Amazon has just become the third GAFAM after Apple and Microsoft to surpass the $ 1.5 trillion market capitalization mark.
Amazon has just become the third GAFAM after Apple and Microsoft to surpass the $ 1.5 trillion market capitalization mark. If Amazon had reached the trillion dollars in 21 years, the company earned an additional 500 billion, enough to create two new Netflix in less than 2 years like Apple and Microsoft. There is only one difference: Amazon has the highest valuation multiple, 163x its anticipated profits for 2020 ($ 9.7 billion) according to Factset estimates against 30-36x for Apple and Microsoft. This multiple reflects the high level of investor confidence in growth capacity, Amazon’s vision “Earth’s most customer-centric company” and its model. Like a number of “stay-at-home” companies, Amazon has gained 27% on the stock market since the start of the Covid (mid-February). Analysts have also revised their revenue estimates for Amazon by 4% since the start of the year, which is not negligible when we know that Amazon has seen its turnover increase by 20% l ‘last year.
Amazon Prime at the heart of Amazon’s value loop
Amazon Prime is one of the factors behind Amazon’s success. This offer constitutes a real commercial revolution, because it appears at first glance as economic nonsense: why offer a subscription at 49 euros (in France) when the cost of the associated advantages (free delivery in 2 days, music and video streaming , exclusive promotions…) is valued at almost 670 euros?
Amazon Prime is a perfect illustration of Amazon’s customer-centric vision. It’s the ultimate loyalty tool, since Amazon Prime subscribers spend an average of $ 1,400 per year on Amazon (and the older they are, the more they spend), compared to $ 600 per year for non-members. And after a year, 94% of members renew their subscription. Amazon Prime is, in other words, the concrete implementation of what is called at Fabernovel the value loop. All the advantages of Prime allow you to create the “Amazon” reflex when it comes to buying. Indeed, if Amazon Video seems apparently “free” for its subscribers, Amazon does not scrimp on the means, by buying for example the rights of the trilogy of the Lord of the Rings 250 million dollars to embellish its window. The financial resources made available on Amazon Prime Video are comparable to customer acquisition costs – a marketing investment for the Seattle company in short.
If Amazon Prime nurtures the relationship with its customers to make them ambassadors, the finer knowledge of these (acquired with the use of the various services offered and their more numerous orders) allows Amazon to improve the quality of its recommendations by real time. But also, the more there are, active and loyal, the more the sellers have an interest in joining the Amazon marketplace, which increases the range of products, attracts new customers or creates additional expenses, and so after. It doesn’t matter what product or service Amazon offers, as long as it caters to its customers.
What are the lessons we can learn on the French market from such a successful model? Stéphane Distinguin, CEO of Fabernovel recently said “Amazon, Apple and Microsoft now each represent the entire CAC40. We must succeed in France and in Europe to invent an alternative model to that of the Americans and the Chinese. It is thanks to the understanding and mastery of their models that French companies will be able to get the best of themselves to continue to be competitive and have an inclusive and lasting impact. ”