Amazon plans to dominate the retail world by using its best product: the e-commerce operation. This product will be accumulating losses even as it takes retail market share from physical stores and malls. The strategy is that over time, Amazon will deliver fatal wounds to many physical stores that few will exist.
But that is just part of the equation. As Amazon bulldozes and dismantles physical stores, more of them will move online. Amazon hopes to provide the platform through its Amazon Web Services for most of these companies. Yes, Amazon has the best solution for these physical stores to operate online, after they have lost any relevance in the physical domain.
Simply, Amazon’s ecommerce operation can make losses, provided that incurring the losses will create new business opportunities for the AWS which will have more customers as offline retails move digital. With this model, it does not really matter if the e-commerce ever makes profit since its impacts are generating businesses for another unit of Amazon.
Amazon has no choice: if it does not pursue its loss-enabling market share against physical stores, they will not move online to require the services of the AWS. (Of course, I am exaggerating here. There are many other areas AWS can make money, including supporting non-retail businesses. But I hope you get the point.) So, there is a big correlation: the more businesses move online, the more potential opportunities for AWS, the cloud services industry leader. It does not matter if the ecommerce makes any money as it causes havoc in the markets.
This Amazon’s strategy is the reason why any African ecommerce company that is copying it will likely struggle. None has a unit that can deliver this kind of reverse gain that Amazon enjoys with AWS despite its losses in the ecommerce business. Without an equivalent of AWS, any Amazon’s cloning strategy becomes half-baked because the strategy will fail to have the profit-enabling element.
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