Blog Post - Frank Kochenash , Jul 1 2019

Jeff Bezos created his with Amazon Prime. So what's your moat?

Jeff Bezos created his with Amazon Prime. So what's your moat?

Recent events in the news about Amazon reminds me of moats. In particular, I recall CEO Jeff Bezos' original rationale for Amazon Prime: "I want to draw a moat around our best customers. We're not going to take our best customers for granted." In 2004, and the years following, the moat was built by fulfillment centres. The capital intensiveness and operational costs of fulfillment fell out of vogue in many people's eyes in favour of a more virtual business model. But 15 years on, the moat built by physical infrastructure is large, and still effective.

The network of fulfillment centres (FCs) is still a big enabler of the moat, but the automation inside them is ever more important. These are not the FCs of 2000-2005. Watch the video from the Techcrunch article about Amazon's new warehouse robot to see how massive automation creates yet another cost advantage that Amazon will use to enable 1 day and same day shipping.

What else is building the moat?

Consumer CEO Jeff Wilke said he expects Prime Air drones will be delivering packages within months. I doubt drone delivery will replace normal shipping methods at scale. But, if a customer is snowed in at home north of Chicago, then Amazon Prime Air offers a solution that is unique and uniquely pleasing. Will that customer be more likely to renew their Prime subscription?

Amazon will likely soon have more identifiable points of delivery than anyone else (if they don't already). This is enabled by key, Hub, Flex as well as Prime Air. Beyond residence addresses and PO boxes, Amazon delivers to locker locations. It delivers to garages as well as to trunks of cars. It obviously will start delivering to QR-type coded Prime Air landing strips. As Amazon approaches the capability of delivering to 'you' instead of just the place where you sleep, another set of consumer problems can be solved.

Lowering cost and solving consumer problems in difficult-to-replicate ways are how Amazon protects its best customers.

Implications for brands: ask yourselves, do you have a moat around your customers? Are strong brand recognition and high category share defensible moats? It seems inevitable that product brands need to add or evolve into services to build true moats. On the other hand, if your brand's category is not suited to a direct-to-consumer model, are you helping your customers (Kroger, Walmart, as well as Amazon) build moats around your mutual customers? Or are you letting Amazon do that for you?