Insight: Amazon to become most valuable company on earth by 2021
ResearchFarm's latest flagship report AMAZON PRIME 2016/7 is predicting that Amazon is to become the most valuable company on earth by 2021.
It's worth listening to Jeff Bezos' words. Careful observers will have noticed that Amazon's second quarter profits seemingly contradict one of his growth principles. According to Bezos, profits stop the flywheel effect that underpins Amazon's growth - namely to reinvest any profits to strengthen the platform, selection and low prices.
Here at ResearchFarm, we believe that Amazon has now reached an inflection point. In other words, Amazon has now become so dominant, that in its very own view it has become untouchable. Amazon can now run the business in the hunt for profits. And it can do so without having to worry too much about the competition or that its shoppers could defect. Prime locks them into the ecosystem.
The pulling power of Prime can be seen in the numbers. In 2015, 49 million Prime members already represented 16% of Amazon customers. At over US$70 billion, these loyal shoppers accounted for 33% of total gross merchandise value.
Prime fees alone amounted to $4.3 billion in 2015. What will frighten rivals is that less than a fifth of Amazon customers are members of Prime meaning there is plenty of room for growth.
According to Amazon, Prime is the most successful vehicle in getting customers to shop new product lines. Amazon Prime’s subscription service is already so convenient that it is hard to see how any other retailer can match its offer. Indeed, most of Amazon’s promotions and new services are designed to get customers to sign up by making them Prime exclusive.
Then there is Prime Now, which can deliver items for free within two hours or for a fee in one hour. This further elevates customer expectations that rivals cannot meet. More recently, deliveries from restaurants and local independent stores have been added, providing more options for customers.
The service, which only launched back in 2014 in New York, now runs in 34 US cities across 19 states. Prime Now also serves cities in the UK, France, Italy, Spain, Germany and Japan. In total, Prime Now covers a global catchment of 103.6 million residents who can buy and receive Amazon products in two hours or less – a phenomenal achievement.
By the year-end, ResearchFarm estimates that Prime Now will account for around US$17 billion on an annualised basis.
Finally, there is Amazon’s Prime Day. The first Prime Day held in 2015 saw 34.4 million items ordered breaking all Black Friday records, bringing in sales of an estimated $400 million. The day saw more new members try Prime worldwide than any single day in Amazon’s history. Prime Day 2016 continued the success and was revealed to be ‘the biggest day in the history of Amazon.’
The buzz that Prime Day generates will only convince more customers to sign up to the service and also encourage more third party sellers to join Amazon who witness the power of Prime.
Looking ahead the strategy change towards profit harvesting, enabled by Prime and the marketplace has three implications:
1) The market share grab is over, the competitive barrier has been erected and as online continues to grow so will Amazon's dominance. Amazon could well be on its way to become the most valuable company on earth.
2) Amazon needs a new definition, as it's clearly not "day one of the internet" any longer. Amazon's profit harvesting is a massive change. The company will turn from hunter into prey. This actually raises a host of new challenges.
3) Amazon becomes more of a utility and the infrastructure of the internet through AWS, the marketplace and its logistics footprint roll out. This invites scrutiny from the state and we expect the current investigations into its tax matters to be a foretaste of things to come. There will be much more interference from regulators going forward.
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