Understanding Jeff Bezos' Strategy; Do we need a different book or a different lens?
A lot has been written about the genius of Jeff Bezos and how he has built Amazon into one of the most valuable companies of all times (and in the process, earning quite a fortune for himself). But what probably gets less attention is how Bezos has changed the conventional discussion around Business Strategy or rather, helped Business Strategy evolve into the Digital Age.
Strategy, as we were taught in B-Schools and management tomes, was all about focus, and building a competitive advantage (or a moat, if you will); Bezos seems to defy all that, at-least on surface. Amazon started as a seller of books on this, (then) emerging channel of commerce called world wide web; from a book seller it went on to become an online super store; moved to hardware production → Kindle, Echo, Fire, etc.; and from being a retailer to a freight and logistics operator (it today operates close to 70 aircrafts[1] which is close to what DHL (a dedicated logistics player) operates); and if that wasn't enough, it seemed to move to the offline world by acquiring offline retailer - Whole Foods. But all of this pales into comparison, when you consider that a largely B2C company decided to get into B2B technology business through its AWS arm.
What do the above examples mean? does it mean, that Amazon has a lack of focus, or are we looking at it the wrong way?
Of course, we are looking at it the wrong way; the fault in our approach is that we are defining focus in a very narrow sense (some irony there).
Traditional Rules of strategy dictated that you build competitive advantage by being cheaper or better. (the implicit assumption here is that you are selling 1 product to 1 customer). Where Jeff Bezos has turned this on its head is, by applying this to today's digital economy - making connections between customers and (more importantly) products across (seemingly) different industries.
Winning Golden Globes to Sell Shoes[2]
We have all heard about the Razor and Blade strategy or a (relatively) more modern example in the form of Printer and Cartridge model → you sell Razors/Printers for cheap and then make up your margins through selling Blades/Cartridges.
But Amazon won't be the runaway success that it is, if it had been playing the same old game; isn't it?
In Amazon's case, Razor and Blades are not in the same industry but in entirely different ones. ?? Let that sink in for a moment!
Make Someone else's core business your Razor
Imagine if Amazon Prime only offered free shipping, then you would have been able to estimate clearly what value you expect to get out of it and then evaluate whether you need it or not. Now, it gives you movies and music for free and suddenly you can't calculate the exact value for it, but you want all those things → hence, you end up taking Amazon Prime → ending up being more loyal to Amazon, buy more frequently from them and end up becoming less and less price sensitive.
Now, what happens if Amazon starts offering loans in India to all the sellers on its platforms (it has their data on sales, seasonality, product quality (cust ratings), etc.); now it can give those loans out for less interest rate because they know that by giving these loans they will make these sellers stickier to Amazon platform, so what has happened - Amazon has made the banks' core business, its Razor.
The point I am trying to make with these examples, is that the fundamental principles of strategy will probably remain the same, how they are applied (and understood) will change as per the times we are living in. Amazon, is probably one of the better known examples of this from the digital age (at least from the western world). What Alibaba has done in China is probably even more path breaking, but that is for another day.
In Summary, Bezos has not really changed the rules of chess, he is simply playing 3D Chess whereas the rest of us are playing regular chess.
This article is inspired by this episode of HBR Ideacast; do give it a listen
https://pca.st/episode/d6d98de6-bb86-40dc-a57a-62f85f567003
Director & Head of Sales @ GPS HSBC | Client Champion, Builder of High Performing Teams
4 年Good read Amit. I like the "someone's else business as your razor". Though to be able to do it, you still need a juggernaut behind which keeps pumping out FCF. None of the companies building cloud computing, had it as their first/primary business. There must be a reason for that.