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Amazon (NASDAQ: AMZN) has long been the 800-pound gorilla in electronic commerce. What is amazing, is that it always enlarges.
Amazon continues to increase sales faster than the global e-commerce market in the United States – almost twice as fast, according to eMarketer estimates. The e-tail giant will increase its total sales by 29% versus only 16% for the rest of the industry. It will only slow slightly next year and will contain 53.7% of the total online retail market. This represents a 38.3% market share in 2016.
Amazon's market share is growing rapidly at a time when it is facing increased competition from Walmart (NYSE: WMT) . Nevertheless, Walmart has not been able to make a dent in Amazon's market share. In the end, the success of Amazon comes down to a key competitive advantage.
Source of the picture: Amazon.
The ultimate online shopping destination
Amazon boasts a massive network effect. The majority of its sales come from third-party merchants. Most of these traders use Fulfilled by Amazon – where Amazon stores and ships third-party inventory in its own warehouses – to make their products eligible for the Prime shipping benefits. Amazon now has over 100 million Premium members paid globally, and approximately 90 million Americans have access to Prime, according to Consumer Intelligence Research Partners.
As more customers join Prime, more and more traders want to get their products. a group of shoppers who spend more, on average, than non-prime members. This increases the number of eligible premium items available on Amazon.com, which has recently reached 100 million. As more items become available, more buyers join Prime.
In the end, this network effect benefits both buyers and traders. Merchants sell more products and buyers can find and receive them quickly.
The network effect has resulted in Amazon converting traffic to paying customers at a rate almost twice as high as Walmart. Walmart can not compete with the selection of products on Amazon, even though it offers a free two-day delivery over a few million items. Thus, customers often leave Walmart.com empty-handed.
Filer flywheel
Amazon is not only resting on its laurels and leaves the network of premium members and filled by Amazon merchants grow. The company continues to provide additional benefits to the members of Prime and is experimenting with other ways to allow merchants to make their stocks eligible for the Premium.
Amazon has recently put in place special discounts for members of Prime Foods. He is also experimenting with Whole Foods' free food delivery for leading members. In addition, he continues to extend Prime Day – his invented shopping vacation – by offering special offers to leading members.
For merchants, Amazon is experimenting with its own delivery service. Such a service would allow large merchants owning their own warehouses to save on shipments by working more closely with Amazon.
Continue to add benefits to both sides of the equation should push the proverbial steering wheel to turn faster. And the results speak for themselves: Amazon takes a larger share of American e-commerce every year despite stiff competition. He raised the price on Prime with a seemingly minimal decline in consumers. And more and more merchants are flocking to third-party services to reach new customers. The steering wheel of Amazon is running faster than anyone else, and it will take a lot of effort so that no one catches it.
John Mackey, CEO of Whole Foods Market, an affiliate of Amazon, is a board member of The Motley Fool. Adam Levy owns shares in Amazon. The Motley Fool owns shares and recommends Amazon. The Motley Fool has a disclosure policy.
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