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Steve Harmon - Amazon's Achille's Heel

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Sold down the river...or bought up the river?
 

Steve Harmon

January 24 · Issue #22 · View online
Beyond the hype, inside the world of venture capital, tech, stocks and trends, from Silicon Valley to Shanghai, from veteran investor and entrepreneur Steve Harmon - followed by many leaders in finance and tech, see more: http://steveharmon.com

Sold down the river…or bought up the river?

How Amazon Can Be Beaten By Walmart
In 1995 I first became a customer of Amazon. Back then it sold books and had just over a dozen employees. Despite its rough origins and thin margin book focus, as an analyst in those days, I tore apart Amazon’s model and came to the conclusion that Amazon would become the “Walmart of the Web,” selling everything.
I shared that sentiment in my column back in those days, perhaps something the company hadn’t yet thought of … of didn’t want others to consider yet as it was just a clunky website, a GUI book catalog.
No prime.
No video.
No 2-day shipping.
No AWS.
No international presence.
Very few Americans had used it.
In 1997 Amazon’s founder, Jeff Bezos, was my guest at a conference I hosted along with the who’s who of the Web. Straight spoken, direct, a programmer type of person. Sharp.
Before it’s initial public offering of stock I recommended Amazon (NASDAQ:AMZN) shares as I saw tremendous potential ahead for it in ecommerce outside of books. It went public at $438 million market cap and recently soared passed the $1 trillion market cap in value.
However, as Goliath can attest, a small sling and stone placed appropriately can cause a problem.
Or, to use another analogy, Amazon’s achilles heel.
What is it? Amazon has no direct control over its distribution.
Amazon relies on UPS, FedEx, USPS, OnTrac and several other delivery services to get the goods you purchased to your door … ON TIME.
Especially with Amazon’s Prime Service. More than 100 million people pay more than $100 per year for the 2-day delivery service. Yes, Amazon also bundles in video/shows/movies to this but it’s a lot of back catalog stuff, many of which are obscure. The core value proposition of Prime is ‘free’ 2-day delivery (not actually free since it’s $119/year).
The focus is 2-day delivery…lately it hasn’t been that in my experience. Two orders in the past 45 days or so have not arrived on time. One was completely not even sent – fulfillment by Amazon – and a review I did on that item was not published by Amazon. Basically the review was: didn’t get the item, never sent.
The 2nd item was supposed to arrive by 8pm (which makes it more like 2 ½ day delivery most times as items arrive about 7:30pm-8pm, never in the morning.
99% of Amazon works great. But that 1% is the leaking hole in the balloon. The lack of delivery control. No guarantees.
Walmart of the Amazon?
In 1997 at its IPO I re-iterated that Amazon could/would be the ‘Walmart of the Web’ and here we are.
Ironically, Walmart, through massive bumblings in 20 years, still doesn’t get how to do ecommerce right. Here’s the strategy on how it could become the 'Amazon of retail’ (thick, irony, peanut butter left in the fridge style).
The distribution weakness shows Amazon’s other gap: geographical presence. Walmart has a store within a mile of most Americans.
The problem is that Walmart sees these as retail stores. However, they are also wholesale warehouses. Most Walmarts have the same items. And all WITHIN 1 MILE OF MOST AMERICANS.
You can walk a mile in 15 minutes. Uber/Lyft/DoorDash can deliver ANYTHING at Walmart within probably 15 minutes from purchase to doorstep.
Walmart STILL has a major chance at beating Amazon.
1) Make 30 minute delivery the norm. If Dominos can make and bake a pizza and get it you your door in 30 minutes there’s no reason why Walmart cannot get an item ALREADY made and boxed to you in that time, or less.
2) Forget the buy and pickup model. It’s the worst of both.
3) Once Walmart does the above then Amazon will have to move quickly to acquire a big box retail chain JUST SO IT CAN BE WITHIN 1 MILE OF MOST AMERICANS. WholeFoods doesn’t work for Amazon in this solution.
4) Walmart could make a multi-billion $ dent in Amazon’s business in one move and leapfrog it in the core area it built its business on: fast delivery.
What's Next?
Amazon should acquire a delivery service since the current ones aren’t 100% on time. It also needs a big box warehouse presence within a mile of most Americans. It failed when it could have acquired Kmart just for that purpose…which is now bankrupt and gone.
Walmart should go to the 30 minute delivery model now and charge $49/year for it.
A river runs through it, who will move first? There’s easily $50 billion at stake here.

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