In 1994, Amazon set out to change the world. Its initial public offering three years later valued the company at just $461 million. Today it’s worth $360 billion, a gain of roughly 50,375%.
Is it possible, though, that the company is just getting started? That's the surprise prognosis of Scott Galloway, a New York University business professor, and founder of the legendary marketing firm L2. He believes the Seattle retailer is on the verge of explosive growth as it transforms its fast-growing Prime subscription service into the perfect, frictionless omni-channel retail experience. As investors realize the potential scale, Galloway posits Amazon shareholders will be rewarded with the first $1 trillion market valuation.
“They might be able to take Prime households from $1,300 per year to $10,000 by basically saying we’re going to fulfill everything you need,”said Galloway in a recent YouTube interview with L2 co-founder Maureen Mullen.
The idea is Amazon would use artificial intelligence, purchase history, its reputation for value and web of warehouses within 20 miles of 45% of the U.S. population to create a zero-click retail experience. In effect, Amazon would just start sending stuff to its more than 63 million Prime customers without being explicitly asked. It will use Big Data to know what you want before you do.
And that lends itself to a bunch of very lucrative opportunities with private label branding. When your customer trusts your brand, you get to control the entire value chain. Just ask Apple, a company that coincidentally could be irreparably harmed by this development.
For example, Mullen cites 1010 Data reports that show Amazon’s Basics brand commands 31% of battery sales online. Its Elements brand has 17% of the online baby wipes market. That puts it just behind household name brands such as Huggies and Pampers.
“The scariest thing about Amazon is they’re not afraid to act like a startup, and get product into market fast,” said Mullen. “But their investment threshold is incredibly long. … They have the capital that allows them to lose money for years and years in different businesses until they pay off.”
That type of longer-term planning allowed Amazon’s secretive Lab 126 to spend years developing Alexa. The open source, artificially intelligent digital assistant first appeared as the voice of its popular Echo connected speaker. However, Alexa has been showing-up inflat screen TVs and will soon debut as the heart of an open source, connected car platform.
Adoption is very valuable because Alexa is essentially a voice activated search algorithm built by the world’s largest retail warehouse operation. If you simply asked Alexa for batteries, you would expect its Basics brand to show up on your doorstep at the exclusion of all other brands.
That type of power and Amazon’s massive scale, really does change the world. In fact, Galloway is succinct: “This is a zero sum game and Amazon is taking all of the chips off the table.”
Amazon shares have been highlighted here for the past several years. They have performed well. A key attraction is its dominance in cloud computing. If Prof. Galloway is right and Amazon does end up dominating the future of retail then the shares can continue to rally, with a double over the next four years quite feasible. It's still buyable on pullbacks.
