contribution to the decline in brick and mortar stores and malls). A lot of the success came from a loophole that for a long time allowed them to sell products and not charge sales tax (it was technically the buyer's responsibility to pay during tax time).
- Once they became a big player in the online space, they further dominated by simplifying the selling process. Amazon offered (for I'm sure a nominal fee) to manage the inventory of their sellers. This not only made them a bit of extra change, but allowed them to speed the "handling and shipping" time, which customers loved! This services was called Amazon Fulfillment.
- To further improve shipping times, Amazon have purchased a fleet of Boeing jets build it's air-cargo network to both better control the process and further cut the margin. To take it a step further, Amazon is starting to handle delivery on the "final mile"; that is delivery to the homes. This is likely to take a bite out of a small portion of UPS and FedEx's core business.
- The latest development at Amazon is the development of drone delivery. A technology that can be implemented to automate deliveries (and in certain large markets substantially reduce shipping times). This further threatens UPS and FedEx's core business. And to increase safety, Amazon may even begin delivering packages inside your home!
So what will the remaining businesses that Amazon is still threatening going to do about it? In the past few months, many of these competitors have started to reveal their plan to protect their profits. So far, the three companies I recently observed making changes are Walmart, FedEx, and UPS.
- Walmart recently acquired startup Jet.com. Though it was very young company, they were making great strides in attracting customers. Jet.com's strongest selling point was free 2 day shipping for $35. Since then, Walmart.com has matched Jet.com's free shipping policy. Fast forward another few months and Amazon reduces their free shipping minimum order to $35 (from $50), but Amazon still only offers free 5-7 business day shipping. Amazon would only change their policy if they notice a downtrend in online orders. That being said, Walmart's shipping deal still trumps Amazon's.
- FedEx has announced a new service called FedEx Fulfillment. Though this is a good start to clawing back sellers from Amazon, the biggest challenge I foresee is though FedEx Fulfillment may be offered at a lower cost than Amazon Fulfillment, what FedEx lacks is the marketplace for buyers, and I don't see any reason why Amazon would want to integrate with FedEx Fulfillment. Instead, FedEx is likely going to have to partner with other sites like Walmart or small sellers like those on Etsy or Shopify.
- UPS is the last company who has developed drone delivery technology. Their demonstration seems a bit more practical when compared to Amazon's ambitious goals. It launches from that iconic brown UPS truck. In theory, a UPS driver goes to a neighborhood where multiple drones could be dispatched to deliver packages.
The one advantage Amazon has over Walmart, FedEx, and UPS is that they hold all three keys that these companies individually hold. In that way, Amazon is better integrated to take full advantage of the synergies of better integration. Having one piece of the puzzle may not be enough for either of the three companies to effectively compete against Amazon.
As a consumer, my online shopping behavior almost always has been price checking Amazon (with a Prime account) against Jet.com. And almost half of the time, the prices on Jet.com are better (even if I do have to order a few orders to get that lower price). And since Jet offers free 2 day shipping, its virtually the same as Amazon's Prime service. When I take my cardboard boxes out to recycle, there are more and more purple Jet.com boxes.