How Jeff Bezos Built Amazon As The World’s Most Valuable Company.
Jeff Bezos’ focus on customers allowed him to broaden the focus and overcome industrial boundaries.
Amazon that’s started as an online store to sell books. Now, competing with every market leader in every industry. Be it E-commerce or Manufacturing or Web Services, or even Hollywood. Amazon’s undeniable success is not in narrowing its focus. But it’s in broadening the focus.
For so many years, it’s been taught to MBA students that a strategy is all about focus. But Jeff Bezos seems to be deviating from this strategy. He changed the old rules of the game. That by being better and cheaper, you can have an advantage over your competitor. And this works fine for a product-based company that sells a single product to a single customer. By scaling up your operations to become a low-cost producer, you can become better and cheaper. But Jeff Bezos’ strategy is to connect products and connect customers.
Connecting products is a classic razor-blade strategy. You sell razor cheap to make commissions on blades. Amazon got into the manufacturing of Kindle devices to make money on eBooks. But what Amazon did to make this technique unique is that Amazon connected the razor of one industry with the blade of another.
Amazon is an E-commerce player. One would think that why amazon got into making movies and TV shows. And the answer is that unique razor-blade strategy. The purpose of these movies and TV shows is to gain more Prime Customers. Amazon knows that prime customers are more loyal and less price sensitive. They purchase three to four times more than non-prime customers. It is an excellent example of a razor being in one industry while the blade is in another.
Bezos wrote about this in his book, Invent and Wander, “We might be the only company in the world which has figured out how winning Golden Globe Awards can actually translate into selling more products on the online commerce.”
“When we win a Golden Globe, it helps us sell more shoes.” — Jeff Bezos
Another example of connecting products is that Amazon has a lending business to help grow small and medium enterprises. When these businesses grow, they will eventually end up on the Amazon marketplace to sell products. And as a result, Amazon will make money with these transactions. Again loan will be a razor and, those transactions will be the blade. That’s how Bezos changed the fundamental rule of strategy.
The second part is connecting customers, which is a classic network effect. Amazon is sitting between customers and merchants. The more buyers there are, the more sellers will be on Amazon Marketplace, which brings more buyers. And this will create a flywheel effect and a situation where it becomes hard for other companies to compete.
On the other hand, by keeping its focus on new skills and capabilities to keep customers on its platform, Amazon masterly manages its diversified business portfolio. Amazon has three core capabilities, Customer Centricity, Logistics, and Technology. Every experiment, every acquisition made by Amazon, is somehow connected to these three capabilities.
“What’s dangerous is not to evolve.” ― Jeff Bezos
In meetings, Jeff Bezos always tells his employees to think of imaginary chairs on which customers are sitting. Because customers are where our focus needs to be. For Bezos, customers will always be obsessed and will never be satisfied. And that pushes him to innovate and move forward. Even if it means learning new skills and capabilities.
“We see our customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better.” ― Jeff Bezos
Amazon is a world-class player now in logistics and warehousing. The acquisition of Kiva Systems has made it possible to increase the efficiency of its logistics and warehouse. And the effectiveness of its logistics system made it possible to deliver 10 billion packages in the year 2018.
And the third is its capability to manage technology infrastructure. And an excellent example is Amazon Web Services or AWS. This allowed Amazon not only become one of the largest online retailers in the world. But, also a dominant player in the Cloud Computing market.
The key takeaway is that by changing old rules of strategy, Jeff Bezos became able to compete with almost every big market player. Jeff Bezos’s obsession with customers allowed him to broaden his focus. Instead of relying on industrial boundaries, he acquired new skills and capabilities. Conviction and passion are what made Bezos built Amazon as the world’s most valuable company.
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