The Grand Theory of Amazon - YouTube

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On February 28th, 2017, you might’ve thought the internet was down.

4 hours without Netflix, Spotify, Buzzfeed, Reddit, Dropbox, Pinterest, Imgur, League,

Tinder, and thousands of others,

Even the site that reports outages.

That’s embarrassing.

If the world was more productive that day, now we know why.

r/Outside become, just, ya know, outside.

A shark hadn’t bitten an underwater cable, nor was it five/nine, Just an Amazon engineer’s

typo.

Probably a stressful afternoon in Seattle, but also an impressive demonstration of the

company’s size and power:

Amazon Web Services hosts so much of the internet that for many people, myself included, it

basically is the internet.

We know Amazon as an online store, Companies store their products in its warehouses, which

handle the marketing, and shipping, and returns.

For us, this means total convenience - one click away from $125, 27-pound gummy bear

pythons, or 5, crisp, 2 dollar bills for $20.

Wait, that's not how money works…

A hundred thousand companies make over a hundred thousand dollars a year this way.

But for Amazon, it’s only a fraction of their business.

There’s also Twitch, Whole Foods, Kindle, Alexa sensibly named Echo, Echo Plus, Echo

Dot, Echo Dot Kids, Amazon Tap, Echo Connect, Echo Spot, Echo Show, and Echo Look, also

a completely different Alexa, Fire Tablets and TV, Prime Music, Video, Pantry, Ring Doorbell,

Zappos, IMDb, Fresh, GoodReads, and over 70 consumer brands you’d never know they owned.

whew.

Hardly a month goes by where they don’t enter and dominate a new industry,

Just trademarking the slogan “We do the prep.

You be the chef.” was enough to drop Blue Apron’s stock 12%.

They’re even investigating pharmaceuticals, education, and finance.

Amazon defines its competitors as “publishers, producers, and distributors of physical, digital,

and interactive media of all types and all distribution channels”, among others.

That’s, like, everyone.

Which raises the question: is Amazon… scatter-brained?

Many of these products have nothing in common.

Yesterday they wanted to conquer streaming video.

Today, sell organic grapes in grocery stores.

Tomorrow, who knows?

And their ideas, increasingly let’s say, creative: 2-day delivery?

How about 2-hour delivery, a 3D smartphone, a grocery store without employees, a front

door that unlocks for delivery drivers, A flying warehouse complete with detachable

drones.

For all its success as an online store, more and more, it also seems distracted.

At least, that’s how it looks.

The only way to make sense of their actions and mistakes, and anticipate their future,

is to see the world as they do.

And there are three pillars to Amazon’s plan for world domination:

To really understand Amazon you have to understand Jeff Bezos

Like Steve Jobs or Elon Musk, the philosophy of the man is that of the company.

Apple was founded by people in love with technology and its design.

No matter how big the company gets, this will always be reflected in its decisions, priorities,

even mistakes.

Amazon began as a bookstore, but that was never its heart and soul.

or spine

Bezos chose books because no one bookstore could hold all of them, warehouses visited

on the internet could.

But make no mistake: They aren’t a book company, a website, a delivery network, or

even a retailer.

Amazon is a scale company.

Bezos understood that when you take something and multiply it a hundred, thousand, million

times, you can do things all the small businesses in the world never could.

A tree is a tree.

But put 400 billion together and you have the Amazon rainforest, a force so powerful

it controls the world’s climate.

From any other company, this sounds like generic business-speak.

But Amazon really means it.

We say a company is focused if it specializes in beverages, or cars, or bad website design,

and puts all its XP into that ability.

Amazon is rare in that its specialty isn’t the product itself but its scale.

That’s the focus.

When considering a new product, the flowchart is pretty simple: “Would this benefit from

being a thousand times quicker, bigger, easier?”

If so, you can bet Amazon either sells it, or soon will.

It’s easy to stop there, Sit back and enjoy the profit.

But Amazon asks “Okay, now what can we do?”

And this is why it’s unstoppable: the snowball effect.

First, get as many users as possible.

Give out $50 tablets, free shipping, license Echo to every company willing.

More users bring more data, which helps improve the product.

And the better product attracts even more users.

They aren’t just making it easy to live off Amazon, they’re making it hard not to.

That’s the power of data in the hands of someone operating at this scale.

It’s why there’s now a movement to limit this,

why companies like Digi.me, who I’ve previously mistaken for a data collection company, actually

let users manage and safeguard their information.

And the results are things like Prime: It may lose money on the heaviest shoppers, but

with a hundred million of them, they’re winning a lot more than they’re losing.

So why purchase competitors like Whole Foods?

Exactly because it’s not what they’re good at:

Books never expire, well, some do.

But groceries, not so much.

You have to go back repeatedly, putting Amazon in your routine.

And with so much shipping,

Spending $11 billion fulfilling 300 million packages in 2015, they can do something almost

no-one else can: Compete with UPS and FedEx.

They already lease 32 Boeing 767 cargo jets, and plan a massive cargo hub in Kentucky,

But that’s just the beginning.

After announcing a new $79 Kindle, Bezos wrote

“There are two types of companies: those that work hard to charge customers more, and

those that work hard to charge customers less.

Both approaches can work.

We are firmly in the second camp.”

And he’s really not kidding…

The parts alone cost $78.59, plus $5.66 for assembly.

That’s a loss of $5.25 for every Kindle sold, not including things like marketing,

licensing, and support.

And sure, there are ads, but only as an option,

Companies like Facebook and YouTube are fundamentally advertising companies.

No matter how well-intentioned YouTube employees are, unless something drastic changes, the

company will always prioritize advertisers over creators.

That’s the business model.

And then there are customer companies - where You and I decide what gets demonetized.

Apple is comfortable charging more for †he very best experience,

And for Amazon, helping the customer means making us pay as little as possible.

Both are loved in a way that’s impossible for an advertising company.

You might say - “They only care about the customer to make more money”

And maybe you’re right, there’s no way to know, but the effects are the same,

When Apple refused to unlock the San Bernardino iPhone,

When Amazon takes a loss for the sake of our wallets,

and offers some of the best customer support I’ve ever had,

It may only be a calculated business decision, But it’s great for us.

Of course, when the customer comes first, everyone else comes second.

Employees can be easily be forgotten in this never-ending quest to satisfy us.

Here’s how Bezos describes it:

“One thing I love about customers is that they’re divinely discontent.

Their expectations are never static.

It’s human nature.

We didn’t ascend from our hunter-gatherer days by being satisfied.”

This is the hedonic treadmill - no matter how much our lives improve, our expectations

simply adjust.

Almost any other company would resent this - constantly having to improve their products,

even the rate at which they improve.

But Amazon embraces it - they’re just as discontent as we are.

Except, if there are billions to be made by concentrating on scale and customers, why

can’t anybody else do the same?

How can a tiny online bookstore do something exponentially better than Walmart, the world’s

largest company by revenue?

It's easy to think of the CEO as the supreme leader of a company

but “Even Bono Has A Boss”.

In this case, shareholders.

The longer a company loses money, the greater its risk, and the more anxious get investors.

But for Amazon - lack of profit isn’t just tolerated, it’s celebrated -

They could stop and make a dollar, they’d rather wait and make five, Using profit from

things like AWS to fund projects like Kindle and Echo.

Because Bezos is so open about this, shareholders sign off, and they can think far into the

future.

Those cargo planes?

Not so cheap.

But that doesn’t stop Amazon.

Supermarkets operate at a 1% profit margin - but Amazon can buy Whole Foods, and actually

lower prices.

It also gives them freedom to experiment.

The Fire Phone was never ready for, ahem Prime time, but that’s a small price to pay for

this strategy.

MoviePass, Snapchat, Uber, Spotify, Blue Apron, all starving companies following in Amazon’s

footsteps, crossing their fingers money will come later.

Ex-Google CEO Eric Schmidt says Amazon is already Google’s biggest competitor.

AWS competes with Google Cloud, Echo with Google Home, Prime and Express, YouTube and

Twitch Even search.

A company this diversified will face plenty of challenges,

A lot will change in 10 years, but we’ll always want low prices, fast delivery, and

easy shopping.

As Amazon conquers one industry after another,

they may only have one real competitor: the government, who may say “Do not pass go,

and do not collect $200”.

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