August 15, 2017 Vivek Srinivasan 0Comment

I was reading an article with a similar title, which was full of shallow analysis about how Amazon manages to give great offers and retain customers. Nothing could be farther from the truth.

What Amazon does is the same as what Apple and Facebook do, which is – Build a platform. Platforms are fundamentally very hard to exit. They create a whole host of interconnections which tie into one another making it a knot that is incredibly hard to unscramble.

Let me give you a simple illustration:

Samsung is the largest seller of Android devices in the world. They manufacture more phones than Apple does by a certain factor and take a huge slice of the Android sales. According to IDC, Samsung has about 25% of the global phone market share. To put this in perspective, all the other Android manufactures are languishing in the single digits.

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Emboldened by the numbers, Samsung made a foray into launching its own Operating System (OS) called Tizen. It only ever managed to launch a watch which had Tizen on it.

What was increasingly clear was that anybody could put an OS together; hell, Blackberry had a proprietary OS and still could not (or probably as a consequence of it) succeed. The reason for the failure was the ecosystem. The App Store, the Developers, the Third Party and Operator Agreements. Tizen did not have this and it was not possible to roll this out globally overnight.

Over and above, in order for developer to take the pains to develop, there must be a large enough user base in order to justify the cost of development. Facebook could only be accessed through the browser in iOS and Android in the early days.

Would you, TODAY, buy a phone which would not have the Facebook App on it?

 

The power of the Amazon Ecosystem

Just like Android and iOS have built up their eco-system. There is an eco-system that Amazon has built around itself which makes it powerful:

E-Books

The only way to consume any e-book is through a proprietary app that the company dishes out. Once you buy an E-book, you are possibly going to put the Kindle app of your phone as a permanent fixture. Which means the reminder of buying more at Kindle is constant. Additionally if you are going to be buying more E-books, you would most probably continue to do so on Kindle not on another service. LOCK IN.

Not only this, they also sell their Kindle devices for reading these books, which acts as an even bigger lock in if you happen to have bought it.

Once upon a time, Flipkart also had its own E-book app. They not only killed it because they could not drive sufficient users but also left their users in a lurch by delisting the app and sending them towards another app altogether. It was an incredibly ridiculous manner of managing customers.

Kindle Unlimited

Kindle Unlimited is a service that allows you to pay for a subscription and access to over 1 Million titles to read. For the voracious reader, this an unbelievable service. But if you happen to subscribe and read a lot, you probably would not leave the service. It costs Rs. 1800 a year! Powerful LOCK IN.

Amazon Prime

Many of us would know about the Amazon Prime Membership, which I got for a throwaway price of Rs. 500 a year. It not only provides priority delivery but also access to the content library that is hosted as a part of Amazon Prime Video. This gives you access to a host of movies, and shows from across the world, some of them on first day access. More than the delivery, the content Lock-in is hugely powerful and I personally know a lot of people who may have HotStar but still have Amazon Prime.

Although I paid a pittance for it, and I think I more than recovered my investment of 500 rupees through the content I have consumed through Prime Video; psychologically I still keep going back to Amazon for any purchases. I have completely stopped buying on Flipkart since. COMPLETELY. My last purchase on Flipkart was in 2015.

Amazon Pay

Amazon Pay was recently launched and many of you may not even know about it. It is a wallet for all things Amazon. Not only that, it is a nifty management tool for gift cards and other such stuff bought on Amazon. It also provides a variety of discounts (right now) I guess for user onboarding.

Once you start using Amazon Pay, the reason to use another website for e-commerce will diminish. It will make transactions super smooth. It was the same advantage that Paytm had but squandered because their lack of domain expertise in e-commerce. Although many of you use Paytm for loads of services, I am sure e-commerce is the last of it.

Subscribe and Save (Grocery)

This is a monthly subscription for a standard grocery set. Let us say – 5 Kg Atta, 10 Kg Rice, etc. They offer a 10% discount, which bulk ordering will more than make up for. Subscription implies an immediate Lock-in.

Amazon Fire TV

TV is still the most powerful advertising platform  and although Fire is only a streaming device, it would bear Amazon’s logo all the time. Even if they give this away for free (which they are not doing) it would more than help them recover the cost in pure branding terms. Having said that, this will very easily circle back to Prime and build the annual subscription Lock-In.

Customer Service

The customer engagement and service that Amazon offers is great! I have not had a single issue with their service in terms of both delivery time as well as the product delivered.

I don’t know much about the state of this, so far as Flipkart is concerned because I have not used them recently, but late delivery was one of the issues I often had in the past. Unfortunately, I do not have sufficient metrics to support this claim so please take this with a pinch of salt.

Alexa
Alexa is a huge Lock-In for any household which gets it. Its not yet been launched in India, but given the money they have been committing to India, it will come soon.

 

I would also like to reiterate here that the E-book business in itself is a very powerful lock-in for Amazon. Just think about the Socio-Economic Classification of a typical e-book reader…

Amazon is a platform for all practical purposes. They have customers paying them repeated payments in the form of subscriptions for a variety of services which across a year could amount to a pretty huge sum. But irrespective of the amount earned through subscriptions, the mere act of subscribing puts them ahead of the others in the queue when it comes to selling anything.

The entire act of building several dependent pieces builds a degree of loyalty. The more of these subscription sign-ups one has, the more loyal they become to the brand and more locked in they get.

You can find more in-depth perspective on this here.

The advantages that companies like Facebook and Google have are similar. The single sign-on API that they offer is a huge Lock-in and creates dependence for a whole host of services on them.

Apple has Lock-in’s which are even more powerful – Apple Music, iCloud, iTunes Music, iTunes Video, Apple Pay and Apple TV.

 

The complete absence of an Eco-System

The Ecosystem of Flipkart by comparison is ONE service called Flipkart First, which is also not very prominently featured on the website. I found it inside my profile. They themselves shut down their e-book business. Their content business called Flyte Music was Dead on Arrival. They have lacked persistence with building any kind of powerful subscription business altogether. Their only strategy seems to be absorb so much losses that the other guy runs away and frankly the other guy is Amazon!

Flipkart additionally made a majestic series of blunders which I mentioned here.

The Ola/Uber problem is similar. There is nothing that stops you form switching between. You can switch around as many times as you like or deal hunt on both apps to see which is proving a cheaper cab. The same is true for the drivers as well who sign up with both services typically. Customer Service is a long term game and takes years to perfect and get on top of. So winning this purely on Customer Service is not easy.

 

Building strong loyalty is less about loyalty and more about the dependencies that you create. I think many startups have failed miserably at doing this in many of the countries. The corollary is that, many of these things require scale to be baked into the system already, in order to enable powerful Lock-In.

However, a case can most certainly be made that Ola and Flipkart have no paucity of scale.