Uncovered. Who are Amazon's main competitors?

Amongst other things, Amazon operates in sectors as diverse as:

• cloud computing
• digital streaming
• artificial intelligence
• electronics
• self-driving cars
• and of course, eCommerce

Amazon began as an online marketplace for books before quickly expanding to include electronics, software, video games, clothing, furniture, food, toys, and jewellery.

Through acquisitions and diversification, Amazon is one of the worlds largest companies. The world’s largest internet company and the second-largest private employer within the USA.

Amazon might be best known for being a disrupter of industries, through utilising cutting edge technological solutions and economies of scale...huge scale!

Amazon accounts for its revenue within five general categories:

1. online stores
2. physical stores
3. third-party seller services
4. subscriptions services
5. amazon web services
6. and other revenues – such as co-branded credit cards

With such a footprint across so many markets, we can ask ourselves again, “who are Amazon’s main competitors?”, the answer is “everyone”.

Amazon is such a diverse company; it directly competes with all kinds of companies from all around the world. We will look at some of these in more detail below.

1. Online Stores

Amazon is the dominant eCommerce retailer. It’s just a fact of life that if you run an eCommerce business, you’re competing with Amazon in some sense. That being said, the online market is vast and there are some very successful (profitable) competitors out there.

Light in the Box Holding Company is a global online retailer, delivering products direct to consumers from the manufacturers. Light in the box operates across 140 countries and 25 languages. The company offers a wide selection of general merchandise, such as fashion and home/garden products. Light in the box is a direct competitor to Amazon

The company also earns revenue through logistics and other value-added services such as marketing, primarily to small businesses in China and their suppliers. The company was founded in 2007 and is headquartered in Shanghai, China. Although light in the box is a direct competitor to Amazon, they have a market capitalisation of $154.7 million, which doesn’t compare favourably to Amazon’s $1.8 trillion. But it does prove that there is room in the market to be able to operate as a global and profitable company offering the same product segments to consumers around the world.

JD.com is comparable to Amazon in lots of ways. It’s another technology-driven eCommerce company that engages in the sale of electronics, general merchandise, audio, video and books. JD offers an online marketplace, direct retail and marketing services. It also operates in several offline markets, through its logistic services and technology initiatives, asset management and sales of development properties (by JD Property).

The company was founded in 1998 and is headquartered in Beijing, China.

In their most recent financial data, total revenue was $108 billion, while Amazon is enjoying total revenues of $386 billion. That said, JD is taking a considerable chunk of the online eCommerce market, specifically in the far east and is holding its while directly competing with Amazon in general online merchandise sales.

Alibaba is an international online retailer specialising in selling wholesale, differentiating itself from Amazon. Unlike Amazon, Alibaba is split into three separate businesses:

• Alibaba
• Taobao
• Tmall

The Alibaba company deals with business to business sales with the other two companies selling directly to customers (Taobao) and multinational brands (Tmall). Each of these subsidiaries directly competes with Amazon in different ways. For example, recent investment in Alibaba Cloud computing has seen it aggressively expanding into western markets to directly challenge Amazon Web Services.

Alibaba has 828 million active customers across its markets and is the dominant eCommerce retailer in its homeland, China (56%). Its last declared total revenue was $106 billion with profits of $42 billion. With its dominant market share in China and the diversification of its offer and customer focus, Alibaba is a true competitor to Amazon in the online space.

2. Physical stores

The majority of Amazon’s operation is online, but it does operate a number of physical stores, including Amazon Books, Amazon 4-Star, Amazon Go and Amazon Pop Up. The acquisition of Whole Foods Market made Amazon an upmarket, bricks and mortar grocer overnight. Since then, Amazon has moved into different markets, such as the UK, where they are investing in the grocery delivery space through Amazon Fresh.

Typically, retailers that offer a physical presence on the high street are either moving online or have an online presence alongside their traditional stores, this is one of the biggest trends in eCommerce right now. This makes the biggest retailers in this market competition for Amazon.

Walmart is the world’s largest retailer operating discount department stores and warehouses. The name Walmart may be better associated with physical stores, (they have a presence in almost 11,000 locations), but their online operation is significant in its own right.

Total revenue reported in 2021 was a staggering $559 billion, (Amazon $386 billion). Part of this success story is the eCommerce site Walmart.com. Its website sees up to 100 million unique visitors per month. Walmart has made a number of acquisitions and offers value-added services to its eCommerce customers to make them attractive to consumers. This combines to make Walmart the second-biggest online retailer by net sales in the US, behind Amazon.

Target is a general merchandise retailer and has a physical presence in all 50 U.S. states. Target’s website states that 75% of the U.S. population lives within 10 miles of a Target store. In 2020 the total revenue for Target was $94 billion. Smaller than its rivals Amazon and Walmart, Target competes by maintaining a loyal customer base and focussing on convenience.

Alongside its stores, Target offers an eCommerce retail experience with same-day delivery, order pick-up and drive-up pickup, leveraging these value-added services to capture a small market share. Online sales in 2020 reached nearly $17 billion, up 145% YoY and representing 18% of Target’s total sales.

Costco operates a chain of wholesale warehouses. The warehouses are intended to give small and medium-sized businesses access to low-cost items intended for resale or everyday business use. Individuals may also make purchases for their personal needs.

Costco operates 815 warehouses in 12 countries around the globe and boasts a membership of almost 110 million Costco cardholders. Total revenues for 2020 were $167 billion. Costco clearly has a substantial presence in discounted sales to businesses and individuals, but its online presence isn’t in the same league with just 4% of total net sales being driven from its eCommerce channel, making it no match for Amazon online.

3. Third-party Seller Services

Amazon makes about 19% of its revenues through third-party seller services. Third-party vendors are able to access Amazons online marketplace and sell their products to customers. Amazon then charges a commission and shipping fees for providing this service. This helps Amazon to offer its customers a broad range of products all in one place, while still being able to make money. This type of service has made Amazon the go-to website for consumers to source items, and its website can then drive direct sales by suggesting related products customers may be interested in purchasing at the same time. Amazon has two main competitors in this space, eBay and Etsy.

eBay, a company that is synonymous with online marketplaces. A household name since shortly after it launched in 1995, eBay helped to develop and grow online consumer to consumer selling. Developing from those early years of pre-owned sales eBay now offers business to consumer sales too.

Based on 2021 website traffic, eBay was second behind Amazon for site visits worldwide, with a share of 3.46%.

An important point of differentiation between eBay and Amazon is the ability for sellers to choose between selling for a fixed price or auctioning products.

Etsy describes itself as the global marketplace for unique and creative goods. Etsy has taken an interesting and opposing strategy to eCommerce in order to compete with Amazon and capture a market share. Making the most of a niche offering. Etsy is more focused on people than algorithms and its marketplace is a place for creative sellers to connect with buyers looking for something unique.

Etsy offers low seller fees and a support and education programme to assist entrepreneurs and build loyalty amongst its community. Etsy also offers an app experience allowing customers to find hand-crafted and vintage products easily.

2020 saw revenues grow 100% to $1.7 billion, this revenue comes from fees for sales transactions and listings and other seller services. This huge jump in revenue was a trend of eCommerce in 2020 and is related to the Covid-19 pandemic, with customers looking online for retail solutions and having more disposable income while locked down.

Etsy isn’t competing directly with Amazon, what it's actually doing (and doing really well), is carving out a niche and maximising the opportunities within it.

4. Subscription Services

In 2005 Amazon launched Amazon Prime, providing free delivery on most items. Designed to keep customers connected to its eCommerce platform, Amazon Prime has grown over the years and now includes video and music streaming. As of 2021, Amazon Prime has over 200 million subscribers.

Amazon has acquired MGM Studios in order to boost its video and movie streaming service and increase the attractiveness of Amazon Prime in the face of competition from the likes of Apple and Netflix.

Amazon made approximately $22 billion in 2020 from its subscription service offer and competition for subscribers is fierce.

Apple offers a subscription service called Apple One. This bundles up Apple TV, Music, Arcade, iCloud, News and Fitness. This simplifies the services on offer from Apple as previously they would each have their own subscription. Through their Apple Music and Apple TV streaming services, Apple is in direct competition with Amazon.

The digital media space is crowded and each company utilise value-added services where they can. Apple has bundled in its popular iCloud storage, News and Fitness services to entice subscribers. Digital streaming was strengthened by the general trend towards eCommerce and online services caused by the Covid-19 pandemic, and companies such as Apple have been looking at ways to become distinctive to potential customers.

When it comes to video streaming, Amazon is the clear frontrunner, with 150 million subscribers to Apple’s 10 million. However, this isn’t clear cut as Prime Video is included with the Amazon Prime membership, so it’s hard to ascertain if Prime Video subscribers are a result of consumers signing up to Prime for other reasons or not.

Apple music had 68 million subscribers in 2020, making it the second (behind Spotify) leading audio streaming provider. Amazon Prime Music had 55 million users, putting it in third place.

It's clear that both Apple and Amazon are able to combine services in order to add value and attract subscribers. With the spending power possessed by both companies, acquisitions are sure to follow as they look to consolidate and grow their market share, (Amazon spent over $11 billion on content in 2020). With new players such as Disney+ and the impact of Covid-19 increasing demand, the competition in this space will be fierce for years to come.

Spotify is the stand-out audio streaming service in the world. Spotify has twice as many subscribers as Apple Music, with 144 million subscribers worldwide. Spotify concentrates on audio streaming, offering subscribers premium or ad-supported instant access to a world of music. These give Spotify two distinct revenue streams, monthly subscribers and advertising. In total, 2020 revenues were $9 billion with gross profits of $2.3 billion.

Spotify is only competing with Amazon on one front, music, and clearly its way ahead in terms of content, subscribers and revenues. However, Amazon’s strength lies in its technology and ability to scale, you can expect Amazon to invest in its music offering and potentially bundle it up with other services in order to boost subscribers in the near future.

Netflix is a video streaming service that has exploded in popularity in recent years and become engrained in popular culture. With $25 billion in revenue for 2020 and a membership of 203 million people worldwide, Netflix is the largest media streaming service in the world. Having the first-mover advantage, Netflix has capitalised and consolidated its position by investing in original content and giving creators the freedom to embark on new projects. In a similar way that a venture capitalist might approach start-ups, Netflix understands that if it backs a range of new content, one will connect with its audience and explode in popularity, generating media interest and bringing in new subscribers.

Netflix and Amazon both offer apps across a range of devices so that content can be viewed across multiple platforms without disruption. Besides Netflix’s own content, it only offers TV shows and movies over a year old but maintains a vast content library. Amazon Video doesn’t support a content library on the same scale as Netflix but does offer more new content for immediate viewing. Amazon, as previously mentioned, has also acquired MGM studios, which means you can expect movie premiers and original content to be hosted on Prime Video in the coming years as they look to gain market share.

5. Amazon Web Services

While Amazon’s revenue is overwhelmingly driven by its eCommerce platform, AWS has seen large growth recently and is responsible for 11% of total 2020 revenues. AWS offers global cloud-based products including storage, database services, analytics, developer tools, IoT and enterprise applications amongst others. The scale of AWS allows it to offer its products globally, at low cost, to a range of users from start-ups to multinationals and governments.

Google Cloud is a range of cloud computing services on offer from Google. They offer similar services to AWS and uses the same infrastructure that is already in place for its Google Search and YouTube services. It differentiates itself by offering market-leading big data processing, artificial intelligence and machine learning initiatives. Google Cloud had total revenue of $13 billion in its 2020 fiscal year. AWS had total revenue of $45 billion for 2020. This makes Amazon the clear leader in terms of market share, while it also saw larger revenue growth YoY with 21%, as opposed to Google’s 18%.

Competing with Amazon

Businesses the world over are having to learn to live with, and compete with, Amazon. Its strength lies in its ability to apply technological solutions and can apply huge economies of scale. It is able to generously fund new projects and ventures and it remains so well diversified that it’s hard to imagine an outside threat that could lead to a material impact.

That said, as we’ve seen above there are lots of companies thriving in these conditions and there are commonalities between them.

Creating a loyal network or subscriber base. Creating a positive connection between your company and your audience is a great way to inspire loyalty and avoid customer churn. This can be done in many ways, such as with loyalty or rewards programmes or by becoming involved in causes/projects that matter to your community.

Online and offline presence. Utilise all the channels and opportunities at your disposal. There are many ways to reach an audience both online and offline. If you become too focused on one channel, you are neglecting a huge number of potential customers across all the others. Maintain a presence on social media and keep up to date with the trends of eCommerce and the behaviours of your network. Make sure you don’t miss an opportunity to make an impression on people and potentially increase your sales.

Find a niche and do it well. If your company has a niche market segment or product offer, then make it your own. Etsy has proven that there are areas, where companies like Amazon may not consider it efficient to invest in, that can be exploited and become extremely profitable. The advantage of the internet and the recent trend of eCommerce becoming the default channel for retail means that even if a market segment appears small when applied to whole regions the available market may be substantial. The internet has the ability to connect people across huge distances and geographical barriers become less important.

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