I’ve just read an excellent book Amazon: The everything store. For anyone in e-commerce Amazon is the company you have to admire.
Amazon has three founding principles:
- Customer focused
- Long term
Jeff Bezos says that there are very, very few companies who are all of these three things.
“There are two types of retailers: those that try to work out how to charge more and those that try to work out how to charge less.” – Jeff Bezos
I do absolutely love that quote. Actually both business models work pretty well but what doesn’t work is trying to be both.
It’s very obvious which Amazon is trying to be. I learnt from the book that Bezos was very influenced by Walmart.
“Our marketing strategy is our pricing strategy,” says Lee Scott the Walmart CEO. He sees advertising and pricing as two ends of a spectrum; if you get pricing right then you spend less on advertising. Walmart spends 0.4% on marketing and even that is just advertising about specific low priced products.
The other big influence was Costco. Stock at Costco is all sold with a 14% margin which is breakeven. The profit comes almost exclusively from the annual membership fee. I suspect this was one of the things that made Bezos go for the Amazon Prime idea when it was presented to him.
I think it is interesting that one of the areas where Amazon failed badly was jewellery. This clearly was one of the areas where just being the cheapest and most convenient wasn’t what consumers were wanting. It is also interesting that Amazon hasn’t quite cracked clothing for a similar reason I expect. However I would expect them to do incredibly well in grocery.
Hiring was quite interesting. Amazon do not offer great renumeration but they have a pretty rigorous recruitment process. They also try to hire doers rather than managers.
Amazon was generally pretty bad at acquisitions with the vast majority of them failing utterly. On the other hand they have been very good at launching new business lines themselves.
Big picture wise, I think it is interesting how much of a platform Amazon is becoming. They have an API of course but also AWS, the ability for authors to self publish, the Kindle, Amazon Payments, FBA and no doubt Amazon Logistics in due course.
I found the book quite inspiring. What we are doing is different and I think it is very important that we don’t try to be Amazon but there’s a lot to learn from.