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Amazon business model will lead to its death claims channel

It says something about the monolithic sales organisation and its ability to penetrate any market it sets its sights on, that a search on Wikipedia for ‘Amazon’ gives you the web site before it gives you the billion-year-old jungle. But just as the future of the rain forest is constantly being examined by experts, so the Amazon business model is also being questioned in terms of ‘survivability’. KitGuru pulls out the scales of argument justice and has a ponder.

If Amazon sticks to selling books, then the world is fine and relatively balanced. The introduction of the Kindle could bring a worldwide revolution, but there’s more than one kind of mobile device that could be a repository for books etc – so the final winner is less easy to predict. Will it be a beefed-up Amazon or a watered-down Apple?

But Amazon has spread its roots/branches far further. In fact, it’s hard to think of a marketplace where Amazon does not sell. Which brings the real question(s).

Does Amazon actually create demand?

Does Amazon bring new products to market, running full blown advertising campaigns to raise awareness and education users on a new item’s potential benefits etc?

KitGuru is being told ‘No’, emphatically.

We’re also being told that while Amazon itself claims to “Never be the price leader, never to be the cheapest”, the reality is that the online retail giant will match up against anyone and when it sees a ‘new product trending’, it will immediately look to secure a direct relationship with that vendor – so that it can match any price in the market and still make money.

So what is the ‘huge hidden problem’ that channel experts are saying could build into the end-of-Amazon-as-we-know-it scenario?

Manufacturers will wake up and realise that, while ‘big orders from Amazon’ are initially very appealing, as soon as they start working direct with the giant trader, it chokes every other reseller in the market. Products which are NOT sold directly by Amazon, could be sold by tens or even hundreds of retailers. Each of whom will work to promote that product to their customer base. Once that product is made a ‘special deal’ into Amazon, direct, there is no incentive for the other retailers to sell it.

Those retailers move onto something else, demand generation (which Amazon lives on – leech like) dries up, there is no more pull on that product. Without that pull,  the number crunching Amazon stops ordering itself and the smaller resellers (who now feel very badly mistreated) don’t want to work with that product/vendor again. As a result, the ‘big order from Amazon’ effectively kills that product in the channel, because no one thinks they can make money on it.

Will Amazon's incessant greed be its salvation or undoing?

KitGuru says: Amazon has proven to be amazing as a ‘pooling operation’ for multiple resellers to hit a large market, it could be that the ‘direct from vendor to market’ model will result in long term harm to Amazon’s brand and sales. How will manufacturer sales people’s greed for big Amazon orders balance out alternative long term strategies?  The accusation we’re hearing is that Amazon is actually harming the channel and, indirectly, itself in the long term. Just like the argument for/against global warming, it might be too late for Amazon by the time we know for sure.

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