More Amazon Moves into Ecosystem Adjacencies Shows Market Disruption Often Comes from "Outsiders"

Movement into adjacencies always is a key competitive issue within any ecosystem, as it turns former customers into competitors. That happens with chipsets, applications, access, transport, advertising and other support services.

Movement into adjacencies within an ecosystem also is common in retailing, as when major retailers sell “house brands,” for example.

Now it appears Amazon could introduce its own clothing brands, to sell merchandise some brands will not allow to be sold using Amazon channels. And some argue Google, for example, should buy AIG, the giant insurance firm, to create the basis for a financial tech business.

Such potential moves illustrate one key principle of markets that are disrupted either by technology, new pro-competitive regulations, or both.

It often is the case that the most-dangerous competitors come from “outside” the traditional domain.   

Skype, Amazon, Alibaba, Netflix, Google Fiber, cable TV entry into voice and business services, XBox, PayPal, M-Pesa, Amazon Web Services and iTunes are among the obvious examples.

They will not be the last entries into existing markets by “non-traditional” providers.

Some now think Amazon, for example, will make a big further move in the e-commerce business will happen, as logistics functions perhaps are internalized.

No ecosystem now seems safe from movement into adjacencies. In the U.S. mobile market, entry by Comcast and other cable TV operators will be an important example. In the high speed access, growing presence of Google Fiber and other third party Internet service providers is going to challenge prevailing notions of how many providers are sustainable, long term, in the fixed network business.

We once widely believed the answer was “one.” Over the last couple of decades, the number has become “two.” What Google Fiber and others pose is a new question. In some markets, is the viable number actually “three?”

That would represent a major business model challenge for the incumbent suppliers, as any major change in market structure always entails.

In addition to the urgency of creating new revenue sources, operating costs have to be taken down even more than had seemed possible in the past.

The broad point is that market disruption, in the Internet era, typically is a result of entry by non-traditional entities into domains dominated by others.

That is why service provider executives, when asked about their key competitors, often say “Google,” rather than “other telcos” or even “cable TV competitors.” The perception is warranted.
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