Amazon is coming to Australia, rumours have it. While headlines about the ecommerce giant’s plans to ‘destroy’ Australian retail are making local merchants nervous in Amazon’s home market fear has given way to optimism.
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More and more, retailers are betting that new technology will let them compete successfully against the American firm. And some of that technology even leverages Amazon itself, in the form of its cloud computing unit, Amazon Web Services, or AWS.
That’s the view of Mark Lavelle, CEO of Magento, a California-based company that makes software used by retailers to power their online stores, processing more than $50 billion in online sales a year. Magento has 250,000 websites that run on its open source version, while 3,500 larger multinational firms which require more sophisticated implementations are using the paid enterprise version.
For most of its history, Magento’s software was designed run on a retailer’s own internal servers or wherever else they wanted to host it. In April, though, the company made the unusual move of releasing a version of its software that runs on AWS. While that does mean that Magento’s retail clients are technically giving money to a competitor, it also gives those retailers the ability to offer a similar shopping experience to what customers have come to expect from Amazon.
“You can reach a global buyer base, you can dedicate yourself to customer experience, you can have a relationship with customers in a non-face to face environment. And that technology is available to you,” Lavelle told Which-50 between sessions at the company’s MagentoLive event held in Sydney last week. “I think that fear [of Amazon] in a lot of our clients has given way to, I wouldn’t just say acceptance, I’d say optimism.”
One way Magento is harnessing AWS to make retailers individual retailers more competitive against Amazon is data and analytics. One of Amazon’s biggest advantages is its massive troves of data. The retailer knows the shopping habits of hundreds of millions of customers and can use that data to optimise its site and boost sales. A single retailer could never hope to match that. But in August Magento bought an analytics firm called RJ Metrics and rebranded it as Magento Analytics. As customers move to the cloud-based version of Magento, the company can use Magento Analytics to aggregate data across all Magento customers to see what is working and what is not in terms of boosting sales.
Magento can then take what it learns and push it back to all of its customers to help them improve their businesses. While Magento’s efforts still don’t match the huge mountains of data that Amazon has to work with, it’s much more than a single retailer would have access to.
“We are seeing all the data about what hundreds of thousands of probably millions of Magento clients are doing,” Lavelle said. “So if I know that certain sites are getting a higher conversion rate because they are, for example, participating in social commerce and are doing X per cent of their volume through Facebook, in the analytics package we can quickly suggest to folks that from a best practices standpoint ‘here’s what we think the allocation of your marketing budget should be’ relative to what we see in your industry and what we see in your geographic footprint.”
Despite a boost from cloud technologies and more data, certain businesses models adopted by retailers will be difficult to sustain once Amazon commences local operations. Lavelle said some retailers have more to fear than others.
“I think if you’re in the business of selling low margin items that you didn’t manufacture yourself and that you bought from somebody else with a purpose of reselling to a consumer, that’s going to be the hardest part of the market to compete when Amazon shows up,” Lavelle said.
To compete retailers need a strong brand, differentiated product offering and flawless customer experience because “convenience is coming.”
“Everything is going to be one hour away, and it’s going to be well priced and you’re probably going to be paying $90 a year to be part of a club that allows you to get free shipping on everything and free content… that’s a fairly insidious and scary thing for Australia to see on the horizon.”
But even in its home territory of the United States, Amazon hasn’t conquered every corner of the retail industry. Lavelle argued the technology is now available to allow retailers to compete with Amazon.
“There are very successful businesses built up around the Amazon era in the United States and in Europe,” he said. “All is not lost.”