Amazon is the original two-sided marketplace.\u00a0 While Amazon\u2019s initial model involved warehouses and stocking every book in history, Amazon really took off when it became the internet\u2019s primary storefront.\u00a0 I acknowledge that Amazon still has lots of warehouses and many key products still say \u201cShips from and sold by Amazon.com.\u201d\u00a0 That said, the company\u2019s growth really took off when other sellers were able to move their goods through Amazon\u2019s platform.\u00a0 This move solved the classic chicken and egg issue and consumers came in droves.\u00a0 While these indirect network effects have allowed Amazon to become a thriving business, its current scale prevents it from being good at anything specific while trying to be everything to everyone.<\/p>\n
Indirect network effects enabled Amazon\u2019s rocket-speed growth<\/strong><\/p>\n Amazon sits between its end consumers (e.g., you and I looking for cheap wires and electronics) and merchants (everyone from official sellers on Amazon.com to Amazon marketplace).\u00a0 Consumers are not interested in buying from Amazon until there are enough products available, which usually means enough retailers present.\u00a0 Once the users arrive, retailers double down and show up even more.\u00a0 The two sides feed each other with Amazon taking a margin on each item sold.<\/p>\n Amazon\u2019s value-add in this equation is more or less keeping order.\u00a0 Every Amazon product page looks roughly the same.\u00a0 Four bullets describing the product.\u00a0 Pictures on the left hand side.\u00a0 Amazon keeps all of its merchants on a short lease and requires compliance with strict operating metrics as well.\u00a0 Amazon\u2019s role in this market is critical, which is why other players have been unable to disintermediate Amazon.<\/p>\n Direct network effects accelerated growth<\/strong><\/p>\n Looking at the consumer side, Amazon also proved its worth with key innovations that created direct network effects out of thin air.\u00a0 In traditional retail environments, the direct network effects are fairly limited.\u00a0 Maybe you see someone pick up a shirt and you decide to check it out too.\u00a0 With ratings and reviews, Amazon took what everyone was thinking and put it in a digestible format. \u00a0Products with lower than four star ratings rarely last.\u00a0 Any products worth your time has at least 50 reviews.\u00a0 These ratings and reviews along with meticulously tracking people\u2019s movements on the website led to predictive analytics.\u00a0 Folks that bought your product also tend to buy these six things.\u00a0 Genius.\u00a0 A whole world of direct network effects that basically didn\u2019t exist prior to Amazon\u2019s handy work suddenly changed the game.<\/p>\n Amazon\u2019s size could prevent it from ever truly mastering its craft<\/strong><\/p>\n Amazon has enjoyed unprecedented growth for many years, but that size could make it difficult to really master the art of retail.\u00a0 Look at Amazon Fresh.\u00a0 Having exhausted most other product categories, Amazon turned toward grocery.\u00a0 By providing products that people replenish on a weekly basis, Amazon is hitting your doorstep that much more often and getting a bigger share of wallet.\u00a0 So how has it gone?\u00a0 Not so well.\u00a0 Amazon has been at the grocery game for almost two years and still doesn\u2019t have any major wins to show for it.\u00a0 Perhaps the same store consistency that drove its growth before is actually hindering it now.\u00a0 Maybe grocery shoppers want more than five bullets and some photos.<\/p>\n How about apparel?\u00a0 Again, Amazon is making a big push into clothing yet it hasn\u2019t really taken off.\u00a0 This has to be in large part because the ingredients for success in apparel ecommerce are not present in Amazon\u2019s current setup.<\/p>\n If Amazon is to continue its run, it will have to consider changing its approach.\u00a0 Perhaps the site within a site route will make sense for some categories.\u00a0 While Amazon\u2019s growth to date has been enabled and accelerated by powerful network effects, its future will depend on the ability to specialize and adjust.<\/p>\n","protected":false},"excerpt":{"rendered":" Amazon is the original two-sided marketplace.\u00a0 While Amazon\u2019s initial model involved warehouses and stocking every book in history, Amazon really took off when it became the internet\u2019s primary storefront.\u00a0 I acknowledge that Amazon still has lots of warehouses and many […]<\/p>\n","protected":false},"author":138,"featured_media":1227,"comment_status":"open","ping_status":"closed","template":"","categories":[156,663],"class_list":["post-1225","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-amazon","category-e-commerce"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/competing-with-network-effects\/","yoast_head":"\n