Friday, January 03, 2014

What Strategy For Amazon With Its Small Suppliers?

Obviously, the interview of Jeff Bezos on CBS’s 60 minutes show has created a great hype. First of all, Jeff Bezos is a brilliant entrepreneur that makes very rare apparitions on TV. Secondly, its aim to use drones to deliver in an hour merchandises was obviously a great marketing coup. Indeed, I believe that legal restrictions makes the idea of seeing drones delivering packages at a large scale a real utopia.

But there was another part that was interesting: Amazon’s relationship with its small suppliers. Indeed, Amazon has become a real tycoon of cultural goods retailing. Its low cost strategy has narrowed the margins of a lot of small book editors, which are now struggling financially.

Charlie Rose: A lot of small book publishers and other smaller companies worry that the power of Amazon gives them no chance.
Jeff Bezos: You got to earn your keep in this world. When you invent something new, if customers come to the party, it’s disruptive to the old way.
Rose: Yeah, but I mean, there are areas where your power’s so great, and your margin — you’re prepared to make it so thin — that you can drive people out of business. And you have that kind of strength, and people worry: Is Amazon ruthless in their pursuit of market share?
Bezos: The Internet is disrupting every media industry, Charlie. You know, people can complain about that, but complaining is not a strategy. Amazon is not happening to book selling; the future is happening to book selling.

I believe that Amazon needs to have a different approach with its small suppliers. Indeed, Amazon has been able to build its success thanks to its ability to propose the widest product range possible. And small editors are there to make sure the choice remains high. Obviously, Amazon can not take the responsibility to save one supplier. But having a specific approach with its smaller editor can only be good in the long term. Indeed, I don’t believe it would be savvy for Amazon to see a massification of its suppliers, as it will imply tougher negotiations with larger corporations. The fact the book market is so open is a competitive advantage for Amazon that can benefit of its ecommerce structure to propose once again a wide range, with a lot of different actors in it. If the small firms quit, it would be easier for competitors to have a product range close to Amazon’s. And once again, the ability of Amazon to negotiate will be more difficult.