4 ways to compete in Amazon’s shadow

If it has a UPC code, Amazon will beat you.  Thanks to a bigger inventory, low prices, convenient return policy, trusty user reviews, and services like Amazon Prime, Amazon is the world’s largest retailer and doesn’t seem to be moving from that position any time soon.

But even in the shadow of Amazon, there are several opportunities for entrepreneurs to make a dent in e-commerce. Here are four ways:

1. Unique product line:

As I recently wrote in TechCrunch, a new generation of web-only brands are bringing their products directly to consumers without the bloat of the traditional retail value chain. Together vertically integrated retailers like Warby ParkerIndochinoStella DotChloe & IsabelFrank & OakEverlaneBonobos and J Hilburn will generate over a billion dollars in revenue in 2012.

By creating their own unique brand and offering products that can’t be found elsewhere, these retailers don’t have to worry about competing head-to-head with Amazon and Amazon prices.

2. Curated shopping experiences:

Like Google, Amazon offers an efficient platform for searching for a specific item. In a GigaOM article, Michael Schreck described Amazon’s platform: “One click and you’re out. Amazon’s anti-shopping model reflects the characteristics of the very people that built it — engineers — who quite frankly are not your typical power shoppers.”

With the rise of the iPad and retina display, there’s a real opportunity for e-commerce companies to build a visually engaging, glossy digital shopping experience that is more like window shopping than typing a product into a search engine and getting a bunch of product results back. Curated shopping experiences like Fab.com encourage consumers to sit back, browse and discover entirely new items – the very things they can’t do on Amazon.

3. “Second season” discounts:

Flash sale sites have become one of the fastest growing segments in e-commerce. Companies like GiltZulily, and One Kings Lane offer steep discounts on products for a limited time, promoting them via urgent emails. Most of the products failed to sell in brick-and-mortar stores the previous season. For shoppers, these sites feel more like a designer’s sample sale – they offer an insider’s price on designer goods if you’re there at the right time and are ready to act fast.

This is a rather mature segment with many verticals already being taken by strong players that are generating several hundreds of millions of dollars in sales. With access to unique inventory being the key success factor, newcomers in this space might face a tough time against those incumbents and their strong purchasing relationships with brands.

4. Marketplaces

Online marketplaces connect buyers and sellers of often unique products, filling a niche that speaks to a particular audience. For example, Etsy offers a channel for aspiring designers and crafters to get distribution. Threadflip offers a more personal version of eBay focused on buying and selling secondhand designer fashion goods. And tindie connects buyers and sellers of DIY electronics. While the chicken-and-egg problem of supply and demand makes marketplaces hard to build, they can scale very quickly once a network effect starts to develop. Due to network effects, marketplaces also create important barriers to entry.

In summary: while Amazon won’t be unseated any time soon and you can’t expect to compete on price, there are billion dollar opportunities waiting in discovery, curation, marketplaces, and vertical integration.

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