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How Amazon Became Corporate America's Nightmare (bloomberg.com)
Zorro shares a report from Bloomberg that details Amazon's rapid growth in the last three years: Amazon makes no sense. It's the most befuddling, illogically sprawling, and -- to a growing sea of competitors -- flat-out terrifying company in the world. It sells soap and produces televised soap operas. It sells complex computing horsepower to the U.S. government and will dispatch a courier to deliver cold medicine on Christmas Eve. It's the third-most-valuable company on Earth, with smaller annual profits than Southwest Airlines Co., which as of this writing ranks 426th. Chief Executive Officer Jeff Bezos is the world's richest person, his fortune built on labor conditions that critics say resemble a Dickens novel with robots, yet he has enough mainstream appeal to play himself in a Super Bowl commercial. Amazon was born in cyberspace, but it occupies warehouses, grocery stores, and other physical real estate equivalent to 90 Empire State Buildings, with a little left over. The company has grown so large and difficult to comprehend that it's worth taking stock of why and how it's left corporate America so thoroughly freaked out. Executives at the biggest U.S. companies mentioned Amazon thousands of times during investor calls last year, according to transcripts -- more than President Trump and almost as often as taxes. Other companies become verbs because of their products: to Google or to Xerox. Amazon became a verb because of the damage it can inflict on other companies. To be Amazoned means to have your business crushed because the company got into your industry. And fear of being Amazoned has become such a defining feature of commerce, it's easy to forget the phenomenon has arisen mostly in about three years.
Bezos clearly does NOT subscribe to the "maximize shareholder value" religion, and is not running Amazon as the typical modern "paper clip maximizer" that so many corporations have become. Instead, he emphasizes quality service, low prices, and acts (horrors!) as if customers are people and not simply cows to be milked.
The result is, if I need something, I check Amazon FIRST, and frequently last, as well.
Modern corporations would do well to learn from Amazon, instead of quaking in terror.
Amazon's core competency is logistics. They're the ultimate middle-man. If you're a middle-man of any sort, then you're likely to fear Amazon entering your industry. I'm just waiting for them to get into brokering finance and real estate, then the economy will REALLY freak out.
Once machine learning gets better, the same software can be redeployed into ANY market, to outcompete humans (think AlphaGo learning Chess recently). Sure, you may not have a robo-realtor better than the best 5% of human realtors. But you don't need to beat the fifth percentile, you only need to beat the 50th percentile. At that point, no human-based operation will be able to compete.
Corruption is convincing someone that the selfless ideal is the same as their selfish ideal.
Maybe that is because Amazon does what others only preach: putting the customer experience first. Whatever Amazon does, it is always motivated by this.
Something that I've seen happen time and again with a lot of companies is the gutting and outsourcing of anything they don't regard as their "core competency". This reduces their corporate risk (easy to squeeze or drop a supplier in hard times) but it is insidious, and consumes the company from the inside. Eventually they are left with no competencies in anything except outsourcing and financial engineering.
So many of the individuals I work with are from the big outsourcing and management consultancy firms. It's everything from technical specialists, hr personnel, project managers and right up to fairly senior management. Some firms are little more than procurement and accounting departments with a brand, they don't actually have the skills/knowledge to do anything any more.
Amazon goes the other way. It is constantly insourcing things, and building up it's own skills in any field where it thinks it can do better than the existing suppliers. It treats things like the web store and the video service as it's first customer to get things started and drive development, and then spins round and makes it open. AWS is the obvious and most visible one, but their warehouse and logistics arm (certainly here in the UK) and even the web store are increasingly just a service that other people use to sell their stuff. I'd say about half the things I buy on amazon are sold by a third party but shipped from an Amazon warehouse by an Amazon Logistics delivery person.
This is why buying Wholefoods should terrify the entire food industry, and not just their direct retail competitors. Wholefoods is their new "first customer" for the supply chain management and sourcing of perishable goods and groceries, something they've struggled with scaling in the past. Once they turn all the back end systems (tech and people) into a service provided to Wholefoods retail, they will probably once again make it a service that other smaller retailers can tap into, and also use it to juice up other services like Amazon Pantry and Subscribe and Save.
They are prepared to take on almost anything and have a go, even if it ultimately fails (see the Fire Phone). Meanwhile much of the rest of the corporate world is taking the low risk, slow growth route powered by financial engineering where execs are more concerned with pointless mergers and restructuring than about actually doing anything concrete.
Paul Leader
Maybe all of these companies with higher profit margins than Amazon should be reinvesting more of those profits towards their long term viability instead of fixating on quarterly earnings and shareholder dividends. These companies have the resources to compete, they're just afraid of the disruption it'll cause and investors tanking their stock because their growth was a few tenths of a percent off of what they predicted.
If you want an insight into why Amazon is so different and so unlike any other company, you only need to look at their 1997 cover letter to their investors which has been added to every other investor letter since. A quote from the letter: "It’s All About the Long Term We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital." (Source: https://www.amazon.com/p/featu... - 1997 letter is at the end) Unlike most companies, which concentrate on shareholder value or profit or margins, Amazon is focused on one thing and one thing only. BEING THE MARKET LEADER ANY MARKET THEY ENTER. At any cost. Seriously; they care less about profit than they do about being number one in anything they do, no matter what. How do you compete with someone when their only mode is 'full out'? When the only thing they care about is beating you, even if it costs them profit to do so? There's an excellent video that explains this strategy here: https://www.youtube.com/watch?...
Reword it:
It lets users buy what they want, when they want it, at a decent price.
Shocking that in this day and age, someone considers that a "scary" business plan.
My workplaces were spending tens of thousands a year on Amazon... ten years ago. And now there's Amazon for Business, they can centrally manage it.
Older people, not necessarily au fait with technology, are always shocked when I say "Have you tried looking on Amazon?" Everything from jars of sweets for a community event to hot tubs to laptops to videos to music to telephones to spare batteries for their old phone to garden houses to board games to new plastic drawers for their freezer to parts for their car to envelopes. They don't consider that one place can sell all that.
But, is it that shocking? I don't remember ever reading in books when I was younger where they discussed a future where "You'd still have to go to ten different shops to buy things". It was always "You can have all your shopping delivered, and parts for your car, and get it all from one place, and be charged automatically for your purchase straight out of your bank account without leaving the comfort of your own home!!!". We knew that that was what we wanted 50 years ago. Amazon delivered it (pun intended).
I think it's only a shock if you never sat and thought about it. To me, though it was surprising to find someone actually doing it, it was more a case of "about bloody time". I work for a school, the Amazon account has no less than 50 different names on it because it's used for every department - from hundreds of iPads down to a box of paperclips.
Rename Amazon to "Global MegaCorp" and you wouldn't notice the difference. We've been talking about it since we ever started imagining the future. And while users benefit, they will win. They can't just ramp up prices now they have the custom, even after everyone else goes. A competitor would still sweep in and remove them if they tried, and it would start in one niche and then grow like Amazon did (remember when they only did books?).
Personally, while it's beneficial to everyone, who cares? So long as they pay tax, I get the product I want cheaply, the seller sells enough to make profit and the middle-men make their money delivering, who cares? Little tiny local specialist shops are dying for a reason. Nobody cares, while they can get the same stuff more conveniently. They may pay lip-service to "supporting the local shops" but they just want the product, really. If they wanted the atmosphere, they'd pay for entry to the shop, not the product they sell.