What is Amazon.com, exactly?
If you answered “an online book retailer,” then you haven’t been paying attention for, oh, the past decade or so. What seems like a straightforward question is actually a much more complex and surprising inquiry than you might have guessed.
I have come to think of Amazon as a variant of Apple: a disruptor of all sorts of businesses, some of which are potentially very lucrative. What led me to this conclusion was a recent experience with a simple purchase. Even though I’d had an Amazon account for almost 20 years, only then did it dawn on me just how much the company has insinuated itself into so many aspects of my retail life – yours too, I’d wager.
Last summer I bought a couple of TVs from a local retailer, a 50-inch LG for my basement (less than $400), and a 60-inch Samsung (less than $800) for the weekend house. But until recently I had no idea that Amazon was part of this process from beginning to end.
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First I used the mobile app Amazon Price Check to compare prices. The TVs were less expensive at a local retailer by a few bucks, which the Amazon app let me know, so I bought them there. But the wall mount to hang the 50-inch (the 60-inch would sit on a table top) was so much cheaper at Amazon — $40 versus more than $100 — that I had to order it from Amazon. Which leads to the most interesting part of our story.
The 50-inch sat on the floor in front of the treadmill for three months. I was going to hang it myself, but you know how it goes with household chores. Once it was clear I would never get around to it, I asked the local retailer about hanging it for me. The quoted price was $399, about the same as the television itself, which made no sense.
I did a Google search that I expected would take me to Angie’s List or something similar. Instead, I was shocked to see something called Amazon Home Services pop up as an option offering $69 to set up a TV 50 inches or smaller. This wasn’t just a little cheaper: It was less than 20 percent of the price quoted by the local retailer. I clicked, scheduled and that Friday a guy hung the television, giving me new inspiration to get on the treadmill.
He told me some interesting things: He does five to 10 installations daily. He does contract work for several different companies. And he has hung three sets in houses on the same block, working for three different companies – and the charges were $400, $200 and $69. He gets paid the same amount, and does the exact same work.
Now consider the potential threat this poses to Amazon’s competition. Work like this has to be a source of revenue and very likely profit for these other retailers. I have to think this kind of market inefficiency eventually will be competed away by Amazon. We’ve seen it happen before, remember.
This sent me back to Amazon’s website to look at what else was offered, and it’s pretty much any local service you can imagine: plumbing, gutter cleaning, assembling furniture, computer support, etc. It immediately dawned on me that this was a very clever business for Amazon.
Amazon has no inventory, no financial outlay – it’s simply a matchmaker between the consumer and service provider, taking a small percentage of each sale for its troubles. It is yet another way for the online retailer to move from physical goods into services while monetizing its enormous client base, all at very little cost.
The more I think about what Amazon actually is, the closer I come to this: It’s a self-funding incubator that ruthlessly kills the ventures that don’t work (remember the Fire mobile phone?) while pouring cash into the ones that hold promise. It’s a marketplace for new and used products, a place to hire people for services, a content company, a software maker, a gadget business, a cloud company and so on. Oh, and it’s an online retailer that just happens to be the world’s sixth-biggest company by market value – about $365 billion.
I still am not sure exactly what Amazon’s core business is or what it will end up being. I just hope it never sees an opportunity in any business in which I have a vested interest.