Amazon learns how to fail faster

In just the last couple of days, Amazon shut down its private-label diaper product (only six weeks after launch) and withdrew its mobile wallet (six months after a prominent rollout).

These moves come just six months after the almost universally booed launch of its Fire phone. Is Amazon, the legendary master of all things e-commerce, cutting back on its due diligence? Or is it simply adjusting to what seems to be a much faster pace for 2015?

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“The company is under a tremendous amount of pressure to throw a lot of things against the wall. There are going to be a lot of things that won’t stick,” said Sucharita Mulpuru, a veteran e-commerce analyst with Forrester Research. “It’s good that they are recognizing that things need to be pulled quickly. No reason to let things linger.”

But, she added, “it does seems to suggest that (less of a focus on due diligence) is what is happening.”

Tom Forte, a Wall Street analyst who is a longtime tracker of Amazon, is still bullish on Amazon, but points to mobile-fueled market shifts that are rapidly forcing new behaviors, both in terms of due diligence and how long weaker-than-expected market performance will be tolerated.

“To me, what’s different is that we’re in a stage of the Internet cycle where a lot of categories are going to merge. That feigns the appearance that they are exiting products more quickly,” said Forte, who today tracks e-commerce and logistics issues for Brean Capital. “The amount of change is so significant and the pace of change is so fast, it creates the false appearance that they are exiting faster or that there has been a change in strategy.”

The two most recent product pullbacks — diapers and the mobile wallet — were very different situations, but they shared two elements. First, both represent necessary strategic moves by Amazon. Diapers are part of the margin-enhancing private label campaign, one that Forte — like others — has argued is critical for Amazon’s long-term survival. And the mobile wallet is also a top strategy, a defensive move to keep rivals Apple and Google from controlling how shoppers pay for products and services on mobile devices.

Amazon was correct in needing to attack those segments, just as it had good reason to attack the smartphone segment when it rolled out the Fire phone. But that doesn’t mean that the products were attractive enough to generate significant sales.

And that speaks to the second shared element:  Both were late entries into very well-established markets with extremely dominant players. Hence, Amazon didn’t need products that were merely good; it needed products that were materially better in some way.

As for the diapers, Amazon abruptly yanked them from the site last week and shut down prepaid diaper subscriptions.

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“Based on early customer feedback about Amazon Elements Diapers, we are making some design improvements. We’ll let customers know when new diapers are available,” Amazon spokesperson Nell Rona said in an emailed statement.

The Amazon Wallet was shut down January 21, some six months after its launch.

“We’ve learned a great deal from the Amazon Wallet beta program,” said Amazon spokesperson Tom Cook, “and (Amazon) will look for ways to apply these lessons in the future as we continue to innovate on behalf of our customers.”

Brean Capital’s Forte tried putting Amazon’s efforts into a historical context.

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“As a general rule, Amazon goes into a new category or a new country with a 5- to 7-year investment horizon,” he said. But within a given category, a specific product implementation may get much less time to prove itself.

“Amazon is not above pulling out of something that isn’t working,” he said, pointing to an early effort to bill monthly for Prime as an attempt to hurt Netflix. “That was short-lived.”

Part of the change is also a willingness to try experiments, without the need to stay long if sales don’t materialize quickly.

“Amazon is investing in a lot of different categories. They are willing to try a lot of things,” Forte said. “Unlike Google or Apple, they don’t have a high-margin business. They have to be somewhat selective. I applaud their willingness to try so many different things. I’m a believer that Amazon can make adjustments.”

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