Garage Gigs for Growth (#7)
Amazon’s Australia launch finally arrived this week and everyone has an opinion about whether they will win big and inflict serous damage on our large retailers; or if they will underestimate our low density population and subsequent logistics complexity and cost.
Two companies, whose performance we may be able to learn from, Starbucks and Netflix have had vastly different introductions into the Australian landscape. Which way will Amazon go?
Finally, yesterday, after much hype and much speculation, we have Amazon launched here in Australia. What's gonna happen? How quickly are they gonna have an impact on our local retail landscape? A retail landscape that is already struggling, that has seen the likes of Dick Smith go under this year? That's seen Masters withdrawn? That's seen Oroton into receivership last week? That's seen many local fashion retailers file for bankruptcy, seven, in fact, already. How will it impact and is it a bad thing? Is it evil to have an American company come over here and sell to Australian consumers and then take some profit and revenue back to home base?
We've got a bit of history to inform us here about how this might all work here. Starbucks came here and crashed and burned. Netflix came here and did stunningly well. Which way will Amazon go? More the Starbucks way or more the Netflix way? They're all American and they all dominate their categories in America, and in many, many markets around the world. Not all, but many. Let's have a look to work out which way this might go. Let's have a look at three things. Let's have a look at what each of these three is doing on price. Let's have a look at what they're doing on customer, how orientated are they towards the customer, how well do they know the customer, how much do they care about the customer? And then how good is their product? What's the offering? Is it better and different to what we already have? And already had? Or is it the same or worse?
Alright, price first. Starbucks entered our market, roughly the same price as coffee we're already paying, if not, a little bit more expensive and more at the premium end. Netflix came in. For ten odd dollars a month you can watch as much as you like. So it was cheaper in many ways than the paid TV offering that we already had. So it took a bit of share off free to air, yes, but it also took a bit of share off Pay TV. Check price. Amazon: famous for making no profit. I can assure you that our local businesses make some profit. Our local incumbent businesses and large retailers. So Amazon has the ability to undercut them, not feeling the need to make profit and focusing more on market share. They also make it a point that they're the lowest price in the markets that they operate. So they will be lower price. So we've got no advantage on Starbucks, we've got a price advantage for Netflix and we've got a price advantage for Amazon.
From a customer perspective, what have we got? Well, Starbucks didn't know the Australian consumers very well as all. We like milk based coffee in many sectors in Australia. Starbucks was rolling out a lot of their same products that they had in the US. But they didn't cater a lot to our local taste. The coffee was also not as of high a standard initially so it wasn't as strong. So there was something missing from the customer perspective on the offering. They didn't understand. Of course everyone liked the fact that they could go there and stay there as long as they liked, students would study there or business people would do a last minute proposal or you would just go there and read for hours, that's fine, but we already had that. That had already been launched. Gloria Jane's has hundreds of stores in Australia. Starbucks never made it to 100.
Netflix, from a customer perspective ... Very early days in the US they offered a prize for anyone who could improve their algorithm that would predict your next movie that you would enjoy watching better than they could. And they actually awarded that million dollar prize in 2006 to a company called Bell Corps. So they've always been very keen on understanding the preferences of the customers via computer algorithm and prompting you for your next purchase.
Amazon makes a very big deal about its customer. Jeff Bezos leaves an empty chair around the board table to remind everyone in the meeting that there is a customer and that the customer's listening and the customer needs to be serviced. So the way they do that is the broader selection and the fastest delivery.
What about the product? We've spoken about the product. The product for Starbucks was nothing special. At least on par if not inferior to what we already had. Netflix offered a different revenue model for us, they offered a different way to purchase, and they enabled us to use and interact with that in a different way. We stopped going to video stores because it was more convenient and easier and another customer benefit. But the product itself was shown in their original content development, like Orange is the New Black, to be consumer approved. So many of their original content series have done extremely well.
The interaction of us on the Amazon website, we'll see how that goes in Australia. Around the world it's been a positive experience. It's been viewed to be one of the most detailed and consistent online platforms. It's viewed to be superior to eBay because it's harder and more difficult to list on there because they make you put in more details and they've got more constraints around the information that you do.
Beyond just the product offering of the website, they've got products there like Kindle, Alexa, and Echo, these two, with artificial intelligence. At the same time, they've also got new services like Prime Wardrobe. Prime Wardrobe you can order garments for free, try them on for free, and return them all for free if you don't want to keep them. And the Echo Look will take a full length picture of you in those outfits if you'd like and give you stylist/fashion advice by machine learning. Their Amazon web services can be integrated for cloud offerings for businesses. And they have another couple of products like Fulfilment by Amazon where small businesses can list their products for sale and they outsource the customer service, the logistics, the inventory, the delivery to Amazon so there's more consistency from a customer perspective. So there's a whole package here in addition to their Prime membership, which offers even faster delivery and even cheaper prices.
So there's a lot that's different about the product, there's a lot that's different about customer experience here and the price is the cheapest. It's hard to see Amazon not going the Netflix way. And what I see is, it's going to be a lot of small businesses in Australia, like a couple of my friends, like a couple of my clients, who are listing on this marketplace, who are expecting higher revenues and those profits and revenues will stay here. What won't happen or what won't go well is large, incumbent businesses in the markets that Amazon enters. So in non-perishable food products initially, electronics, fashion and apparel. Those large, incumbent businesses will suffer. There's not much doubt about that. But some small businesses will list on Amazon, have a much greater footprint, will increase in revenue, and that money will stay here in Australia. So it's going to be a little bit winners or losers from that perspective.
But will Amazon gain traction? Will it gain traction quickly as Netflix has done in a bit over two years? Yes, i think so.