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2016 Resolution: Diversify your business

By following Amazon's business model
January 11, 2016

As the NRF Retail's Big Show is taking place in New York in January, Rémy Lacombe, Directeur Conseil & New Business NOVEDIA, VISEO's digital agency, explains why Amazon's diversified business model is in 2016 an example to follow for any online merchant.

"Why should you follow Amazon's example?" The question is being asked by Rémy Lacombeas the 2016 edition of the NRF Retail's Big Show starts this week (that VISEO attends).

"Among the Retail events in 2015, there's one who caught our attention at NOVEDIA and VISEO: Amazon's market capitalization. Not that we own any share. It's its sudden acceleration that really impressed; +113% in one year, close to 300 billion dollars. 

As a result, for the first time, Amazon, the global online commerce stallion, caught up then went well beyond Wal-Mart, the other Retail giant, that has yet been rising strongly in this sector. Some will see a sign of irrationality from the markets, others a power take over by pure players and online merchants.  

Nevertheless online commerce only weights just 10% of Retail, even if its drivers are inexhaustible: arrival of digital natives, massive adoption of digital in multi-channel behaviors).

A diversification that would have weighted 100% of Amazon's revenues five years ago

How can you then explain this switchover? According to us, this shows the markets' acknoledgment of Amazon's diversified business model.

What about it? Amazon is a e-commerce steamroller. Everybody knows that. For example, Slice intelligence estimates that Amazon captured 40% of Northern America spending during the last Holiday Season. As much as the 21 following online merchants such as Wal-Mart, Target, BestBuy or Macy’s.

What people are less aware of, is that Amazon became much more than a simple retailer. According to our analyses, a third of its revenues comes from non-Retail activities (logistics, computing, etc). In real value today, what is even more stricking is that this diversification alone would have weighted 100% of Amazon's revenues five years ago.

This «second Amazon» thus created relies on eight different sources of revenues. All come consolidate the Retail leadership and its pilars: unique range of prices, low rates, service quality. And also keep the group's profitability afloat, a mission almost impossible in ecommerce even if you're the strongest player in the world (more than 300 million active customers).

This «second Amazon» is then profitable. Its Marketplace is its more profitable activity when its Web Services tech activity is the most contributive (25% in operating margin). Significant tip: The boom of its market capitalization matches the release of this activity in its P&L -when Amazon doesn't usually release its KPIs. Fait révélateur: l’envolée de la market cap coïncide avec la publication de cette activité dans son P&L alors qu’Amazon reste frugal dans la publication de ses KPIs.

In 2015, markets valued Amazon's initiatives (digital but also mortar with the multiplication of lockers) mbut also its diversifcation strategy, which used to be critisized and even considered hazardous in the past. This time is gone. Dear Retail partners: Why not try it in 2016?"

You can contact the author, Rémy Lacombe, directeur Conseil & New Business NOVEDIA here: