Warning: This is an old writeup from 5th grade, so it might be cheesy and not very well written but it was still really fun and something I was into back then.
The Key to Amazon
Amazon is well dominating every market out there. You can assume that you just made a company called Reality Sensation and you make VR and Amazon bought you for $5,000. Great. But why? Why isn’t Amazon happy with what it has. Amazon can buy any of the small companies and acquires it.
Amazon seems like a scattered and unfocused company. This day they made a kindle next a grocery store then Virtual Assistants. Never a month goes by without them dominating and taking over another industry. They bought so many stores like Whole Foods and so much more. Amazon is the internet. Their AWS services is dependent on by the Federal Government. Thousands of websites work with them. But this is so scattered still. To understand them you have to look and see what they see. And to understand that there are 3 pillars to their fundamentals of amazon life.
Economy Precise
The First Factor: Scale
Scale is the first factor. To understand Amazon first you need to understand Jeff Bezos. Like every other company the philosophy of the CEO is the philosophy of the company. Apple Steve Jobs was love with technology and design. This is widely reflected no matter what happens with decision and even mistakes. Amazon started as a bookstore online because no one book store physical could hold all the books. The internet could. Bezos chose bookstore because it was that short problem. But in its true heart and soul Amazon is a company of scale. No they are not a separate retailer, website, delivery network, no. Bezos understood that if you take a product and multiply it by a 100, 1,000 or million you can do something no other small company can. Take example a tree, then multiply it by 400 billion you can have a Amazon rainforest so powerful it can control the world’s climate. Jeff Bezos himself said that Scale is the business model of Amazon. We call a company focused if it is focused on a car or a phone or a gaming console and puts all its ability into that one product. But Amazon’s speciality is not about its products. Its the scale of their products. Basically the flowchart Amazon follows when releasing a product is would it benefit if it was multiplied 1,000 times and made bigger easier and quicker. If yes they’ll sell it or no they soon will redesign and sell. Jeff Bezos can stop there and see all the profit flow. But no they won’t. They will be like ok now what can we do. This is called the snowball effect.
The Snowball Effect: Acquiring Users and Data
The first step to doing this is getting as many users as possible. Give Free shipping, cheap $50 tablets and give out whatever you have to big companies such as small licensing. More users means more data which will help improve the product. After that a better product means there will be more users. This cycle will keep going until it reaches a point when you are unstoppable. It makes it hard not to shop Amazon. This is what happens when a company at this scale can do with so much data. The result from this is things like amazon prime. It may lose with things at heavy shopper but like the multiply aspect that was talked about 100 million shoppers means more money you get than lose.
Strategic Acquisitions and Infrastructure
So why purchase things like Whole Food. Well its because its not what they are good at…similar to Apple like when they purchase a company to add features such as Touch ID they bought Authentic. Groceries shopping never ends and that means you keep going back to amazon and ship more to see it on your doorstep almost a day later. This also benefits in making things like amazon fresh and help by consuming other companies. And spending all this 11 billion dollars on 300 million packages of shipping they can do something other companies can’t such as compete with UPS and Fedex. They already lease 32 Boeing 767 and a huge cargo harbor in Kentucky. That isn’t so cheap but its scale helps it do so.
Customer Obsession
Charging Less vs. Charging More
Second is customer obsession. After releasing the $79 kindle, Bezos wrote a very valuable statement.
There are two types of companies. One that works hard to charge customers more and one that works hard to charge customers less. Both of these approaches work. We are firmly in the second camp.
And when he says that he really means it. The parts alone for the kindle cost $78.59 and minus $5.66 for assembly excluding things like marketing, support, and licensing. This means $5.25 loss per kindle. Ads are optional but its just an option.
Contrasting Business Models: Advertising vs. Customer-Centric
YouTube and Facebook are only advertising companies at the heart no matter how well intention Youtube employees are unless something drastic changes they are still an advertising company. No matter what, these 2 companies will always prioritize advertising over the creators. That is the business model. Then there are the customer companies like Apple and Amazon where we choose what gets demonetized. Apple is comfortable charging more for the very best experience and for Amazon helping the customers means paying as little as possible. Both are great in such a way that YouTube or Facebook or any other advertising company will never be able to achieve. Youtube might say we care about the customer making more money by the ad monetization for your YouTube channel. Maybe thats true but there is no way to know for real but the effect is the same. Its like when Apple refused to unlock a criminal’s iPhone or Amazon losing for the sake of customers paying less, and offering the best customer support ever. It may just be a business decision but its a great experience for customers.
The "Customer First" Rule and Its Consequences
The rule is always when customer comes first then obviously everyone else comes second. Employees of Amazon or Apple thats why are in a rough state. In Amazon, employees are angry because they are working in this continuous snowball effect and in Apple they are well all fighting against each other trying to be better than the other and in the rush to make the best experience possible they also are quite pushed. Employees are easily forgotten in this never ending quest to satisfy customers.
Divine Discontent and the Hedonic Treadmill
Bezos describes it as he loves customers so much because of their divine discontent. The expectations are never static or fixed. It keeps changing. All the way from 2 day shipping to 2 hour shipping to 2 minute shipping to even 2 second shipping. Its pure human nature. This philosophy is called the hedonic treadmill. No matter how much life improves our expectations simply adjust. Other companies would hate this having to constantly improve their product and even the rate at which they improve. Amazon is just like customers where their expectations keep rising again contributing to the snowball cycle I talked about earlier. If there is money to be made by concentrating on scale and customers, how did Amazon become from a book store to something exponentially better than Walmart( being the world’s largest company by revenue), why can’t others do the same thing?
Long Term Thinker
Shareholders and Long-Term Vision
Third, is its a long term thinker. Its easy think that Jeff Bezos has no boss because he is the supreme leader of the whole community. But he does and its share holders. The longer a company loses money the more risk it is at and the investors get more anxious. But at Amazon, loss of profit is not taken badly, its celebrated. They could make quick money and get $10,000 but they would rather wait and make a hundred thousand.
Diversification and Funding New Ventures
Amazon as you know it as a online shopping tool is not all it is. That is only 1 third of its entire revenue. Amazon keeps its services as its static that will only grow and Amazon shopping like its a gambling game. They will use money from services like AWS to fund projects like echo or kindle or fire. Because Jeff Bezos is so open about this whole money thing, shareholder are easily signed off by and they think far into the future what Amazon can do. The Boeings are not so cheap. But Amazon can buy Whole Foods still and lower those prices. Supermarkets run at profit margin of 1%. This means that Amazon has room to experiment.
Competition and Enduring Principles
Already Google and Amazon are their biggest rivals. Google Cloud competes with AWS, Google Home competes with Echo, Amazon Prime and Google Express, Youtube and Twitch, even search. A company this diversified will face many challenges but over 10 years a lot will change but we will always want low prices, fast delivery, and good quality.