Business models Fighting digital monopolies
Competitive pressure in e-commerce has never been so high, never before has a single player been as dominant as Amazon. It is therefore high time to develop a strategy to help e-commerce companies assert themselves. And to do something to combat market-crushing platforms.
It may be the most important strategic issue the e-commerce industry will face this decade: how should it deal with Amazon? A billion-dollar Goliath that
- in Germany alone generates twice as much in sales as the second largest e-commerce player,
- accounts for 50 percent of growth in e-commerce in German-speaking countries
- and makes more profit per quarter as a company than otto.de generates in revenue per year.
How can a company hold its own against such a colossus? What does a company need to do today to ensure it will retain control over its own customer contact in two to three years?

Throughout economic history, there have been multiple occasions where companies have been confronted by an overwhelmingly powerful opponent. E-commerce is not the first sector to face this phenomenon.
These markets and industries have always ended up being freed from these monopolies. Time and again, a seemingly unbeatable monopoly has receded into insignificance. How did that come about?
We do not have to look far to find an example. Just take a look at the delivery market, which is not so different to e-commerce.
Until 15 years ago, the market for deliveries in Germany was more or less completely divided up between a few big players, such as Deutsche Post, Hermes, UPS, etc. Deutsche Post held a position similar to that of a monopoly. And now? The market couldn't be more diverse. There are practically no more delivery niches. The different delivery approaches couldn’t be more different: Picnic delivers groceries on fixed routes and at set times. Gorillas, on the other hand, delivers everything within 10 minutes by bicycle.

Economics calls this dynamic segmentation: New and different concepts can open up new market segments in a monopoly-like market, completely disrupting it. The monopoly gets broken up because the overall market grows many times larger, with the new segments being opened up with highly specialized concepts in some cases. Their structure then has little in common with the previous monopoly. The overall market share of the formerly dominant player is significantly reduced.
However, a lower market share ultimately leads to them also losing control of the market. The company can no longer impose its own rules on the market. This has already happened in various markets. At the beginning of the 1990s, Microsoft’s operating system market share was well over 90 percent. Today, it’s 23 percent. That is because completely new segments have been created and developed with new technologies, such as mobile phones, tablets and smart speakers. Today, Android is by far the largest player on the operating systems market and Microsoft plays practically no role in the mobile phone sector.
The automotive market is also being turned upside down in a similar way. For over 80 years, almost no new automobile manufacturers of global standing emerged. Over the past 14 years, however, more than 40 new manufacturers have emerged, including Tesla, currently one of the world's most valuable automotive companies. The transformation towards electromobility and the transition to new digital business models have made this possible. As new concepts gain importance, older players can usually no longer keep pace, and the market realigns.
New concepts and dynamic segmentation are therefore prerequisites for overcoming monopoly-like structures within a market. This raises the question as to how diverse the e-commerce market is. How much do the different sales approaches differ? What different approaches are needed to develop certain segments?
To put it bluntly, all providers are currently trying to do the same thing. Every provider is trying to provide the greatest possible range of services in its segment. The vision seems to be that customers can use the search function to find all the products in the various categories of the segment. Zalando wants to offer everything fashion-related, Thomann is trying to provide a full range of music, Douglas aims to do the same with beauty products, and Otto is doing this across all segments and categories.

When everyone is doing the same thing, customers will only go for the best in the market. It may be the most important strategic issue the e-commerce industry will face this decade: how should it deal with Amazon? Nobody has a larger range, offers more generous goodwill terms, and processing within two days. As long as companies keep trying to convince themselves that they differ from Amazon by offering the same service within a segment, Amazon will continue to enjoy the biggest slice of the pie. In this scenario, Amazon will continue to gain market power and the only remaining hope for competitors will be for the state to intervene with regulatory measures.
The better alternative would be for the sector to follow the example of dynamic segmentation, asking the all-important question of what will be different about the sales concepts of the future that will make Amazon's “everything store” look like an ancient relic? There will be another blog post about that.
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