Hello War & Peaceniks! Today I take on an obsession of mine: Amazon.
Yes, Apple is the most valuable corporation in the history of the world. But IMHO, Bezos’ baby is the planet’s most powerful. Let’s look at how that happened, and how the smiling box that Bezos built plans to maintain that control.
When we meet Luke Skywalker at the beginning of A New Hope (fyi: the first Star Wars movie), he is a humble farm boy on a moisture farm (prophetic for 1975).
When we first met Jeff Bezos, he was a humble bookseller. Bezos warned his earliest investors that there was “a 70% chance Amazon will go bankrupt.” In fact, the company ran at a loss for a decade and nearly went bankrupt, before turning a corner in the early aughts. Bezos borrowed, begged and sold shares to keep reinvesting in the company, even while critics derided him.
Amazon would go on to start a cloud business at a time everyone else thought clouds only brought rain. Bezos borrowed billions to buy competitors, undercut prices in new markets and build out warehouses and become a powerful Trillion Dollar Death Star.
How tho‽
At the center of every move the Amazon-Bezos behemoth makes is the collective, notorious and dogmatic dedication to these four principles (from their website):
1. Customer Obsession. Other companies think about their customers. Some even care about their customers. Amazon treats their Customers’ needs and wants like religious text. Amazon starts with the Customers’ demands, and then builds products and business around them. There is no question that this cult-like devotion to the Customer is what turned Amazon into one of the most valuable companies in human history and made Bezos the world’s richest man (until recently). However, it also has a nefarious side.
“The Customer wants low price items delivered in a few days or less? Then we will undercut the market until we drive the price of that item down, even if it means losing money on every purchase and driving numerous small companies out of business to give it to them!”
Customer obsession has made Amazon into an amazing company. It has also driven it to do unquestionably bad things to its competitors, the environment and their own employees.
2. A Culture of Invention. Amazon is dedicated to inventing new shit to please the Customer, even if it means losing money. A lot of money.
If Facebook was built on the idea that “a million dollars isn’t cool – a billion dollars is cool,” then Amazon was built on the idea that “we will gladly risk a billion dollars to keep our Customers happy.”
Other companies take risks. Other companies lose money on good and bad ideas. Amazon is the only company on earth that repeatedly and happily takes billion-dollar risks, knowing that many, if not most, will fail, in pursuit of Customer happiness. That is how the Amazon Fire Phone happened. But it’s also what birthed Amazon Prime, and the greatest corporate Flywheel in history.
I defined flywheel previously, but, in the interest of clarity, here is a primer:
In mechanical and scientific terms, a flywheel is a part in a motor that creates and stores energy as it spins. The motor spins the flywheel at a minimum viable operating speed, BUT, when the motor needs MORE energy, rather than drawing more power from an outside source, the flywheel provides that energy back to the motor, from within. The flywheel allows its motor to act as its own power source, allowing it to pick up speed, without requiring more energy. This makes it totes efficient.
In business terms, a commercial flywheel is a set of internal systems which the company operates through an initial investment, and then generates more than enough resources than it requires to run, storing that energy and redistributing it to other parts of the company – as marketing, loss-leader investment, new opportunity, or new Customers – without requiring additional capital from the company or shareholders. A corporate flywheel allows a company to grow revenues, without needing a constant influx of cash, making it more profitable per Customer.
Perhaps my favorite Bezosism is “Failure and innovation are inseparable twins.” It perfectly explains how the Amazon Flywheel was created. It also demonstrates why so many companies – even successful and profitable ones – fail to build something so indelible.
When profits – the motor’s power – rise, many (most) companies let it fall to the bottom line, to shareholder dividends, and to C-Suite bonuses. No doubt that Amazon’s staff are well compensated and their shareholders quite satisfied. But that was, famously, not always the case. And that demonstrates…
3. A focus on long-term thinking. To understand this, reread #2. I’ll wait.
It’s important to stress how rare Amazon’s acceptance of failure, in pursuit of innovation, is. Ask anyone you know who has worked in a large multi-billion-dollar company how hard it is to get them to try new things. To experiment. To take even calculated risks. What they fail to see is that, in the long run, the avoidance of risk for the fear of failure, is a failure unto itself.
“Companies that don’t continue to experiment, companies that don’t embrace failure, eventually get in a desperate position where the only thing they can do is a Hail Mary bet at the very end of their corporate existence.”
- Jeff Bezos
Much will be written about how the pandemic brought failure to certain companies and certain industries. Some of what will be said will be true. But in the Media Universe, most of what happened was already in motion. Covid, the lockdown, and the economic downturn that ensued simply accelerated the inevitable. Meanwhile, every single one of the Trillion Dollar Death Stars had their best years ever.
Amazon doubled its market capitalization.
The Media Wars will not be for the faint of heart. Amazon’s religious focus on long term goals over short term gains got them to where they are, and, in my view, have made them the Death Star to beat over decade ahead.
4. Commitment to operational excellence. I am tempted to use the joke of “go read #1 again, I’ll wait…” but I won’t. Amazon’s obsession with their Customers is expressed in their operations. Their shopping site is the best in the world. Their delivery service is so good, many called on them to deliver mail in ballots in the 2020 election.
It's this dogmatic attention to operational excellence that gives Amazon an advantage in each market they enter. But it also can translate into ruthless business practices that may eventually come back to bite them in the ass. I often write about the business practices of the Death Stars, and how regulators will alter them, soon. But Amazon’s anti-competitive behavior is directly connected to their Flywheel. So, allow me to dwell a minute.
“Operational excellence,” at times, translates to: “We will crush any competition that threatens our dominance in a sector, no matter what.”
According to the US House Judiciary Anti-Trust Subcommittee:
Amazon uses sales and product data from its marketplace to identify and replicate popular, profitable items offered by third-party sellers. It will then create a competing product or identify and source the product directly from the manufacturer to free ride off the seller’s efforts, and then cut that seller out of the equation.
However, many sellers told the subcommittee they could not use alternative marketplaces, regardless of how much Amazon may increase their costs of doing business or how badly they are treated, simply because of the company's size.
One ex-employee told the Sub-Committee: ‘Amazon is first and foremost a data company, they just happen to use it to sell stuff.’
Dogma is useful when connected to a higher purpose. Amazon’s commitment to operational excellence is connected to a purpose – to make Amazon dominant in everything that it does, no matter what. It’s the “no matter what” part that sets them apart, and which may ultimately cause them trouble.
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