#Baik Soubinne
2017.08.23
Chapter 4. The online giant Amazon
Columns written by member of Amorepacific Group
ColumnistBaik Soubinne
Amorepacific Digital & CI Design Team
The third company to talk about is Amazon. Actually, I had a hard time deciding whether it would be meaningful at all to cover Amazon, because it is already covered by so many other media. Still, Amazon's services are so powerful throughout all sectors that we can't leave Amazon out when we talk about service design, and I also have this desire to find out about their standard to organize and bring together so many services, so I ended up including Amazon in Part 4. News related to Amazon pour out every day, and Amazon has been receiving the spotlight from the world as an aggressive predator in countless businesses for years. Why don't we check out Amazon in terms of service design?
2017 truly is the year when Amazon came of age, with the U.S. ecommerce giant recording a string of outstanding achievements. As Amazon closed the books in the first half year, Amazon opened up a new era in its stock market history by hitting USD 1,000 a share. On June 16, it acquired Whole Foods Market, the biggest organic food chain in the U.S., which intimidated all of its competitors. In just a few days after the acquisition, Amazon also launched a new business called Prime Wardrobe. All these things happened within the space of just a month, which reveals just how many customers are raving about Amazon's aggressive businesses that take into consideration both the digital and offline environments.
Amazon's initial business was, as you already know, its "e-commerce" service. Its concept was to provide a service whereby online users could receive their deliveries at home securely and speedily. But, the ultimate aim for Amazon, according to the founder Jeff Bezos, is 'Amazon as public goods.' Like a water pipe that provides water when you turn on the tap on or an electrical outlet that gives access to electric power when you plug something in, Amazon was designed to provide services based on public goods that give access to all things necessary for constructing a website, starting a business or using online or offline spaces, such as servers and storage solutions. Doesn't that sound incredibly ambitious? The concept of public goods means that Amazon will give great access to everyone, but at the same time, it means that Amazon will become 'absolutely necessary for everyone.'
2017 truly is the year when Amazon came of age, with the U.S. ecommerce giant recording a string of outstanding achievements. As Amazon closed the books in the first half year, Amazon opened up a new era in its stock market history by hitting USD 1,000 a share. On June 16, it acquired Whole Foods Market, the biggest organic food chain in the U.S., which intimidated all of its competitors. In just a few days after the acquisition, Amazon also launched a new business called Prime Wardrobe. All these things happened within the space of just a month, which reveals just how many customers are raving about Amazon's aggressive businesses that take into consideration both the digital and offline environments.
Amazon's initial business was, as you already know, its "e-commerce" service. Its concept was to provide a service whereby online users could receive their deliveries at home securely and speedily. But, the ultimate aim for Amazon, according to the founder Jeff Bezos, is 'Amazon as public goods.' Like a water pipe that provides water when you turn on the tap on or an electrical outlet that gives access to electric power when you plug something in, Amazon was designed to provide services based on public goods that give access to all things necessary for constructing a website, starting a business or using online or offline spaces, such as servers and storage solutions. Doesn't that sound incredibly ambitious? The concept of public goods means that Amazon will give great access to everyone, but at the same time, it means that Amazon will become 'absolutely necessary for everyone.'
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Source: https://www.fineprintnyc.com/blog/history-of-the-amazon-logo
This ideology is clearly revealed in its CI design. At first it used a logo based on the image of the Amazon River to symbolize its online bookstore as the biggest bookstore in the world, but in the 2000s, it changed to its current logo, which represents the broader scope of its business and strategic focus around building a powerful level of corporate awareness. Representing an "everything store," Amazon expressed its resolve to cover everything that people need in its logo. The arrow below the word 'amazon' connects A to Z, representing the will to become public goods that provide services from A to Z.
Many people used different frameworks to distinguish Amazon's complicated businesses. Let me introduce some of Amazon's analytical frameworks that I relate to the most.
Many people used different frameworks to distinguish Amazon's complicated businesses. Let me introduce some of Amazon's analytical frameworks that I relate to the most.
1. Philosophical definition : Contents service design
In terms of Amazon's philosophy, Amazon is a contents service provider based on a powerful e-commerce platform. Amazon opened the era of e-commerce by starting with books and expanding to all kinds of consumer goods, but for years it has been dogged by low margins due to selling consumer goods. Amazon first made consumers become familiar with its platform by selling consumer goods, and is now generating actual profits by selling the digital contents that it has developed and acquired. Let me use Amazon Prime as an example. Amazon Prime is a paid Amazon membership service (USD 99 per year). The membership benefits are as follows.
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1. Free delivery within two days
2. Unlimited streaming of movies and TV shows, free music streaming of more than 1 million songs, one type of free game service a month
3. Unlimited photo storage on Amazon drive
4. 30-minute early access to select Amazon Lightning Deals
5. More than 800,000 e-books for Kindle available to borrow for free
6. Deals available only for Prime members
7. Prime Now service available
As you can see from the benefits listed above, many are not likely to be provided by a company whose purpose is just in e-commerce. In other words, these benefits show that Amazon is a company that has achieved its ultimate goal in providing content services. If Amazon members could not relate to its value proposition, Amazon Prime could never have grown to a membership of some 85 million people, equivalent to 1/4 of the entire U.S. population.
In the same context, we can also look at why the online retailer Amazon chose to expand into offline grocery stores. This represents the case of a grocery content service design extended by Amazon to make the lives of Prime members more comfortable. The U.S. grocery market is an attractive market for Amazon. According to the Maeil Business Newspaper, Americans visit grocery stores 1.5 times a week and spend USD 5,500 a year. To put that in context, Amazon Prime members spend USD 2,500 a year on average. The online purchase of groceries (2%) in the U.S. is expected to grow 34% over the next five years.
These data points provide sufficient grounds to design a grocery service that can fulfil customer needs in order to build the loyalty of Prime members and increase the overall number of members as well.
In the same context, we can also look at why the online retailer Amazon chose to expand into offline grocery stores. This represents the case of a grocery content service design extended by Amazon to make the lives of Prime members more comfortable. The U.S. grocery market is an attractive market for Amazon. According to the Maeil Business Newspaper, Americans visit grocery stores 1.5 times a week and spend USD 5,500 a year. To put that in context, Amazon Prime members spend USD 2,500 a year on average. The online purchase of groceries (2%) in the U.S. is expected to grow 34% over the next five years.
These data points provide sufficient grounds to design a grocery service that can fulfil customer needs in order to build the loyalty of Prime members and increase the overall number of members as well.
We must first describe the Prime Now service in order to explain why Amazon Go was developed. Launched in late 2014, Prime Now is a service through which Prime members can receive their deliveries within one or two hours. One of the biggest projects by Amazon in 2016 was to expand Prime Now, and the benefit of receiving delivery in one or two hours proved that the gap between offline retailers and Amazon services could disappear. Amazon then provided a paid delivery service of groceries called Prime Fresh, making Prime Users familiar with buying fresh foods online. Amazon Go represents an extended version of Prime Now and Prime Fresh.
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Source : http://amazon.com
The above image shows the Prime Now service that delivers various products, including fresh foods to Prime members for free in two hours. The image below is Prime Fresh, which is an exclusive grocery shopping service for Prime service members with an extra charge of USD 14.99 a month. Fresh is different from Prime Now because customers can receive their deliveries by setting up the time they want, in a thermal bag so that they can safely receive even products that are sensitive to temperature.
While Amazon Now and Fresh have increased their contents using existing service methods, Amazon Go is a concept like a station to better deliver new contents. The Just Walk Out payment system is interesting in terms of its technology, as customers can just pick out the things they want from the display and then walk out. The amount will then be paid right off the Amazon account. But, what's more amazing is that it has solved the problems of an actual offline shopping experience by applying digital technology. Amazon targets the overall grocery market in the U.S. by dealing with both the issue of grocery shopping in the digital market and the issue of offline shopping. According to analysis by Brent Franson (CEO of Euclid Analytics) in Forbes, the biggest problem faced by customers when buying groceries is 1) standing in line and 2) going to the store. By opening an offline store that doesn't require customers to stand in line and offering a Prime Fresh service to buy fresh groceries without having to go to a store, Amazon's share in the grocery market will soon face a remarkable change.
2. Business definition : Transportation to Logistic service design
Have you heard the news that Amazon is increasing patent applications related to supply chain and logistics? Amazon submitted at least 78 patent applications related to logistics last year alone. Most recently, it has applied for a patent related to underwater warehouse development, which will significantly reduce operating expenses, and analysts are waiting to see how this goes.
According to its annual report as submitted to the Securities and Exchange Commission in 2015 and published in January 2016, Amazon defines itself as a transport service company. However, in terms of investment, its nature is currently changing from transport to logistics. If we consider Amazon a provider of transport/logistics services, we can see why Amazon's warehouse is getting bigger, why there are talks about drone deliveries like Amazon Prime Air, and why services like Amazon Dash are being developed. It's all because Amazon tried to design better transport/logistics services.
Let me introduce the Prime Wardrobe service that has recently received the spotlight, as it is a perfect example of Amazon's logistics service design. As mentioned above, the number of Prime members is increasing rapidly. To save the costs for free express delivery service for its members, Amazon must have its own distribution and logistics services. That is how it came up with drone delivery or its Dash service for requesting delivery of a detergent with a single button. Also, defining Amazon as a logistics company blurs the lines between online and offline business.
According to its annual report as submitted to the Securities and Exchange Commission in 2015 and published in January 2016, Amazon defines itself as a transport service company. However, in terms of investment, its nature is currently changing from transport to logistics. If we consider Amazon a provider of transport/logistics services, we can see why Amazon's warehouse is getting bigger, why there are talks about drone deliveries like Amazon Prime Air, and why services like Amazon Dash are being developed. It's all because Amazon tried to design better transport/logistics services.
Let me introduce the Prime Wardrobe service that has recently received the spotlight, as it is a perfect example of Amazon's logistics service design. As mentioned above, the number of Prime members is increasing rapidly. To save the costs for free express delivery service for its members, Amazon must have its own distribution and logistics services. That is how it came up with drone delivery or its Dash service for requesting delivery of a detergent with a single button. Also, defining Amazon as a logistics company blurs the lines between online and offline business.
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Source : http://www.cbc.ca/, http://amazon.com
As its name suggests, Prime Wardrobe is a service for Prime members. Members can choose three to fifteen pieces of clothes, shoes and accessories sold on Amazon regardless of items, try them on before they make the actual purchase, and return them for free. The emergence of Prime Wardrobe has intimidated the offline retail market to such an extent that the stock price of fashion retail business fell after Amazon launched its new business. Customers no longer have to hold on to the things they buy online but don't like, just because the returning process is so complicated. All they have to do is try them on, pay for only the things they like, and put the rest into a box and have them returned, just as they hand over the clothes they have tried on to a salesperson at a clothing store. This convenient service is bound to threaten the offline retail business. This method of overcoming limitations of online retailers by applying the benefits of offline retailers is extremely similar to the methods adopted by Prime Fresh and Amazon Go.
Some fashion companies are already providing a similar service. Try.com in Canada lets customers try on the items they chose from retailers like Barneys and Zara for ten days. Alibaba announced that it will provide a virtual experience for users to try on all kinds of items and clothes through VR. Thus, Amazon's service is not that special in itself, but considering its grand scale and countless users, Amazon's Prime Wardrobe is definitely amazing as it guarantees immediacy and convenience. Of course, this service is still in beta testing, but once interworked with Echo Look launched at the end of April, it will make Amazon's fashion business even more powerful, according to industry analysts.
Some fashion companies are already providing a similar service. Try.com in Canada lets customers try on the items they chose from retailers like Barneys and Zara for ten days. Alibaba announced that it will provide a virtual experience for users to try on all kinds of items and clothes through VR. Thus, Amazon's service is not that special in itself, but considering its grand scale and countless users, Amazon's Prime Wardrobe is definitely amazing as it guarantees immediacy and convenience. Of course, this service is still in beta testing, but once interworked with Echo Look launched at the end of April, it will make Amazon's fashion business even more powerful, according to industry analysts.
3. Financial definition: DATA service design
While advertising costs are the main source of income for Facebook or Google, half of Amazon's profits come from data services. The business of lending out on a daily basis its expanded server capacity in case of a seasonal traffic overload has developed into today's B2B infrastructure rental service. Not many people think that there would be a twist in the recent trend in which the digital environment is becoming more elaborate at a higher speed and the digital data is becoming more important to people. What will happen to American society when Amazon, which can control people's data flow, begins to charge users for services which are currently free?
The data obtained by Amazon from many businesses is so extensive that even the word 'big data' is not enough to cover it. Data plays an important role in recommending customized services or reading the trends in a big context.
The data used in the offline stores of Amazon Books are also differentiated in that the "books to be sold" are presented based on big data.
The data obtained by Amazon from many businesses is so extensive that even the word 'big data' is not enough to cover it. Data plays an important role in recommending customized services or reading the trends in a big context.
The data used in the offline stores of Amazon Books are also differentiated in that the "books to be sold" are presented based on big data.
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Source : http://recode.net
The way sections of the bookshelves are arranged is different from others, and the way each book is laid out to display its front cover instead of the spine as if displayed online are both methods elaborately designed to entice customers. On the right side of the book, there's a sign that says "If you like" the book on the left, "You'll love" the books on the right. This is a good case of applying a service design based on data to an offline platform.
Amazon is accelerating the development of artificial intelligence (AI) as one more way of using such data. Alexa was born and is now being bred by Amazon's big data and data processing skills to make it good enough to be used by 1/4 of people in the U.S. Once the Internet of Things (IoT), which is the center of the Fourth Industry, comes online, home appliances will be able to actively respond to customer needs or tastes. However, this requires the brains for the integrated management of everything in a single service.
Amazon Alexa is growing into a voice recognition assistant service like Google Assistant. While Siri is a personal assistant service specialized for phones, Alexa supports various services around home appliances in the home. Experts claim that once Alexa's service has been enhanced, it can be expanded to a smart home, smart car, smart office and smart city.
The future that will be brought by Amazon may become a world where it will be hard to live without Alexa as it gets smarter with collective intelligence of AI by collecting massive data from countless users. It seems that the big picture of "Amazon as public goods" will be completed in the not very distant future.
Amazon is accelerating the development of artificial intelligence (AI) as one more way of using such data. Alexa was born and is now being bred by Amazon's big data and data processing skills to make it good enough to be used by 1/4 of people in the U.S. Once the Internet of Things (IoT), which is the center of the Fourth Industry, comes online, home appliances will be able to actively respond to customer needs or tastes. However, this requires the brains for the integrated management of everything in a single service.
Amazon Alexa is growing into a voice recognition assistant service like Google Assistant. While Siri is a personal assistant service specialized for phones, Alexa supports various services around home appliances in the home. Experts claim that once Alexa's service has been enhanced, it can be expanded to a smart home, smart car, smart office and smart city.
The future that will be brought by Amazon may become a world where it will be hard to live without Alexa as it gets smarter with collective intelligence of AI by collecting massive data from countless users. It seems that the big picture of "Amazon as public goods" will be completed in the not very distant future.
Amazon is a company that appears almost every day in the news, whether online or offline. Perhaps the cases introduced above are already quite familiar to many of you. I summarized Part 4 with the anticipation that you would come up with a framework to classify and understand Amazon's businesses that may before have seemed complicated in your head, once you realize what Amazon is ultimately aiming for. I wanted to understand the flows of Amazon's extensive businesses within three big service design frameworks, but as I summarized them, I have come to the conclusion that Amazon's world might have a greater structure that I realized. The three keywords – contents, logistics, and data – are already words with high scalability, and people are on the watch for what Amazon's next step will be with these three keywords. Whether it's a pharmacy or a self-driving car, it's clear that Amazon will bring groundbreaking innovations to related fields. According to news released on July 10, Amazon is preparing to found a PG joint venture with a financial company in Korea. Some experts argue that this may merely be a rumor like the one in 2015, or even if Amazon really does enter the Korean market, there would be more positive elements like the expansion of the digital market. I'm curious about how Korean digital commerce will grow, and what role Amazon in Korea will play in order to create the Amazon wished by Jeff Bezos. We must keep an eye on this wild omnivorous monster, Amazon.
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