Amazon announced their fourth quarter results yesterday.
Now, remember back when the holiday season was coming to a close…at ForeSee Results we released our Top 40 Holiday Research and I wrote about it in this post, and guess who came out on top…Amazon and Netflix. And not only were they on top, but both had a substantial lead over the next closest pack of retailers.
There have been many reports about how tough this holiday season was; Comscore reported that online holiday sales were down 3% year over year. But based on our holiday research, we expected that there would be clear winners…and many others that suffered greatly. Well, Amazon reported that Q4 sales were up 18% from 2007 Q4. Pretty impressive results in a tough economy. And Netflix recently reported subscriber growth in Q4 of 26% year over year and revenue was up 19% in Q4 from the prior year. Also very impressive results…but not surprising based on their high customer satisfaction scores. In a tough economy the leaders in customer satisfaction lead the way in financial results as well. (This is of course also true in a good economy but I am guessing we have a while before we have to worry about that scenario.)
But why? In a tough economy the pool of consumer spending (or corporate spending) is either shrinking or not growing anywhere near the rate that we have come accustomed to. So what does that mean? Well, it means increased competition. And the competition is increased for two reasons.
First, the number of sellers are roughly the same as it has been and they are now competing for a shrinking (or slower growing) pool of customers. That translates to increased competition.
Second, switching costs on the Internet are very low, especially when compared to other channels. For example, if you are shopping in a store, to go and shop at another store brings with it a cost to the consumer. You have to take the time and effort to switch and you may not find anything better. But on the web it is a different story. You can clone yourself by opening up another browser and be in two places at the same time, with almost no effort. A very low switching cost. That translates into increased competition.
So with increased competition the winners are going to be the ones that are providing a high level of satisfaction to their consumers. (Amazon and Netflix)
So how do you win? Satisfy your customers…and remember you cannot manage what you cannot measure.
Both Amazon and Netflix are in the midst of a full-on push to get digital video content into the living room. Amazon via its On Demand service, and Netflix through its streaming service. The two are battling the likes of Apple (with the Apple TV) and to some extent Microsoft (though Netflix also works on the Xbox 360 — and Netflix CEO Reed Hastings is actually on Microsoft’s board).
Subscribers. Netflix ended the fourth quarter of 2008 with approximately 9,390,000 total subscribers, representing 26 percent year-over-year growth from 7,479,000 total subscribers at the end of the fourth quarter of 2007 and 8 percent sequential growth from 8,672,000 subscribers at the end of the third quarter of 2008.