![]() ![]() In short, effectively bifurcated itself into a retail unit and a fulfillment unit: Their products would not only be listed on, they would also be held, packaged, and shipped by Amazon. In 2006 Amazon announced Fulfillment by Amazon, wherein 3rd-party merchants could use those fulfillment centers too. It would ultimately take Amazon another nine years to reach twenty fulfillment centers (this was the time for Walmart to respond), but in the meantime came a critical announcement that changed what those fulfillment centers represented. In other words, at least when it came to fulfillment centers, Amazon was halfway to Walmart’s current scale 20 years ago. Ten may not seem like a lot - Amazon has well over 300 fulfillment centers today, plus many more distribution and sortation centers - but for reference Walmart has only 20. This growth allowed Amazon to build out its fulfillment network, and by 1999 the company had seven fulfillment centers across the U.S. That is, Amazon bought products at wholesale, then sold them to customers:Īmazon’s sales proceeded to grow rapidly, not just of books, but also in other media products with large selections like DVDs and CDs that benefitted from Amazon’s effectively unlimited shelf-space. When Amazon started, the company followed a traditional retail model, just online. The point of my Daily Update was that the proper response to that recognition was not to try to imitate Amazon, but rather to focus on areas where the stores actually were an advantage, like groceries, but it’s worth understanding exactly why attacking Amazon head-on was a losing proposition. ![]() ![]() Amazon’s BifurcationĮarlier this week I wrote about Walmart’s failure to compete with Amazon head-on after years of trying to leverage its stores in e-commerce, Walmart realized that Amazon was winning because e-commerce required a fundamentally different value chain than retail stores. There is, though, another reason to understand the difference between platforms and Aggregators: platforms are Aggregators’ most effective competition. It follows, then, that debates around companies like Google that use the word “platform” and, unsurprisingly, draw comparisons to Microsoft twenty years ago, misunderstand what is happening and, inevitably, result in prescriptions that would exacerbate problems that exist instead of solving them. This is ultimately the most important distinction between platforms and Aggregators: platforms are powerful because they facilitate a relationship between 3rd-party suppliers and end users Aggregators, on the other hand, intermediate and control it. Finally, The Bill Gates Line formally defined the difference between Aggregators and Platforms.The Moat Map discussed the relationship between network effects and supplier differentiation: the more that network effects were internalized the more suppliers were commoditized, and the more that network effects were externalized the more suppliers were differentiated.Tech’s Two Philosophies highlighted how Facebook and Google want to do things for you Microsoft and Apple were about helping you do things better.While I am (rightfully) teased about how often I discuss Aggregation Theory, there is a method to my madness, particularly over the last year: more and more attention is being paid to the power wielded by Aggregators like Google and Facebook, but to my mind the language is all wrong. ![]()
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