How Rockwell and other companies can take on Amazon and win
Rockwell and his peers in industrial automation are in dire straits: Amazon is looking for them.
For any successful business, Amazon is scary. Jeff Bezos said, “Your margin is my opportunity,” and he really meant it: Amazon recognizes no normal boundaries, simultaneously pursuing its obsessive customer service and relentless pursuit of revenue, as it steadily moves forward in the economy. .
As Kathleen Gallagher pointed out in a recent column, Amazon has just announced a suite of products for monitoring industrial machinery. Large industrial automation companies such as Rockwell and Honeywell make good margins by selling and maintaining legacy systems that are not connected to the internet, do not aggregate data between companies, and require minimal innovation.
But while these companies may not know it yet, Amazon is already at their throats.
What can they do?
They can start by understanding their key new competitor. Amazon dominates because it brings together aggressive pricing, customer service, convenience, and a huge catalog in one unbeatable package:
Customer obsession. This is not public relations or a pretty slogan, and it is not an easily overlooked “mission statement”. It is the beating heart of Amazon. It is their north star, around which the company revolves. If you can’t match Amazon’s concern for your customers, you’ll be toast.
Price. The days of big margins are coming to an end. Amazon’s entry strategy uses extremely low prices – often below immediate cost – and its huge resources mean that competition with Amazon primarily on price is dire.
It’s the ecosystem, stupid. Old-fashioned companies have won with proprietary technology and walled off markets. This prevented competition. Amazon uses competition: it represents less than 40% of sales by volume on its own marketplace. But Amazon is the Everything Store because it has attracted 6 million other sellers to its platform, which has dramatically expanded its catalog while eliminating the risk of inventory.
Diversified sources of income. Amazon’s huge investments in cloud computing have paid off – AWS is now the dominant vendor and generated $ 10 billion of Amazon’s total operating profit of $ 23 billion in 2020. But Amazon has also created an advertising company that, in five years, has grown by less than $ 2 billion. at $ 21 billion, with a profit margin of over 80%. It has over 140 million Prime members in the United States and Prime has generated $ 25 billion in revenue. It charged Marketplace sellers approximately $ 80 billion in fees. These multiple sources of income mean that Amazon has the ability to go for unbeatable prices at any time.
But understanding the core of Amazon’s approach won’t be enough. Amazon is destroying businesses (and industries) that think they are immune – just look at bookstores or retail more generally. Customers are gone before the old companies even realize they are under attack.
However, it is possible to act and act effectively:
Innovate. The era of traditional unconnected technologies is drawing to a close. Data from connected apps will give Amazon a huge advantage in creating better products that offer early failure warnings and more detailed monitoring. Existing manufacturers must match or improve these capabilities. They have to share data to do this.
Leverage industry expertise. This is Amazon’s vulnerability. It focuses on price and convenience. There is no industry expertise beyond what is in the catalog, no one to talk to about a product. Gearflow, for example, is building a platform specializing in construction equipment parts; platforms can be built in other B2B marketplaces.
Leverage customer trust. Ongoing, trusting relationships with customers is the best ditch against Amazon. But Rockwell and the others can’t rely on the comfortable belief that customers really don’t have anywhere to go. They must leverage the trust of customers to create the “go-to” resource for solving factory production problems. Existing businesses have the option of owning this resource and the associated customer interface.
Develop services. If you only compete on price or convenience with Amazon, you lose. So create something Amazon can’t match – a mix of products and support services that solve specific issues – issues that you’re already in the best position to understand.
Create your own version of Prime. A membership program with real benefits is customer superglue. Maybe you provide more precise specifications, access to emerging technologies, worker training, export assistance. The goal is to create a magnet for customers.
Find niches. Amazon is focused on mass markets, where it can compete in terms of price and convenience. Competitors can succeed by specializing, dividing large markets into smaller niche segments where service, knowledge and customer relationships can dominate.
All is not lost for Rockwell and his peers.
They have important strengths, including decades of collective understanding of their industry and deep consumer confidence.
But their top priority should be to act now, before it’s too late.
Robin Gaster is President of Incumetrics Inc. and Visiting Fellow at the Institute of Public Policy at George Washington University. He is the author of “Behemoth, Amazon Rising: Power and Seduction in the Amazon Age.”