First, go out and continue building. Amazon has launched Amazon Food, a food delivery service, in India, at the very time when local giants are retrenching as a result of managing the paralysis from Covid-19. This is from Sun Tzu’s Art of War playbook: attack from the flanks and strike enemies, forcefully, even when they are already weakened. Swiggy (what a name, people) and Zomato are challenged as they need investors’ money to run their game plans; Amazon has a forest of money it has for itself. I do expect within the next few quarters, this Amazon’s decision to strike now, to be consequential in market positioning. No retreat – go out and continue building. The human spirit is stronger than any pandemic.

Amazon  is joining India’s online food delivery market just as top local players Swiggy and Zomato  reduce their workforce to steer through the coronavirus pandemic and months after Uber Eats’ exit from the nation.

The e-commerce giant, which has invested more than $6.5 billion in India, today launched its food delivery service, called Amazon Food, in select parts of Bangalore. The company had originally planned to launch the service in India last year, which it then moved to March but pushed it further amid the nationwide stay-at-home order the Indian government issued in late March.

Also, my hypothesis that Facebook Shop has a real chance on Amazon, if it waives the average of 10% commission fees which Amazon charges vendors, was well received. Yet, some members of our community think that the fee could be immaterial, as Amazon has a solid logistics system, and most vendors and buyers will not switch, for Facebook Shop. To address that, I am providing more insights on the basis of my call.

To begin, I do hope that the company which offers the highest composite value, on price and service, to customers, to emerge a winner. The fact is simple: Amazon won modern American retail against physical stores by abstracting local sales tax which it was not required (originally) to collect.   That gave it an advantage and made buying things on Amazon artificially cheaper. 

Think about it, a big television set at a price of $500 on sales tax of 10% will cost $550 in Walmart since Walmart as a physical store would be required to collect the $50 sales tax. But Amazon was not required to collect that tax as part of the U.S. Government’s original incentive to stimulate online commerce. Magically, buying on Amazon would cost you $500. Because of that sales tax, Amazon became very popular as people shopped therein to save money. (Naturally, people were expected to self-report during tax filing and pay the sales tax. Of course, people do not do that).

The Facebook Shop plans to waive the commission fee Amazon collects from its vendors and merchants. If that happens, it means the price they list on Facebook will be cheaper. It is key to understand that a 10% differential is huge and many people can endure some pains to save that money. After all, people waited for 5 days to get their items from Amazon via US Post just to save the sales tax if they had bought from physical stores with immediate delivery. Yes, even if Facebook is not optimized for retail, people will be open to bear some pains to save 10%. That is partly why Facebook Shop is a threat to Amazon commission revenue in the marketplace.

An interesting write up . An average consumer is interested in value and prompt delivery of services. Yes Amazon is currently dominating the logistics globally , however nothing is permanent .

There is huge savings to be made in a 10 % savings in transacting with Facebook vis avis Amazon.
I see a lot of economic sense in saving 10% of gross sale by a publisher who has been selling through Amazon.
Of course 10% of $1 billion is One hundred million Dollars. It’s enough to compensate for other pains.
In the current digitized world any thing is possible and the customers will remain the winners. We are watching!

All Together

 Amazon won modern American retail against physical stores by abstracting local sales tax (typically 5%) which it was not required (originally) to collect.  To save that sales tax, Americans were open to wait for 5 days to receive purchased items via U.S. Post. If Facebook Shop waives the 10% (average) commission fee which Amazon charges vendors, other things being equal, prices will be cheaper on Facebook. Based on this, I concluded that many people will absorb some pains and even poor service, from Facebook, to save 10% just as Americans many years ago were fine with a five-day wait to save 5%! This  is the premise when I wrote that Facebook Shop could be a threat to Amazon revenue.

Facebook Shop, Instagram Shop, Google My Business Shake African Tech – To Affect Ecommerce, Fintech, etc

If you have a business which loses $8.8 billion yearly but supports a $20 trillion economy to function, optimally, via nationwide logistics and supply chain systems, is that really a loss? If you try to avoid the losses, turning that business into an immediate profit-center, you can cut out rural communities from global commerce, and also decimate many  small businesses. Case in point: United States Postal Service.

My question is this: if Nigeria decides to run a postal system that is operationally supreme but loses $500 million a year to cushion a new dawn in ecommerce and business operation, which can generate taxes of at least $1.5 billion, along with a few base points on the GDP, is that a good playbook? If we believe that commerce cannot happen, optimally, without logistics, what are what are Nigeria’s options if we cannot follow the U.S. playbook?

If NIPOST (Nigerian Postal Service) improves, the marginal cost problem will be solved, meaning that ecommerce companies can ship items at better cost margins. Possibly, that would help them compete better with open markets and supermarkets. Yes, if NIPOST takes over the distribution challenges, ecommerce companies will then become unbounded and unconstrained by geography, making them national players. Today, our ecommerce firms are not exploiting the true value of the web since most are focusing on specific cities – you cannot be doing a web business and be restricted to a small locality. So, if NIPOST helps to fix distribution, the ecommerce firms would become more valuable as the scalable advantage has improved.

As I noted when I commented on seeing my book on print for the first time, logistics is at the heart of ecommerce. I had written a book, submitted it to Amazon and waited for the royalties to arrive. I did not even bother to get a print version of this book! Amazon is handling all and selling the book across America and beyond. Amazon does what it does because the United States Postal Service provides deep support to reach any city and location.

If NIPOST can offer that in Nigeria, a new dawn will emerge in the ecommerce sector in Nigeria. Ecommerce companies will simply focus on making sales while NIPOST takes care of the distribution for them. And when that happens, they would have scale which will then make them very competitive on pricing compared with local open markets and supermarkets across Nigerian cities. That trajectory is how the ecommerce sector will blossom in the land.

Beyond Profit-Centers, Strategic Loss-Makers Could Make Nations Better

Question from a Tekedia Member: I listened to Tekedia Live and am still trying to understand how the U.S. Post losing money is at least not bad for the economy. Are you saying that the Post cannot operate profitably and still serve?

My Response, broadly…

It brings huge debate: why do we struggle to bring private sector financial efficiency in all domains of government? Yes, make White House to deploy the Apple playbook of operational excellence in the business of serving the citizens. Get Aso Rock, Nigeria’s seat of power, to become a better operator like Dangote Group. 

Obama answered one of those questions many years ago, noting that as the President of the United States, his job was not just to serve only those that could afford iPhone and its apps, but to serve all citizens, irrespective of their income levels. In other words, a President has no market segment or wage bracket to target: its market is the full population of the citizens. To do that, it has to accept some elements of underperformance when looked at from the perspectives of markets. Yes, there is no issue of expired subscription as you cannot kick the people out of the country!

This morning, in Tekedia Live, we had a deep conversation on business, logistics and fintech. I did explain why the United States Postal Service (USPS) is a smart national loss-maker.

Yesterday, the United States Postal Service (USPS) announced an annual loss of $8.8 billion for fiscal year 2019, more than double its annual loss for FY18. This loss, the largest on record, marks the 13th consecutive year the USPS has finished in the red.

If you examine the period when the USPS lost this amount of money, businesses actually expanded in the core domains it served. Largely, USPS losing money was not necessarily a bad thing as its functions were critical for most of those companies to thrive. Possibly, for every $10 billion lost by the U.S. Post, it could be adding excess new $200 billion of value in the economy. For the United States, in general, that is a net positive. The USPS saw marginally revenue increase despite the match to global digitization, implying that it was powering core elements of that new redesign.

Postal Service reported operating revenue of $71.1 billion for fiscal year 2019 (October 1, 2018 – September 30, 2019), an increase of $514 million compared to the prior year.

If you extrapolate that construct, it does imply that any day they make the USPS to become a pure profit-center like DHL, UPS and Fedex, many small businesses which depend on USPS will struggle. If that happens, saving $10 billion could cost the economy hundreds of billions of dollars.

So, it is not everything that should be put in monetary terms. The USPS should of course aspire to be profitable. But if it cannot and still operate operationally efficiently, serving SMEs and Americans, including home offices, its impact will be multiples of whatever it is losing monetarily. Just the taxes paid by the companies on those additional values will cover the losses.

Did you notice a double play strategy here? Lose money on USPS, make up via expanding income and taxes.