7 Surprising Things to Know About the Amazon Business Model
Take a long-term view, and the interests of customers and shareholders align.
That’s the Bezos quote and philosophy we really need to learn from. It’s the philosophy that has made Amazon so successful. It is the one philosophy that makes the Amazon business model really stand out. And the one that more American corporations need to embrace and understand.
Most of us are familiar with Amazon and Jeff Bezos, their CEO. Amazon is an e-commerce company in everything they do. They have developed all their expertise in full support of e-commerce. In fact, they now do e-commerce for many other businesses.
Amazon has existed in the e-commerce technology world since its inception. They think like a technology company and agile innovators, only innovative in everything they do, not just technology. They are not afraid to try new things and they can get things done quickly, thanks to the culture their CEO Bezos has instilled. (For more, see our article on Amazon and its business strategy.)
For years, I’ve been fascinated by Jeff Bezos’ vision. We write a lot about him and Amazon. They are a great company to follow because of the Bezos vision. And his ability to make good bets on his vision. While everything may seem rosy at Amazon these days, for years, it was amazing to see just how much criticism there was towards some of Bezos’ decisions.
For years — quite by design — the company focused on growth and expansion over profitability, earning complaints from investors. They are still focused on the future more than the present and that is why they are such good innovators. More recently, it’s done things that left many scratching their heads, such as the whole Amazon Web Services (AWS) effort, and even the Kindle effort — and yet both have proven to be quite successful.
Size and breadth of enterprise
Consider the size and breadth of the Amazon enterprise in three ways, what they are building, what they are buying, and how they are partnering with others. Amazon is going great guns in all three areas. Let’s consider some examples to illustrate:
Amazon is building its own unique brands and has 4 to date:
Amazon Basics — which represents its own electronics products. The Kindle and Kindle Fire are good examples
Amazon Fresh — which sells and delivers groceries.
Amazon Studios — an online social movie studio.
Amazon Warehouse Deals — a discount warehouse on refurbished products.
Amazon has brought almost 30 companies in thirty years. One of their most recent buys, ComiXology. ComiXology offers a well-designed app for buying and reading comic books from more than 75 publishers. It makes it easy to see new comics, which sell for the same price as in-store, and it’s easy to buy back issues, too. There are also always comics on sale, including collections for a great price.
Did you know that Amazon owns Zappos, Pets.com, and Diapers.com? All purchased to become part of the Amazon enterprise.
They partner to offer their e-commerce services to make other companies better at on-line business. Sometimes it’s just providing the service, other times it is to combine products, as they have done with Toys Are Us.
Amazon’s growth is a relative measure. Here are several comparisons that will surprise you. In the first 5 years of their existence, these are revenue comparisons:
Information technology is a core competency
Amazon is very aware that information technology is at the heart of their most important core competencies. Here are several that they use and also source to other businesses:
Unless you work in technology or corporate logistics, you might not have known that Amazon was ahead of Google in the cloud business. Most consumers will have encountered the cloud in the form of services where Google is strong — email (Gmail), document storage (Google Drive), and the like. But Amazon Web Services has for years been the front-runner in the business of renting computing power to companies.
To understand the scale of the war brewing between them, it helps to understand that what Amazon and Google are really contesting is who gets to eat a bigger portion of the total corporate information-technology pie. All the warehouses of servers that run the whole of the internet, all the software used by companies the world over, and all the other IT services companies hire others to provide, or which they provide internally, will be worth some $1.4 trillion in 2014, according to Gartner Research — some six times Google and Amazon’s combined annual revenue last year. Not surprisingly, both companies have said at one point or another that this new revenue stream has the potential to be larger than all their current sources of income.
Amazon Web Services
Amazon Web Services (AWS) is a collection of remote computing services that together make up a cloud computing platform, offered over the Internet. The most central and well-known of these services are the simple storage service (S3) and the elastic compute cloud (EC2). In 2010, Amazon launched 61 new services and features. In 2011, that number was 82. In 2012, it was 159. In 2013: 280. They are also expanding their geographic footprint, with 10 current AWS regions around the world, including the East Coast of the U.S., two on the West Coast, Europe, Singapore, Tokyo, Sydney, Brazil, China, and a government-only region called GovCloud. The development teams work directly with customers and are empowered to design, build, and launch based on what they learn.
Prime Instant Video
Prime Instant Video was launched in 2011 to provide customers streaming video on demand, analogous to books. In 2011 with 5,000 titles, they’ve grown selection to more than 40,000 movies and TV episodes. The Amazon Studios team continues to invest heavily in original content and will compete in the new TV market of the future.
Recently, the Amazon team launched Fire TV. Not only is Fire TV the best way to watch Amazon’s video offerings, but it also embraces non-Amazon content services like Netflix, Hulu Plus, VEVO, WatchESPN, and many more. In addition to Prime Instant Video, Fire TV gives you instant access to over 200,000 movies and TV episodes available a la carte. As a bonus, Fire TV also lets you play high-quality, inexpensive games on your living room TV.
Most innovative company
Amazon, we believe, is the most innovative company in America in an industry built around constant innovation and change. Why you may ask?
We believe there several good reasons. First, as one of the creators of the e-commerce industry, they well know the industry is in its infancy and is built on a foundation of new technology and constant introduction of new ways of doing things.
Second, they know their future is based on those trends. They also know to do new things well; they must be good at trying new ideas in many areas as experiments. These experiments, they realize, will not all work as planned, and some percentage will fail. They know and accept this without worry.