What does the future hold for Amazon?

Amazon Now: The Facts

Founded as an e-commerce platform, Amazon has grown into much more.  For example, Amazon Prime, an expedited delivery service, decreased delivery time and consequently increased overall orders. Additionally, Amazon is constantly seeking to cut delivery costs, so they has invested in robot-powered warehouses, a fleet of delivery trucks, and forty Boeing 767 airplanes.  Lastly, Lab126, a division of Amazon responsible for developing hardware, is accountable for many of the companies innovations.

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Amazon has managed to succeed at increasing the operational efficiency of the e-commerce platform as well as developing new and innovative products.  With so many new projects such as Amazon Prime Air, Amazon Fresh, and innovative hardware, it is difficult to predict what’s next.  Although Amazon has faced its share of shortcomings and is expanding into industries with admirable adversaries, I believe that they will continue to succeed through innovation. One bold project, can lead to massive profits.  Amazon is designing for the future, and the future is bright!

The Sky is Not The Limit:

In 2013 Jeff Bezos, Amazon’s CEO, unveiled the initial concept of Amazon Prime Air on “60 Minutes”. The company website describes the service as “a future delivery system from Amazon design to safely get packages to customers in 30 minutes or less using small unmanned aerial vehicles, also called drones.  Prime Air has great potential to enhance the services we already provide to millions of customers by providing rapid parcel delivery that will also increase the overall safety and efficiency of the transportation system.”

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Amazon has placed an emphasis on increasing the operational efficiency of their e-commerce delivery service.  They have shorted delivery times by investing in autonomous distribution centers and vertically integrating, taking over aspects of their supply chain using a fleet of trucks and airplanes.  Prime Air fits the focuses of the company, customer sensitivity and innovation, which Bezos identifies in his “60 Minutes” interview.  Based on the strides that Amazon has already taken to develop this technology, I believe, without regulation, Amazon will be able to disrupt the shipping industry and drastically increase both customer experience and the company’s margin.

An ad for Amazon Prime Air uses a relatable example to showcase the practicality and effectiveness of their future service (please watch it! I promise it’s not long).  Subtly, at the end of the video, Jeremy Clarkson (the guy talking) mentions that you can get a chew toy for your dog, which seems like a throwaway joke.  Since the dog ate their daughter’s cleat it probably makes sense to get it a treat along with their daughters new cleats, and that is exactly what Amazon wants.  Think about how many times you’ve gone into a store with the intention of getting one thing but left with more, because you either realized you need something or decided that you wanted it.  By shortening delivery time to thirty minutes or less, Amazon is providing an extremely convenient alternative of going to the store.  In five to ten years I expect Prime Air to be the first place customers go for any item they may need.  With the potential to reduce the unit cost of each Amazon delivery by fifty percent, threat to competitors would be punishing and “retail stores would cease to exist,” according to a Deutsche Bank research report.  I not only expect Amazon’s customer base  to dramatically increase from two hundred fifty-five million, but I also foresee the number of orders a customer places per year gradually increasing as the use becomes more widespread.

Feeling Fresh:

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To potentially diversify their business, Amazon began experimenting with a grocery delivery service called Amazon Fresh.  As Bezos mentions in the interview, the slow expansion of Fresh over its six year history is due to thorough testing to make sure the companies ambitious dreams are financially profitable.  However, Fresh has spread to seven cities in the U.S. and London.  The concept of ordering groceries and have them delivered to your doorstep the same day has the potential to disrupt the entire grocery industry, which is MASSIVE! “Groceries account for about a fifth of consumer spending,” according to Morgan Stanley Research, and “U.S. households average more than one-and-a-half grocery store visits a week” (Food Marketing Institute).  To put it to scale, the average U.S. household spending on groceries is more than double what Amazon Prime members spend annually.  Fresh would expose Amazon to an extremely large and scalable market.

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Although Amazon Fresh has promise, I don’t think Fresh will prosper due to high initial costs, lots of risk, and small margins.  Amazon’s slow expansion of Fresh shows that the cautions they are taking to ensure the service can be profitable on a large scale.  Additionally, Amazon noticed some people prefer to pick out their produce or stop at the grocery store when they are out and about.  Thus, new rumors of possible brick-and-mortar locations have begun circulation, which suggests that Amazon is taking a new angle on the grocery industry.  These locations would sell produce, milk, meats and other perishable items which would be purchased via mobile phones or touch screens.  Foods with longer shelf lives would be delivered the day they are order through Amazon Fresh.  Personally, I don’t see the benefits of the service they are offering beyond the convenience.  When I am getting groceries I want to get everything I need in one place, at one time.  I also cannot envision Amazon Fresh gaining enough popularity to be profitable given their low market share and lots of industry competition.

The Secret Lab

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Amazon’s extremely secretive Lab126 is getting us closer to living in “The Jetsons” world.  Products such as Kindle, Echo (the voice controlled speaker), and Fire TV were all developed by the 3,000 Amazon engineers stationed in the Silicon Valley.  These products have modernize our world and simplified our lives.  The creation of the Kindle marked the beginning of our societal shift from paper to screen, and Echo’s interactive voice control has made listening to music easier and more convenient than ever before.  Lab126 is also working on “a Kindle battery that lasts for two years … a stylus that recognizes your handwriting and converts it into a ‘digital shopping list’ … [and] a 3D tablet that doesn’t require the user to wear any eye glasses.”  It is these radically bold and innovative experiments that excite me, but they are not without risk.  Bezos told the CEO of Business Insider that , “experiments are, by their very nature, prone to fail,” but “a few big successes can compensate for dozens and dozens of things that didn’t work.” If Amazon can continue to produce successful experiments, I believe they will dramatically affect the way that people interact with technology over the years to come.

Sources:

https://www.amazon.com/b?node=8037720011

http://www.businessinsider.com/amazon-secret-projects-2015-8

http://www.wsj.com/articles/amazon-to-expand-grocery-business-with-new-convenience-stores-1476189657

7 comments

  1. I loved the article! Amazon’s potential for the future ceases to amaze me. I always think they will at one point hit a plateau in their innovation and growth, but they always prove me wrong; and I guess all of the ideas coming out of Lab126 aid that. Many companies (whom used to outsource innovation to firms specializing in it) have now created their own labs. I love how these places foster creativity and the idea of “fail fast fail often,” because, like you said, you have no idea what will be the next success. I question what ideas don’t make it? I am sure there is backlog of ideas waiting to be fine tuned and improved. How does Amazon choose which ideas to support and bring to market and which ideas to kill or put aside?

  2. rohansuwarna · ·

    This was a great job!! I do see that the future of Amazon has to involve hardware. I feel like with the success of the FireStick and Kindle, Amazon has to keep producing such products to ease the lives of consumers. To compete with Apple, and even Google’s hardware products which will be arriving soon, Amazon should stay on their toes while still maintaining their grip on the e-commerce industry. Since Amazon is now grappling with companies like Apple and Google as the top companies overall, they need to maintain their status but also increase production in the hardware side of the business.

  3. bishopkh1 · ·

    Great blog post. I actually tried Amazon Fresh on Sunday and I couldn’t have had a better experience. I didn’t have time to get to the grocery store on Sunday and was planning on eating freezer food all week until I saw an article on Amazon Fresh and decided to try it. The ordering process was seamless – they had absolutely every item (and brand) I was looking for and it was all very reasonably priced. Delivery took about 12 hours (placed order at 7pm got it by 6am) and all the food was neatly packaged and still cold when I put it away. The most impressive part of the experience was the freshness of the food – I even ordered salmon and it was really good. Overall, I disagree with your point that they won’t be able to succeed in this space. Amazon took losses on their book business for years, and now they’re able to be one of the biggest players in the market because consumers trust their prices. I think with Amazon’s advances in delivery and their ability to supply fresh food, there’s no telling how much market share gain from major players like Walmart and Kroger.

  4. Really nice post. I actually have been quite impressed with Amazon’s ability to innovate and evolve over the years, despite the fact that other companies (Apple, Google), get more attention for less successful initiatives (IMHO)

  5. olearycal · ·

    I think Amazon is becoming a great go to for anything you need. In terms of the Amazon Fresh, a company that has done it successfully is Fresh Direct. However, that is the only thing they do and have had trouble expanding into smaller cities. Something that I think could be a problem for Amazon in the future is backlash from environmental activists. They use a substantial amount of resources to get deliveries to people within two days.

  6. Right now, I’d say Amazon is probably the most interesting company to follow because they’re so unpredictable. They have diversified their goods/services immensely in the past few years. I wasn’t aware of Amazon Fresh but it’s definitely a great idea. They’ve really taken initiative on attempting to be the primary delivery company by being the first company to really make an attempt at using Drones for delivery. Great post overall

  7. Aditya Murali · ·

    Great post! Amazon just rolled out their new Amazon Music Unlimited music streaming platform, which is a competitor to Apple Music, Spotify, Tidal, etc. This is an interesting move by Amazon since they already have Prime Music, and they are very late to the music streaming industry. It will be very interesting to see if this platform picks up and if this can become a steady stream of income for Amazon.

    Amazon is definitely a company to look out for. They have all the data they could need, and all the capital they need. Their opportunities are endless if they play their cards right!

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