Warning all megalomaniacs: There’s a precipice ahead

Jul 09, 2014

One way or another, the big players just keep getting bigger. Every large tech company has an M&A team that seem like they were reared on Pac-Man. They gobble up businesses at every turn, hopefully because they add value, occasionally so that competitors don’t do so first, and apparently, sometimes, because they can. In other instances, they study successful businesses and roll out their own flavor even if it does not directly correlate to their core business. Among the latest is Amazon’s new local marketplace and food ordering initiative.

The leading internet merchant is not satisfied squeezing brick & mortar retailers and disrupting long established retail models by adding services like same-day delivery, fresh grocery items and a phone that can order products with the touch of a dedicated button. Now Amazon is venturing into divergent areas already disrupted by other established internet brands.

The question is: How far can they go before falling flat on their face? Sure, they have wads of cash and an amazing logistics system. They have a massive customer base and a top-notch reputation among millions of consumers. They’re the first place many people think of shopping these days and they have successfully integrated other web-only merchants. Does that mean that they are infallible? Will consumers accept anything and everything they do as they grow tentacles in ever more verticals?

I think a reckoning is coming. The fan boys (a.k.a. Fire Phone pre-order geeks) will suck up anything and everything Master Bezos throws their way. But more mainstream consumers may begin to get their fill of Amazon being everywhere (Google too) and limit their dealings with the merchant to its core function; purveying "stuff." Lots of Amazon customers are heavily vested in local services with Yelp, GrubHub Seamless, Angie’s List, etc. and are unlikely to abandon ship just because big A has arrived and put its brand on things.

In fairness, the company has a strong track record and it isn’t the only entity that can be accused of drinking its own Kool-Aid. Yet, the issue is this: Can the Amazon brand justify taking such extended risks, possibly overstepping its reach, attempting to become the be-all end-all, or should it continue to hone its core services? After all, Amazon remains far, far away from capturing even one percent of retail sales or even 50 percent of Walmart sales, potentially making the pursuit of extraneous businesses a diversion, or worse, a serious miscalculation.

What do you think of Amazon moving into the local marketplace and a food takeout service areas? Will consumers welcome Amazon’s expansion into such areas? What are the potential benefits and risks of extending into non-core businesses?

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16 Comments on "Warning all megalomaniacs: There’s a precipice ahead"

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Max Goldberg

I detect more than a touch of cynicism in the article. Amazon has continued to grow through doubling down on its existing business and expanding into other areas. Why focus strictly on selling products when you can sell services as well?

Consumers trust Amazon. Some of these extensions may work, others may fail. The beauty of the Internet is that it’s usually not expensive to try. Amazon started by selling books. Soon they grew into other product categories, then entertainment and groceries. I look forward to seeing what areas Bezos decides to pursue next.

Matt Schmitt
For a moment, let’s look at Amazon a bit differently. It’s easy to position them as a new cyber-version of Walmart, focused on leveraging massive scale and logistics to whittle away at market inefficiencies and removing friction from transactions. Rather, let’s think about the approach used by another tech titan, Google. For years Google has been pushing and probing way beyond their core business. They started with search, and powered their growth by advertising. They have constantly pushed into other areas by releasing new apps. In this case, we’ll call everything they release an app, including the common associations like e-mail, web conferencing, etc. But their apps also include operating systems (Android, Chrome), Google Glass, driver-less cars and so on. They release early and they see what sticks. If it doesn’t stick, they kill it and move on. Amazon too frequently pushes into new areas with new “apps” like streaming media, consumer hardware devices and a plethora of new service-related apps like the ones described in this discussion. Whether or not Amazon “falls on its face” on a new app seems to me to be not a big risk at all. Either the new offerings take hold and do well,… Read more »
Roger Saunders

Businesses have always chosen to evaluate their need to “stick to the knitting” to find organic growth vs. ventures into lateral growth avenues.

Finding a path into various new business opportunities will continuously find intriguing prospects. At the same time, they will lead to some significant failures. The risks that the adventurous may have can include under-investment, a mis-focus of people and resources, lack of a complete understanding of the venture, inconsistent operations and more.

Companies like 3M have successfully taken on new ventures outside of the “knitting” and built profitable entities. Many consumer packaged goods firms have done the same.

In the case of retail, we’ve seen the wins and the losses. McDonald’s, a great operations company, has failed to extend beyond their core platform, as they have tried pizza and other food service entities.

Those who choose to run a lateral growth play have to ask how does this fit strategically, operationally, structurally, and culturally. If they can’t address each of those points completely, stick to the knitting.

Ryan Mathews

Let’s take the second question first.

Amazon’s core business used to be books. They seem to have done OK so far with non-core offerings. Why? Because they do a thorough study of what’s wrong with existing suppliers in non-core areas, correct it, and in doing so, build a better consumer mousetrap and expand their empire.

It’s a formula that has taken them light-years past books.

I’ve personally never used the Local Marketplace option because I generally don’t like the terms but, if those terms were better, who knows?

The only real limit to a business’ expansion is measured by its ability or inability to satisfy significant consumer demand. I think in Amazon’s case it’s better to stop thinking about its core competency on a category (books, music, etc.) basis and begin thinking about it as a company whose true core competency is discovering weaknesses in existing consumer offerings. And, trust me, there is a universe of weakness out there waiting for somebody to exploit it.

Gene Detroyer

These companies were big. They had strong track records, oodles of cash, top managements and well known names. They were part of the Dow Jones one hundred years ago. How many of the following do we know today?

  • American Beet Sugar
  • Anaconda Copper
  • American Can
  • Baldwin Locomotive
  • U.S. Rubber
  • American Car and Foundry
  • Central Leather
  • U.S. Steel
  • American Locomotive
  • General Electric Company Utah Copper
  • American Smelting Goodrich
  • Western Union (not today’s Western Union)
  • American Sugar Republic
  • Iron and Steel
  • Westinghouse Electric
  • American Telephone and Telegraph Company (not today’s AT&T)
  • Studebaker

There is a tone to this article that suggests Amazon’s objective is to be mean and just disrupt other businesses. Amazon itself is a disruptive business and is in the business of developing businesses and using their asset base to stay ahead of the disruptive curve. Of the companies above, only one, GE, continued to change, expand, divest and acquire to build a modern business. The GE on this list would be unrecognizable to the GE today. In fact, the GE of 30 years ago is quite different from the GE today. To be successful in the long run, companies have to do exactly what Amazon is doing.

Tony Orlando

Amazon is not stopping at anything, as they want to be the top retailer in the world. Going after start-ups and creating their own label based off a small business’ success has been going on forever. We, as small independent businesses, have been dealing with this for years, and all we can do is try to outflank them with great service to back up what we sell.

Walmart has been in the business of doing the same thing for over 30 years, and the big box stores show no sign of letting up as technology and innovation moves forward. The consumers for now have a choice, and my concern is that the future for small business success is going to get tougher, as their profits continue to dwindle. Amazon will continue to grow, and small businesses can not stop them, but they need to stay focused on making customers happy when they walk into their stores. I hope for the best, but sooner or later our choices may be limited to the very big companies, and nobody likes monopolies.

Shep Hyken

Amazon has a lot of fans. These fans will give Amazon’s new concept a try. No doubt about that. What worries me is that this appears to be a lane change; moving away from being the best online retailer into a local retail market. I’m sure that there has been due diligence and testing, but this can be considered a completely new line of business, versus an extension of business. Amazon may not see it that way. I’m not on the inside of the company to see how the strategy is playing out. What I know is that great companies pick a lane and stay in it. So, if this local marketplace/food takeout is in the same lane, they will have a better chance of succeeding.

gordon arnold
There are a number of indicators used to determine company growth. The favorite is always sales as in total, same store, and net profits. Executives that use these exclusively will be surprised when they are forced to use cost cutting and mergers and acquisitions to maintain acceptable levels of black ink and board of directors support. Our friend and e-commerce’s top dog Mr. Bezos appears to be struggling with the need to increase new customer numbers. I am certain that he feels comfort with the fact that many other giant retailers are suffering from the same exact expansion problem. Lowering prices and cutting overhead is not providing solutions for the need to increase the number of clientele. Perhaps it is time for a market inquiry that will identify what the new demographics are now, and if the company is in fact in position to capture a “growth” share. I am confident that these companies are not accurately looking at what, where and how healthy the market segments are. Not that the information they are using is out of date, but rather the test methods in use are out of date and in search of irrelevant client identity and locations. With… Read more »
Al McClain
Al McClain
3 years 3 months ago

It seems to me that Amazon announces a new venture about once a week or so. It’s hard to see how management can keep track of all these new ventures which are in so many disparate areas and stay focused on building a profit from their core revenue streams at the same time. I’d say it might be better to take a deep breath and delve into only a few new areas a year, rather than just throwing ideas against the wall to see what sticks.

Ed Rosenbaum

When will this overgrowth program the world is in stop? Will all the food chains be bought up and owned by a mega consortium? Will the same happen to the banking industry? Remember when there were actually locally owned banks you could walk into and know the president on a first name basis? I feel for the small business owner whether the business is local, regional or national. We are all feeling the same pinch when those with the deep pockets invade our space.

Doug Garnett

Amazon does seem to have a problem. Profitability is off significantly over the past 5 years. What is concerning is that they are making highly visible expansion statements into areas where margins seem like they would be quite low. Or desperately seeking press (e.g. drone delivery) with ideas that remind me of the hype around the Segway ( which was going to revolutionize all travel…and didn’t).

Some of this raises a franchising-like concern—where franchise operations look great as long as they are opening new locations. But the revenue from those new things mask financial problems that overwhelm them when expansion slows or stops or becomes low margin.

Amazon is strong. But there is need to be concerned by ideas like these local marketplace ideas.

James Tenser
One of the best RetailWire headlines ever! Amazon has already committed to a local strategy with Amazon Fresh. Prepared food ordering and delivery is a natural extension that helps justify the investment in the high-speed, high frequency delivery system for grocery items. As its network expands and passes more doors several times every day, many other Amazon product deliveries could ride along, creating yet another cost advantage. (For the record, I proposed the scenario of a grocery delivery service as a common carrier for other online-ordered merchandise in my book, Tenser’s Tirades in 2001.) So maybe this really isn’t non-core for Amazon when you look at it that way. With respect to visualizing consumer response to this innovation, I’d look first at the 16-year history of dot-com prepared food order-and-delivery. Remember Kozmo.com in 1998? UrbanFetch in 1999? Seamless/GrubHub; EatStreet, Eat24 are among many current offerings. It’s a tough business as a stand-alone—a two-sided sell to both restauranteurs and consumers, with some tough local marketing and volume hurdles. Amazon Fresh has a leg up on this problem. It can afford to buy a solution along with its existing local restaurant networks, and leap ahead in delivery economics and service quality. A… Read more »
Larry Negrich

As a long-time marketer, I have always been excited when an industry behemoth decides to enter a new market segment. I know that a few things are going to happen in the segment: there will be more focus from the media; more investment from a variety of sources; and more attention from the end buyer/consumer. These are all good things for the existing players in the market and for the consumers. I’ve also watched as large companies have lost focus on the segment, questioned their entry and investment, and eventually moved on.

I don’t see this as a major risk to Amazon’s existing businesses, but it may be a distraction. Add enough distractions to an enterprise and the fissures expand affecting other areas of the business. We’ll see how this one plays out. In the meantime it gives us something to watch….

Lee Kent

I look at Amazon and see a company that did what they needed to do to grow. As any start-up, they tested the waters, looked at what was happening and honed their skills. Honing sometimes takes the shape of purchases that the company thinks might align well. Some do, some don’t.

Is it an attempt to put everyone else out of business? Nope. They are simply striking while the iron is hot. You don’t stop taking risks just because you’re big. You keep on as long as the business continues to move along in the right direction.

Who knows what lies behind the next corner? To stay relevant one must always be looking and trying to skate where that puck is going to be. (Thanks Wayne Gretsky)

When Amazon’s followers stop following them, they skated too far. But if they stay on top of the game, which they appear to be doing quite a nice job of, they will have many more years to come. Shucking and jiving. And that’s my 2 cents!

Ed Dennis
Ed Dennis
3 years 3 months ago
Why can’t anyone look at Amazon and figure out that maybe Amazon itself isn’t going to execute these services? How many cars does Amazon own? Does that keep them from being the largest automobile marketplace in the USA? Why is it beyond the thought process that Amazon can sell groceries based on contracts with local grocers? You all got sucked in by the “drone” delivery stories. Amazon has grown a great deal by partnering with other merchants. Any time I buy anything from Amazon I am presented with alternative sellers, many priced below Amazon. Amazon can extend its web presence into almost every local market in the USA by partnering with local merchants and never have to build a warehouse. Forget about Bezos planning to build an Amazon outlet on every street corner. Did he build anything to set up delivery sites in major cities or did he partner with retailers who had been there for years? Think, people think. Bezos strength is that he has the means of handling the data necessary to present local merchants to their potential customers efficiently. If he can do this and scrape off 2% of each transaction, it will provide more profit than… Read more »
Cathy Hotka

I spoke yesterday with a business contact who had just had a happy experience with Amazon. She checked with other retailers, and found that Amazon’s price beat theirs. She received the item the next day.

Despite some of the ridiculous hype (you won’t be seeing drones in your neighborhood, period) Amazon has the power to render a number of other retailers obsolete. Snicker at your peril.


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