Amazon’s SA venture need not be a death knell for local companies
• Competitors of gigantic US newcomer will need to match the platform’s existing strengths
With a $1.6trillion market cap, the imminent intensification of Amazon’s operations in SA will come to shape the practices and standards that characterise and grow the domestic ecommerce landscape.
By launching a dedicated local marketplace, the multinational juggernaut is likely to leverage its existing triedand-tested digital infrastructure, scale and globally prominent brand to outmuscle smaller e-commerce channels already operating in SA.
For consumers and smaller sellers alike, Jeff Bezos’ venture into SA’s online retail space is a boon, with Amazon capable of promising lower prices, ease of use and wider integration with its other services and existing digital infrastructure.
However, Amazon’s decision to enter the SA market directly should not be regarded as an inevitable death knell for its many competitors (as initially feared). Amazon.co.za should rather be regarded as a pace car to be matched across different levels of engagement in the short to medium term.
On paper, Amazon’s business model is quite simple
— the company’s war chest and sticky power are key to its ability to kick-start a nearly perfect positive feedback loop with which to secure market share in the medium term (from both the supply and consumer ends). However, SA rivals have several advantages that are not enjoyed by Amazon’s in either the EU or the US.
After an initial period of being able to absorb losses internally, Amazon will need to become profitable under its own weight, thereby increasingly relying on its ability to squeeze every cent from its value chain to keep its ecosystem of suppliers and customers locked in.
This is the weak link in Amazon’s prospective value chain in the SA context, which will afford other e-commerce platforms a window of opportunity to effectively compete on different scales of engagement.
Underdeveloped physical and logistical infrastructure, the power of domestic labour and an immature e-commerce market all give hope to competitors that are prepared to keep pace with Amazon.
According to data from Statista and ecommerce.co.za, SA’s online retail space is sizeable (with an estimated 27million to 32-million users), but is projected to continue growing over the medium term by 6.5million to 10-million users. These are all users who have individual tastes to cater to and who have yet to sign on with Amazon’s ecosystem.
To effectively serve and capitalise on the SA e-commerce retail space, logistical and digital infrastructure still needs to be improved (to reach a greater number of potential customers). These efforts span from better payment options to the creation of viable distribution nodes for less-served communities and demographics.
The unskilled labour involved in facilitating e-commerce (from packaging to deliveries), though earning less than their foreign counterparts in dollar terms, carries greater power through unionisation and the presence of a pro-labour government in the ANC. This may hamper Amazon’s approach or force it to integrate with the existing third-party infrastructure used by other major local e-commerce sites.
These realities underline that the e-commerce space has yet to reach maturity, thereby allowing current platforms and online retailers to consolidate their positions amid the inevitable shakeout of major players.
In light of the reality facing Amazon.co.za in SA, its competitors would benefit from exploiting the gaps in its business model, which do not account for the domestic context, and which it may previously have benefited from in other markets. Such measures include investing in software development and digital innovation strategies.
Amazon’s platform is a known entity, moulded and honed through years of realworld experience. By establishing enduring partnerships and collaborations with local digital innovation teams, local businesses attempting to compete with Amazon.co.za will need — at the very least — to match the platform’s existing strengths and overall ease of use.
Without the aid of seasoned industry professionals from the outset, local businesses will miss out on the opportunity to cede any head start afforded to them by their understanding of the SA context.
INNOVATE
Not only do businesses need to develop accordingly to stay upto-date, they also need to innovate as they go. It is important to identify areas in which a company can compete with Amazon’s allencompassing general approach. In terms of digital infrastructure, continued innovation will be crucial.
The ability to evolve with customers’ preferences will require foresight from industry experts. However, identifying trends in retail and services will be meaningless unless a company can capitalise on their foresight with platforms and software ready-made for the market.
Given the significant time
THE E-COMMERCE SPACE HAS YET TO REACH MATURITY, ALLOWING CURRENT PLATFORMS TO CONSOLIDATE
required for development and implementation, innovation will be a necessity to be competitive in SA’s post-Amazon e-commerce space. Innovation also requires flexibility, which is empowered by ease of use. The overcomplicated implementation of digital solutions not only delays a business’s ability to respond to new opportunities and challenges promptly, but dampens any future innovation.
Being required to operate within a strict and rigid system limits nontechnical users such as decision-makers, industry specialists, financial analysts and other members of a team. Thus, digital transformation requires, from the outset, an intelligent and forward-looking design that can easily promote and facilitate changes when needed.
Employing these tactics, though not assured to ensure survival, will give businesses a greater chance of being among those that survive in SA’s postAmazon online retail space. Failing to be proactive is preparing for submission — being subsumed by Amazon or exiting the market entirely.