Retailers, Are You Funding Amazon?
Thursday, August 3, 2017

­­­­Retailers, Are You Funding Amazon?

Being in retail today, you know that Amazon is the juggernaught. Today, they are the main market mover and shaker. An ecommerce Business Insider report in Feb 2017 noted that “43% of all online retail sales in the US went through Amazon in 2016”.  Phillipe Masiello of Internet Retailer estimates that worldwide, “2016’s e-commerce global retail sales share is approximately 9% and is projected to be somewhere around 15% by 2020”.

43% of all online sales in the US went through Amazon in 2016

With these figures, it is easy to understand why most retailers are trying to figure out how to deal with the beast. How do you compete with Amazon? Can it be done? At the very least, what is that balance point that makes sense for a business?

Obviously, it’s important to find out where to compete and where to defend, and where to co-operate with great care. Having said all this; why are so many retailers funding the most profitable part of Amazon, their most dangerous competitor?

How Do You Mean, Funding?

First of all, Amazon is NOT a singular monolithic beast. Primarily, Amazon is an ecommerce and cloud computing company. Even though the lion’s share of their sales revenue comes from ecommerce retail sales, the lion’s share of their profits come from Amazon Web Services (AWS). “AWS’ operating income increased from $580 million in the year-ago quarter to $926 million in the fourth quarter of 2016, accounting for 74% of the company’s overall operating income” according to Daniel Sparks of Motley Fool (Feb 2017).

Given these points, let’s go back to our opening question. Retailers, are you funding Amazon’s primary profit center so they can better compete with your primary profit center, retail? Most retailers don’t realize that their technology providers might actually be funding their greatest competitor. Now that the world of IT operates with cloud-technology, too many retail systems are running on the AWS cloud.

Let’s be very clear about this. If you are purchasing an order management system, cloud-based POS, SaaS delivered WMS software or other technology from a cloud vendor whose platform is on AWS, THEN you are funding your most powerful competitor!

Surprisingly, 65% of major Order Management Systems providers host retailer's data on AWS

How Big a Problem Is It?

OrderDynamics ran a quick survey of the competitive landscape, looking at order management technologies. Reviewing 20 order management systems vendors uncovered that that 13 cloud technology systems are hosted on Amazon Web Services! Regrettably, an astounding 65% of major order management systems providers host and process retailers’ data on their competitor’s network – AWS! When there are so many cloud providers available, like the Google Cloud, Microsoft Azure and others, why would a retailer want their critical core system running on a competitors web service?

Stating that retail is a hypercompetitive market, is hardly news. In a hypercompetitive market, retailers need every advantage they can get, no matter how small. On top of that, they need to ensure they are NOT giving away any advantage to any competitor. As the driving force of omni-channel retail and heart of unified commerce solutions, NO order management system should be hosted, run, or storing customer data on an AWS cloud! Doing so, is directly like directly sending bags of money straight to your competitors main profit center. Definitely NOT a sound business practice.

 

Will the Real OMS Please Stand Up Whitepaper

 

But eCommerce is Still Small

Specifically, 91% of global retail sales are in-store purchases, according to Zebra Technologies, 2017 Retail Visions Study. However, there is no doubting that to find today’s retail action is to look at online sales growth.

In Feb 2017, National Retail Federation forecast that core retail will grow by 3.7% – 4.2% for 2017. This is higher than the 1.9% – 2.4% growth expected or the rest of the economy. Yet, the expectation is that online sales will grow at 8% – 12%. There is no doubt that online sales are important.  For most part, retailers from around the world have an ecommerce presence.  Better yet, many have developed or are actively venturing into omni-channel retail. This is where retailers need to be vigilant. To battle Amazon you have two options. One is to fight fire with fire. Second is to refuse to add fuel to the fire!

Retail Growth Graph

Source: https://nrf.com/media/press-releases/nrf-forecasts-retail-sales-will-increase-37-42-percent-over-2016

Fight Fire With Fire

A robust OMS will connect with eCommerce vendors like Amazon & eBay

If you are not already doing this, open a store on Amazon. Leverage Amazon to your own benefit. Use their marketplace to help you compete, and succeed. Yes, this is definitely blasphemy! Yet, it helps retailers stay top of mind with your customers, and will bring your brand exposure to new consumers.

This is not an undertaking to consider lightly. If you are considering an omni-channel strategy, this option may be a good lead in for new customers. Make sure your order management system has a solid integration to Amazon’s marketplace, as a starter. You don’t have to include your entire portfolio of products on Amazon. In fact, leave that level of richness for your own eCommerce site, and in-store experience. Use Amazon as a resource to bring customers back to your own online resources.

This lets you prosper from Amazon’s growth, expands your own omni-channel coverage (be present where the customers are going), and supports your retail business without contributing to Amazon’s greatest profit center.

A robust order management system will interconnect with eCommerce vendors like Amazon, eBay, and others. Ask your vendor about this option.

Don’t Add Fuel to the Fire

An extremely important strategy and philosophy all retailers need to take seriously, is to refuse to help your competitors. If Amazon’s greatest profit center is the AWS business, then make sure your cloud-based systems are not run on an AWS platform. Understandably, it might be near impossible to make sure ALL your systems are clean of AWS hosted parts. However, your main systems like your OMS, POS, or WMS should definitely NOT be on the Amazon cloud. Make sure your vendors know your position on this issue, and understand that this is a show-stopper. It is just that simple! This is by far Amazon’s most lucrative business, so why help them?

Walmart took a very strong stand to this effect recently, published in Retailwire “Walmart tells Tech providers to get off Amazon’s cloud.”  Smart move on their part. As a retailer, you need to take an close look at your own technology stack, and take an equally hard stand with your technology providers.

Retailers, Are you funding Amazon?

Now What…

Therefore, you need to ask your retail technology vendors, like your order management systems vendor, where they host their system. If it’s hosted on an Amazon cloud, then consider closing your contract, and bring in another vendor. There are many cloud technology options. Make sure your services are run on cloud technology that does not fund your competitor.

Moreover, an OMS vendor’s job is to support you. Make sure your vendor takes this to heart. Work with minority of OMS vendors who are taking a stand to help your business succeed.

Full disclosure: The OrderDynamics distributed order management system (OMS / DOM), is a native cloud technology hosted on the Microsoft Azure cloud. We understand the challenges of running a retail business, and whole-heartily chose to support our retail partners by NOT hosting our core technology on AWS.

“Wait...if Big Bully has won capture the flag 3 years in a row, why are we sending them our ping pong ammo?”

 

Author:

Charles Dimov - Director Marketing OrderDynamicsCharles Dimov is Director of Marketing at OrderDynamics. Charles has 21+ years experience in Marketing, Sales and Management across various IT and Technology businesses. Previous roles include Chief of Staff, Director Product Marketing, and Director Sales. Charles has held roles in brand name firms like IBM, Ericsson, HP, ADP, and OrderDynamics.

 

 

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