Good news for those of you who like, and use, the 1-click purchase tool provided by Amazon.com, Inc. (NASDAQ:AMZN) — the company’s patent on the utility is set to expire this year, meaning other companies will soon be able to make it super-easy to buy pretty much anything on the web.
It’s superficially bad news for owners of AMZN stock, of course, as the tool facilitated revenue that may not have otherwise materialized if a shopper was forced to work through a two-stage (or more) process to make said purchase.
Although no empirical evidence of the benefit of 1-click has been offered, many say the technology has facilitated billions of dollars worth of incrementally more business for the e-commerce giant.
That said, while Amazon’s impending loss of patent protection on the business process could be troubling to AMZN stock owners, a closer, critical look at 1-click suggests it’s not just the function/feature that kept Amazon.com’s digital competitors at a disadvantage.
AMZN: E-commerce Made Easy
The value of 1-click is mostly an arbitrary one. A few years back CEO and Co-Founder of Rejoiner Mike Arsenault used a working figure that suggested the technology was responsible for 5% of the company’s sales, while Forbes contributor Ian Morris recently came up with a more specific suggested value of $2.4 billion.
Although there’s no great way of quantifying its value and impact, the patent does lend itself to a qualified assessment.
Anyone who has ever made a purchase of any kind on the web knows it can be a bit of a pain. Not only must payment details be entered at the time of purchase, but shipping instructions must also be added. Too much hassle during the procedure (called “friction”), and would-customers abandon their efforts to buy something online before the transaction is completed. Specifically, a collection of tech companies estimate the “abandoned” web-based shopping-cart rate to be about 68%.
What if, however, a consumer could simply click one button in their browser, and boom — it’s done? That’s what 1-click does.
And it matters, if the rise of the iTunes store from Apple Inc. (NASDAQ:AAPL) is any indication.
The growth of iTunes has largely been credited to its license to use Amazon’s 1-click platform. Steve Jobs knew years ago the key to the digital content site’s success was making it stunningly easy for consumers to spend. Apple licensed Amazon’s technology in 2000, after the patent was issued to Amazon in 1999, and saw its digital content business soar from practically nothing to a $6.3 billion business by 2011.
Sure, the advent of the iPhone helped, but one could argue that 1-click also helped popularize the iPhone as a way to consume digital content.
There’s a subtle-but-significant fly in the ointment of the theory that Amazon’s smashing success relied on 1-click and that competitors will eat its lunch once its patent protection is gone, however. AMZN stock owners should be thrilled.
1-Click Is Only Part of the Amazon Stock Success Story
As difficult as it may be to determine how much of the 4,800% gain Amazon stock has dished out since the end of 2000 is solely attributable to 1-click, it would be short-sighted to ignore another key fact of the matter. That is, all of those users were or became AMZN customers for reasons other than 1-click.
Giving credit where it’s due, it was Econsultancy’s David Moth who recognized years ago that easy online payments was only one pillar in Amazon’s growth, particularly after mobile became the new norm.
For starters, Moth points out that AMZN was one of the first major names to develop a mobile-specific e-commerce website, syncing that shopping cart up with the same user’s desktop shopping-cart (if logged in at the same time). He also recognized — and this is big — that Amazon’s call-to-action screens are simply more compelling than its competitors’ pages.
Perhaps the most significant factor of all, though, is that Amazon actually sells almost any product you can think of, making it easy to seamlessly connect the order for merchandise and the payment for it. PayPal Holdings Inc (NASDAQ:PYPL) was and still is only a middleman. Ditto for Apple Pay. Even if other tech companies deploy a 1-click alternative of their own, they’re still relying on a third-party to supply and ship goods. Never even mind the fact that Amazon was only granted patent protection for 1-click in the United States. Its requests for patents in other nations were rejected, but that didn’t prevent the e-commerce outfit from becoming a force in those markets.
Bottom Line for AMZN Stock
In other words, Amazon stock is still going to be the king of e-commerce, as it has already won the hearts and minds of more consumers than its competition has.
Other players are apt to unveil similar tools in the foreseeable future, but with the exception of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) leveraging product-based searches initiated via the Google search engine, those other companies are still going to struggle to take market share back from Amazon. Even then, Alphabet is years — and miles — behind AMZN stock on the e-tailing front.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
