24 July 2019
Amazon's bid to nurture an entire ecosystem around its e-commerce platform is paying rich dividends, offering a lesson to other online retailers. Photo: Reuters
Amazon's bid to nurture an entire ecosystem around its e-commerce platform is paying rich dividends, offering a lesson to other online retailers. Photo: Reuters

What HKTV can learn from Amazon which reported last week yet another forecast-beating quarter, has proved that it is now much more than just a transaction platform for buyers and sellers. Demonstrating its strengths beyond the core business of online retail, the firm saw its profits and revenue get a major boost as it reaped big rewards from its Prime membership service, advertising business and cloud operations.

Now, what lesson does Amazon’s success hold for other e-commerce players in the world, particularly a loss-making entity such as Hong Kong’s very own HKTV? 

It may be a bit unfair, of course, to compare a global behemoth with a local upstart, but it doesn’t mean a business such as HKTVmall can’t benefit by following the broad path shown by Amazon.

The key element: a diverse business model, which can serve as a useful template. 

HKTVmall, launched by Hong Kong Television Network (HKTV) in early 2015, has seen its e-commerce operation take off in a significant way, but it is still confronted with a host of challenges and uncertainty going forward.

What the company is doing now is try to compete on product prices and product diversity. But that alone may not help HKTV thrive in the long run as traditional retailers, too, are jumping into the online game and tweaking their business practices.

HKTV may find it difficult to be a unique player in the market, and its current advantages may not last long as competitors can catch up with similar products and also improve their pricing strategy.

In this situation, what HKTV must do is build a loyal customer base that can depend on the company for a variety of needs, rather than fulfilling just the daily shopping needs.

Amazon has shown immense foresight and vision as it looked beyond its core operation and invested heavily in businesses such as cloud services, online content and advertising solutions. 

The US tech titan has taken a leadership position in several emerging technologies. Amazon Web Services, the firm’s cloud business, handles data and computing for business enterprises on large scale.

Meanwhile, the firm is also at the forefront in artificial intelligence, deploying the technology to drive sales of Echo speakers and other gadgets.

In other initiatives, Amazon has been growing its Prime membership business, luring more subscribers with faster delivery and entertainment offerings such as unlimited movie and music streaming.

Amazon’s advertising division, in the meantime, has become a multi-billion dollar business. Revenue from third-party sellers that pay to promote their products on has seen phenomenal growth.

In the first quarter, the company’s “other” revenue — a category that is believed to be dominated by advertising sales — was up nearly 140 percent at US$2.03 billion.

Subscription services, including Prime, saw their revenue contribution jump 60 percent to US$3.1 billion. Amazon now has more than 100 million Prime members globally.

Reflecting the company’s confidence about its ability to retain as well as grow its subscription business, Amazon announced that it will be raising the yearly membership fee for US Prime subscribers to US$119 from US$99.

The fee hike comes as the company ramps up spending on video content, offering a strong incentive for users to stay with the paid service. 

Looking at the company’s growth, it becomes clear that the success of Amazon is not simply due to online retail, but largely due to the peripheral services that link Amazon members into a ballooning ecosystem surrounding the e-commerce operation.

From Amazon’s perspective, it is focusing on building member loyalty rather than just be a platform. The Prime service may be a cost center, but it is also a new revenue stream for the whole group.

That’s the reason why Amazon shares surged after the membership fee hike was announced last week.

Returning to Hong Kong’s HKTV, the firm would do well to learn from Amazon and realize that it needs to differentiate itself from competitors and build a loyal customer base through an array of services.

Currently, a HKTV customer who has spent HK$3,000 in a year is entitled to be a VIP member, enjoying free delivery service for purchases of HK$250 or above. To grow the revenues, the company should look at turning its VIP service into a paid membership model, offering the paid members free music or video content plus same-day delivery service for goods ordered online.

Such strategy can help HKTV boost user “stickiness” to its online platform and enable the firm to keep competitors at bay. 

HKTV, which was once a telecom service provider before it sold the HKBN unit to a private-equity fund in 2012, may need to go back to its roots and invest in telecom infrastructure to facilitate the growth of its e-commerce business.

Like Amazon, it can focus on cloud services and serve as one-stop solution for retailers that set up shop on the HKTV platform.

HKTV has been seeking to grow its business by investing massively and putting in place its own delivery and storage systems and facilities. That is a good short-term target to support the e-commerce operation.

In the long run, however, the company needs to think beyond transaction and offer more services to its users to ensure their loyalty.

The possibilities are immense, especially as the 5G era is set to unfold.

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EJ Insight writer

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