Amazon.com Inc. Under Threat?

The key challenges for Amazon.com Inc’s next CEO, Andy Jassy, are probably cloud computing and retail dominance. Bezos, who is stepping down as CEO, has generated USD1.7 trillion of value for investors – by creating new products, e-commerce, online marketplace and services on the web cloud. The transfer of power comes amid Congress considering anti-trust laws.

The key concern is whether Amazon Web Services (AWS) can maintain its leadership in cloud computing. AWS has high profit margins and good growth prospects. Global spending on cloud services will approach USD1 trillion over the next 10 years. AWS growth in 2020 was 29% compared to 41% for the entire market. Microsoft Corp’s Azure and Alphabet’s Google Cloud Inc had approximately 60% growth. Microsoft offers better integration and Google has open source free software technologies.

The other issue is the threat from Wal-Mart Stores Inc (Wal-Mart). Having eclipsed its rivals in brick-and-mortar retailing, it is now “a two-horse” race in retailing dominance. Amazon is the landlord and anchor tenant in the virtual shopping mall context. But Wal-Mart is making successful forays into Amazon’s online domain.

Wal-Mart is ahead in profit margin (2.6%) and operating margin (4.6%) while Amazon is only at 1.3% and 2.3% respectively.

The major advantage Wal-Mart has over Amazon is its vast network of physical locations. Wal-Mart stores are close to consumers nationwide. Amazon is investing heavily in its own distribution centers.

Wal-Mart is also a formidable adversary in e-commerce. It has made heavy investments in technology in making in-store returns fast. In the Chinese market, Wal-Mart has forged an alliance with online merchant, JD.com Inc (JD). Using Wal-Mart stores, delivery times have been brought down to 30 minutes. The China market accounts for 33% of Wal-Mart’s non-U.S. sales.

 

Meanwhile, Amazon is moving aggressively into swift delivery for online buyers. Amazon’s use of robots, cuts costs and improves speed of delivery.  Wal-Mart has also begun decreasing human capital and re-developing others into more value-added services.

Overall, the challenges facing the new Amazon CEO is not entirely new. He must find new ways of doing things while Bezos focuses on outer space!

 

References:

Amazon’s ‘business miracle’ under threat, Tae Kim, Starbizweek, 3 July 2021

Why Amazon’s biggest threat may be Wal-Mart, Mark Kolakowski, Investopedia, May 2, 2021