Whilst Amazon is the international leader in this marketplace it is inevitable that other businesses will focus upon this segment. Just like Amazon started selling books only then broadening out to sell everything initially focussing on “digital” products (music, video) but then moving into “atom” products new businesses are looking to adopt the same strategy. Plus early on Amazon appreciated the importance of investing in the technical side of the underlying ecommerce platform so it developed Amazon Web Services (AWS). This platform was setup to be a business in its own right offering its “retail utility” capability to anyone prepared to pay for their services. Inevitably this hosting of a variety of other businesses on AWS gave Amazon the intelligence gathering capability to see what works and what did not for these new customers. This allowed Amazon based upon this intelligence the opportunity to formulate its own growth strategy. Needless to say investing in the successful market segments and avoiding those that failed.
In the Britain the Ocado Group founded in April 2000 was
an online food retailer making use of its own “Ocado” brand. The name draws its
inspiration from the “avocado” green fruit with an odd comparison between the
fruit’s outer green peel, protecting the inner fruit, being like an Ocado van
safely protecting a customer’s order. A confusing analogy to say the least
possibly not the most memorable new brand name for a food retailer. But
certainly a good one for a technology company into which it has transformed.
In October 2000
Ocado partnered with Waitrose exploiting their more familiar brand alongside
their own. In May 2010 the John Lewis Partnership entered into a 10 year
branding and supply agreement with Ocado. In 2009 it released its first app for
the iPhone and in 2010 it released a similar app for Android devices. In 2017
it launched a voice driven app on the Amazon Alexa device.
In 2014 the Ocado Group contracted to provide the
website, warehousing and delivery services for Morrison supermarkets. The success
of this move signified a change of strategy to becoming a technology and
service provider to other retailers.
In 2015 Ocado launched the Ocado Smart Platform (OSP) its
own software package for operating online retail businesses with this marking
the change from being a retailer to becoming a technology company. Through 2017
it sold the Ocado Smart Platform (OSP) to many international retailers including
major retailers in France, Canada and America. This was the start of the growth
of the Ocado Technology division within the Ocado Group.
In 2019 Ocado and Marks and Spencer announced a Joint
Venture whereby M&S acquired a 50% share in Ocado’s UK retail business thus
terminating Ocado’s long relationship with Waitrose and the John Lewis
Partnership. It also formed part of the transition to becoming purely a
technology company rather than a food retailer. I suspect that Ocado the food
retailer brand will disappear over time.
The scope of the Ocado Technology Division covered the development
and operation of the frontend website and apps through to automated warehousing
and logistics. This leading into big data, cloud storage, smart optimisation and
the use of artificial intelligence (AI) algorithms. Essentially the complete
package end to end for the retailer. The warehouses are very advanced using
what is sometimes called hive and swarm like capabilities to pick, assemble and
dispatch goods. Ocado’s proprietary technologies are protected by over 200
patents.
Read more detail
https://en.wikipedia.org/wiki/Ocado_Group
Amazon has set a path now followed by Ocado with others
looking to join this new digital segment. It is essentially the consolidation
of Direct to Consumer business on to digital platforms. They exploit the latest
digital technologies whilst offering a complete “end to end” package. The way “brands”
choose to engage with these new digital disrupters is very interesting. The ongoing
decline in the “bricks and mortar” high street and the even the newer "out of town" retailers has been accelerated by the 2020 Covid-19 pandemic suddenly
accelerating the growth opportunities for these digital platforms. But as a “brand”
which way do you jump. These digital platforms make a key revenue stream for
them taking a percentage of your turnover as payment. This with the initial up
front sum to purchase access to the platform alongside development costs and
capital expenditure in warehousing and logistics make these deals very
complicated. But the success of the “brand” and that of the “digital platform”
provider are locked in a deadly embrace. But like all relationships the
relative size of the two parties can often define the actual deal and which one
ends up with the most profit. (or loss).
So which is the next Direct to Consumer Digital Platform
to watch out for in terms of growth. The Hut Group (also known as “THG”) is
definitely the next one to watch. The Hut Group is following a similar
development pathway to both Amazon and Ocado. Founded in 2004 it focussed upon
selling music and gaming products. Not surprisingly early investors included Sir
Terry Leahy, the former Tesco chief executive and Lord Rose the chairman of
Ocado. Then the technology investments by KKR, Balderton Capital and Blackrock allowed
THG to pursue a very acquisitive strategy. The approach is to purchase a
variety of websites covering the retail sectors and move these across to their
own proprietary technology platform. So they retain the original branding
whilst improving the supporting technology structure and lowering the cost of
operation. The opportunity to consolidate the warehousing and logistics infrastructure
can then be applied to these businesses. The “Myprotein” was one of the major brand
purchases.
For more details look at
https://en.wikipedia.org/wki/The_Hut_Group
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