Another sign that Amazon (AMZN) is the top ecommerce player

By: ispeculatornew
Date posted: 01.20.2011 (5:00 am) | Write a Comment  (5 Comments)

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Despite being somewhat critical of Amazon (AMZN) last year, I did turn my view around, mostly concerning Amazon’s great business model but even the Kindle seemed like a better business than I had initially expected. That being said, I’m also increasingly impressed by Amazon’s general digital strategy. They have gone from one of the two top physical retailers (with Ebay) to the overall leader thanks to many digital initiatives:

Mobile Apps

Amazon quickly understood the power of mobile and while Ebay has been working hard, there is no doubt that Jeff Bezos helped Amazon jump to the head of the pack. For Apple (AAPL) users, Amazon now offers different apps such as the Kindle, but is also working on many others that have helped the company remain at the top of the pack. Many Ipad users such as myself have been frequent users of the Kindle app to purchase books and I expect many more products to be offered over time.

On Google’s (GOOG) Android, Amazon is poised to have an even bigger presence. The company has opened its own App store where it can sell its own apps but also those of any other developer. Because of Amazon’s huge brand presence and the open nature of Android, this could very well become one if not the top app store for Android, which is quickly becoming the top smartphone operating system. This could result in significant dollars over time.

Yesterday’s huge deal

Groupon was discussed recently as it became a potential target for Google (GOOG) and we had actually supported the move and said we would do so if we were appointed as Google CEO. Amazon did make the brilliant decision to get involved in the market by taking a stake in “LivingSocial”, what many consider to be a “Groupon Clone”, but a much smaller one of course. With hundreds of similar websites, it is increasingly difficult to get users to visit the website and because of Groupon’s impressive work in growing at an incredible pace, catching up seems almost impossible in the near term.

But yesterday, Amazon helped “LivingSocial” take drastic action that could change the landscape and perspectives. How did it do so? Quite simple… Amazon let LivingSocial sell a coupon for its main store, Amazon.com.

The offer? Buy a $20 coupon for $10.

Since Amazon has such a broad customer range, the offer was an interesting one for millions. And millions came. The record for such a deal used to be held by Groupon with its $11 million sales on Gap store coupons. To beat that record seemed optimistic by any means but it ended up being beyond Amazon and LivingSocial’s wildest dreams. The 24 hours offering gained traction very quickly as users signed up, let their friends, family and co-workers know.

The end result?

LivingSocial crushed Groupon’s record as it sold 1.5 million coupons, grossing $15 million in sales. That of course will mean customers will receive $30 million in merchandise from Amazon. I wish I had thought about a similar initiative in my post about being Amazon’s CEO Jeff Bezos for a year. I shop online with Amazon coupons and would never have thought about such a clever offer that would attract millions of people.

Why is it so brilliant to give away $15 million?

First, from Amazon’s perspective, it was basically able to get new and existing clients to put up money to get a coupon, to promote, discuss and share about the brand. Few of those customers will buy for only 20$ and chances are that the orders will be much bigger. Will the company make profits out of this promotion? Probably not. But even if it ended up costing a few million dollars, that would be marketing dollars well spend in a social media campaign that could be the first of many.

The game changer

In 24 hours, LivingSocial went from a small Groupon threat to a website that has just gained millions of new customers that will be willing to give it a shot against Groupon. Is it a given that they will stay? No, of course not. But even getting a few million emails, that can buy or share these offers on a daily basis is a huge deal for LivingSocial.

As well,  being an independant company makes it much more difficult for Groupon to compete with a similar offer. Amazon has alliances with many huge companies and offering a coupon to Amazon.com could be only the first step. I would bet that in one day, LivingSocial’s actual value might have doubled and simply through that investment, yesterday’s offering was an incredible success.

Disclosure: Long Amazon (AMZN)

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5 Comments

  1. Comment by Zavi — January 20, 2011 @ 4:35 pm

    Great marketing!! wow!! That’s awesome! I didn’t think about this strategy. Let’s see if amazon will keep up with delivery of merchandise.

    It seems that the “Living Social” system may have allowed some people to exceed the limit of one card per customer :)))

  2. Comment by IS — January 21, 2011 @ 5:12 am

    @Zavi – Yes, I heard about that, not sure how much they allowed it, I know that they could cancel some orders if there was too much of it going on:)

  3. […] Speculator presents Another sign that Amazon (AMZN) is the top ecommerce player posted at Intelligent Speculator, saying, “A look at a spectacular financial performance by […]

  4. Comment by dynamic asset allocation — February 16, 2011 @ 2:19 pm

    Absolutely love “LivingSocial.” I would recommend it to anyone!!

  5. Comment by IS — February 17, 2011 @ 5:56 am

    @dynamic asset allocation – which city do you live in?

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