As Circuit City, Borders, or any number of other defeated corporations will tell you, competing with Amazon is hell. Jeff Bezos’s e-commerce empire is a muscled behemoth, with $75 billion in annual sales, Genghis Khan–size ambitions, and the leverage to wrangle extreme concessions from its suppliers. What Amazon does, it does very well, and that includes steamrolling companies that get too close to its turf.
“Amazon has such a lead at this point that trying to eat away at their core business is pretty challenging,” says Scott Tilghman, a senior analyst at B. Riley. Challenging, but not impossible. Like knights circling a dragon looking for patches of soft skin between the scales, smaller, newer companies have spent years scanning Amazon’s business model for weak points. And now, increasingly, they’re finding them. Here are a few ways competitors will try to chip away at Amazon’s dominance in the months ahead.
Win at discovery. Amazon’s recommendation system works best for people who already know what they want to buy. Go to Amazon for a broom, and you might be persuaded to buy a dustpan, too, but you’re not likely to walk away with a wrap dress.
That’s because Amazon is relatively weak at what e-commerce types call discovery: helping consumers find things to buy through browsing, in the manner of a catalogue.
One start-up that’s hoping to exploit this weakness is Spring, a new shopping app backed by a slate of A-list investors, where more than 200 fashion brands post their wares. Spring’s main advantage is that it is prettier than Amazon, with a sleek Instagram-like interface that allows users to browse outfits from high-end brands like Rebecca Minkoff and Alice + Olivia and make purchases directly from the retailer with a few taps.
“I probably spend half my disposable income on Amazon, but I do think there are weaknesses,” says Spring co-founder David Tisch. “They’re better at data and recommendations than anyone, but they’re not good at impulse. We focus on: How do you find things you didn’t know you were looking for? How do you get inspired?”
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Target the extremities. Amazon’s biggest strength is its size and idiosyncratic structure—it does so many things, from buying original TV shows to building in-house video games, that it’s basically impossible to replicate the entire thing from scratch. But doing everything also makes Amazon vulnerable to smaller, nimbler start-ups carving off chunks of its business.
One e-book start-up, Oyster, has already drawn return fire from Amazon, which launched an all-you-can-read e-book subscription service to compete with Oyster’s $9.95-a-month “Netflix of books” service. Another start-up, BookLamp, which recommends books to users based on a Pandora-style analysis, was acquired by Apple in July in hopes of turning it into an Amazon-killer.
Still, wresting back books will be hard, considering Amazon’s enormous advantage. (Kindles reportedly account for six out of ten e-book sales in the U.S.) The bigger opportunities will be in areas where Amazon’s infrastructure hasn’t become ubiquitous: namely, streaming media. There’s Netflix, of course, as well as Spotify, Pandora, Hulu, and Beats Music—all of which are outdoing Amazon by some measure—but more competitors are surely on the way.
PG thinks Amazon does a great job with discovery. The PG household buys a lot of different items on Amazon, but books constitute the largest number of purchases and Amazon’s personalization and emails regularly lead both PG and Mrs. PG to new books.