The Grand Theory of Amazon
Summary
TLDRThe video discusses Amazon's vast influence, exemplified by an internet outage affecting major sites like Netflix and Spotify, all hosted by Amazon Web Services. It delves into Amazon's diverse business model, from e-commerce to owning numerous consumer brands, and its relentless pursuit of scale and customer satisfaction. The script highlights Amazon's strategy of leveraging data and user growth for product improvement, its willingness to operate at a loss for customer benefit, and its potential future as a dominant force across various industries, facing few competitors other than possibly the government.
Takeaways
- đ On February 28th, 2017, a major internet outage affected services like Netflix, Spotify, and Reddit, highlighting the dependency on Amazon Web Services (AWS).
- đ Amazon's beginnings as an online bookstore were strategic due to the scalability of the internet, which allowed it to carry an inventory beyond physical limitations.
- đ Amazon's business model is not product-centric but scale-centric, focusing on the advantages of operating at a large scale to offer services and products that smaller businesses cannot.
- đ The 'snowball effect' is central to Amazon's growth strategy, where they aim to attract as many users as possible to collect data, improve products, and attract more users in a virtuous cycle.
- đ Amazon's acquisition of Whole Foods and its logistics capabilities position it to potentially compete with traditional shipping giants like UPS and FedEx.
- đž Amazon's approach to pricing is customer-centric, often prioritizing lower prices for consumers over immediate profitability, which is a strategy that has resonated with its customer base.
- đ Amazon's long-term thinking is enabled by its shareholders' willingness to tolerate short-term losses for the potential of significant future gains, setting it apart from companies focused on immediate profits.
- đïž The company's diversification into various industries, from pharmaceuticals to groceries, is a testament to its ambition and the breadth of its influence.
- đą Amazon's customer-centric approach and scale have made it a formidable competitor, with the potential to challenge even the largest companies in the world.
- đ The company's expansion and dominance across industries may eventually lead to regulatory challenges, as governments may intervene to ensure fair competition and protect consumers.
Q & A
What event occurred on February 28th, 2017, that affected many internet users?
-On February 28th, 2017, there was a major internet outage that lasted for 4 hours, affecting services like Netflix, Spotify, Buzzfeed, Reddit, Dropbox, Pinterest, Imgur, League, Tinder, and thousands of others.
What was the cause of the internet outage on February 28th, 2017?
-The internet outage was caused by an Amazon engineer's typo, which demonstrated the scale and power of Amazon Web Services, which hosts a significant portion of the internet.
How does Amazon's business model differ from traditional retailers?
-Amazon is not just a retailer but a scale company. It focuses on providing convenience and services that benefit from being scaled up, such as one-click shopping and a vast range of products.
What is the snowball effect as described in the context of Amazon's business strategy?
-The snowball effect refers to Amazon's strategy of acquiring more users, which leads to more data, improving the product, attracting even more users, and creating a self-reinforcing cycle of growth.
Why did Amazon purchase Whole Foods, and what is its strategy behind this acquisition?
-Amazon purchased Whole Foods to integrate groceries into its ecosystem, making it a part of customers' routines and leveraging its shipping and distribution capabilities to potentially compete with traditional grocery stores.
How does Amazon's approach to pricing and customer service differ from companies like Facebook and YouTube?
-Amazon focuses on customer-centric pricing, often aiming to charge customers less, while companies like Facebook and YouTube are advertising companies, which may prioritize advertisers over users or creators.
What is the significance of Amazon's willingness to operate at a loss for certain products or services?
-Amazon's willingness to operate at a loss for certain products or services is part of its long-term strategy to prioritize customer satisfaction and scale, which can lead to greater market share and profitability in the future.
How does Amazon's approach to innovation and experimentation set it apart from other companies?
-Amazon embraces a culture of innovation and experimentation, even if it means initial failures like the Fire Phone. This approach allows it to explore new markets and technologies without being constrained by short-term profitability.
What is the 'hedonic treadmill' mentioned in the script, and how does it relate to Amazon's customer philosophy?
-The 'hedonic treadmill' is a concept where people's expectations adjust to improvements in their lives, never being fully satisfied. Amazon embraces this by continuously improving its products and services to meet always-rising customer expectations.
Why do some people view Amazon as a potential monopolistic threat due to its diversification and scale?
-Amazon's diversification and scale across various industries raise concerns about monopolistic practices because of its ability to dominate markets, influence prices, and control a significant portion of consumer spending.
What is the role of Amazon Web Services (AWS) in Amazon's overall business strategy?
-Amazon Web Services (AWS) is a key component of Amazon's business strategy, providing the company with a significant revenue stream that funds other projects and services, and also competes with other tech giants like Google Cloud.
Outlines
đ The Internet's Reliance on Amazon Web Services
The video begins by highlighting a significant internet outage on February 28th, 2017, which affected major services like Netflix, Spotify, and Reddit, demonstrating the internet's dependency on Amazon Web Services (AWS). It discusses Amazon's evolution from an online bookstore to a behemoth that hosts a vast portion of the internet, offering a wide range of services and products. The video also touches on Amazon's diverse business interests, including Twitch, Whole Foods, Kindle, and Alexa-enabled devices, emphasizing Amazon's strategy of rapid expansion into new industries and its broad definition of competition.
đ Amazon's Customer-Centric Business Model and Expansion
This section delves into Amazon's business philosophy, which is centered around customer satisfaction and scale. It explains how Amazon's focus on providing the best possible customer experience, even at the cost of short-term profits, sets it apart from companies reliant on advertising models. The video discusses Amazon's willingness to take losses on products like the Kindle to offer customers lower prices and its strategy of using data to improve products and services. It also covers Amazon's entry into the grocery market with the acquisition of Whole Foods, its logistics ambitions, and its commitment to lowering prices and improving the customer experience.
đž Amazon's Financial Strategy and Future Prospects
The final paragraph discusses Amazon's unique financial strategy, which prioritizes long-term growth over immediate profitability. It contrasts Amazon's approach with that of other companies that may struggle to maintain investor confidence during periods of loss. The video mentions Amazon's ability to fund ambitious projects through the profits of AWS and its freedom to experiment, even if it means occasional failures like the Fire Phone. It also speculates on the potential challenges Amazon may face in the future, including competition from Google and potential regulatory hurdles, while emphasizing the enduring appeal of low prices, fast delivery, and convenient shopping.
Mindmap
Keywords
đĄAmazon Web Services (AWS)
đĄScale
đĄSnowball Effect
đĄDollar Shave Club
đĄEcho
đĄPrime
đĄWhole Foods
đĄDiscontent
đĄHedonic Treadmill
đĄShareholders
đĄCompetitor
Highlights
On February 28th, 2017, a major internet outage affected services like Netflix, Spotify, and Reddit, highlighting the dependency on Amazon Web Services.
Amazon Web Services (AWS) hosts a significant portion of the internet, demonstrating Amazon's size and power in the digital realm.
Amazon's business model is not just an online store but also includes handling marketing, shipping, and returns for other companies.
Amazon's convenience offers a vast range of products, from gummy bears to unusual items like pythons and crisp $2 bills.
Amazon's business extends beyond retail to include services like Twitch, Whole Foods, Kindle, and Alexa-enabled devices.
Amazon's strategy involves entering and quickly dominating new industries, as seen with their impact on Blue Apron's stock.
Amazon's definition of competitors is broad, including all types of media publishers, producers, and distributors.
Amazon's approach to business is characterized by a lack of focus on specific products, instead aiming for scale and efficiency.
Jeff Bezos' philosophy centers on scale, which allows Amazon to achieve things that smaller businesses cannot.
Amazon's snowball effect strategy involves acquiring users, collecting data, and using it to improve products and attract more users.
Amazon's Prime service, despite potentially losing money on heavy users, is part of a larger strategy to secure customer loyalty.
Amazon's acquisition of Whole Foods and its ability to lower prices is a strategic move to integrate groceries into customers' routines.
Amazon's logistics and shipping capabilities position it to compete with traditional delivery services like UPS and FedEx.
Amazon's approach to pricing, as stated by Bezos, aims to charge customers less, which is a stark contrast to traditional business models.
Amazon's customer-centric model prioritizes customer satisfaction over immediate profits, aligning with the interests of consumers.
Amazon's long-term thinking, supported by patient shareholders, allows for significant investments in new projects and services.
Amazon's potential future challenges may include competition from the government, which could regulate its expansive business practices.
Dollar Shave Club's sponsorship of the video is highlighted, offering a $5 starter set and emphasizing convenience and quality.
Transcripts
This video is sponsored by Dollar Shave Club.
Use the link in the description for a special $5 starter set.
On February 28th, 2017, you mightâve 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.
Thatâs embarrassing.
If the world was more productive that day, now we know why.
r/Outside become, just, ya know, outside.
A shark hadnât bitten an underwater cable, nor was it five/nine, Just an Amazon engineerâs
typo.
Probably a stressful afternoon in Seattle, but also an impressive demonstration of the
companyâs 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 worksâŠ
A hundred thousand companies make over a hundred thousand dollars a year this way.
But for Amazon, itâs only a fraction of their business.
Thereâs 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 youâd never know they owned.
whew.
Hardly a month goes by where they donât enter and dominate a new industry,
Just trademarking the slogan âWe do the prep.
You be the chef.â was enough to drop Blue Apronâs stock 12%.
Theyâre even investigating pharmaceuticals, education, and finance.
Amazon defines its competitors as âpublishers, producers, and distributors of physical, digital,
and interactive media of all types and all distribution channelsâ, among others.
Thatâs, 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 letâs 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, thatâs 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 Amazonâs 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 arenât 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 worldâs 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 isnât the product itself but its scale.
Thatâs the focus.
When considering a new product, the flowchart is pretty simple: âWould this benefit from
being a thousand times quicker, bigger, easier?â
If so, you can bet Amazon either sells it, or soon will.
Itâs easy to stop there, Sit back and enjoy the profit.
But Amazon asks âOkay, now what can we do?â
And this is why itâs 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 arenât just making it easy to live off Amazon, theyâre making it hard not to.
Thatâs the power of data in the hands of someone operating at this scale.
Itâs why thereâs now a movement to limit this,
why companies like Digi.me, who Iâve 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, theyâre winning a lot more than theyâre losing.
So why purchase competitors like Whole Foods?
Exactly because itâs not what theyâre 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 thatâs just the beginning.
After announcing a new $79 Kindle, Bezos wrote
âThere 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.â
And heâs really not kiddingâŠ
The parts alone cost $78.59, plus $5.66 for assembly.
Thatâs 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.
Thatâs the business model.
And then there are customer companies - where You and I decide what gets demonetized.
Apple is comfortable charging more for â he very best experience,
And for Amazon, helping the customer means making us pay as little as possible.
Both are loved in a way thatâs impossible for an advertising company.
You might say - âThey only care about the customer to make more moneyâ
And maybe youâre right, thereâs 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 Iâve ever had,
It may only be a calculated business decision, But itâs 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.
Hereâs how Bezos describes it:
âOne thing I love about customers is that theyâre divinely discontent.
Their expectations are never static.
Itâs human nature.
We didnât ascend from our hunter-gatherer days by being satisfied.â
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 - theyâre just as discontent as we are.
Except, if there are billions to be made by concentrating on scale and customers, why
canât anybody else do the same?
How can a tiny online bookstore do something exponentially better than Walmart, the worldâs
largest company by revenue?
It's easy to think of the CEO as the supreme leader of a company
but âEven Bono Has A Bossâ.
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 isnât just tolerated, itâs celebrated -
They could stop and make a dollar, theyâd 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 doesnât 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 thatâs a small price to pay for
this strategy.
MoviePass, Snapchat, Uber, Spotify, Blue Apron, all starving companies following in Amazonâs
footsteps, crossing their fingers money will come later.
Ex-Google CEO Eric Schmidt says Amazon is already Googleâs 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 weâll 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 âDo not pass go,
and do not collect $200â.
Profits may be shaved, But you and I will always be able to shave in comfort with Dollar
Shave Club.
Theyâre more than just razors: toothpaste, body wash, wipes, hair styling, and more - everything
you need to look and feel great.
I can tell you itâs all very high-quality stuff, and I especially like how simple it
is:
Everything is delivered right to your door, without the hassle of going shopping.
And itâs affordable- New members can sign up for just $5.
You get a trial of their executive razor, body cleanser, wipes, and shave butter.
At this kind of price, you can see what you like nearly risk-free.
Replacement cartridges are sent for only a few bucks a month, and, if youâre picky
like me, you can choose exactly what you want, when you want it.
Youâre never locked in, and you only pay for what you need, no membership fees or anything
like that.
Get started for only $5, and help support PolyMatter with the link in the description:
DollarShaveclub.com/PolyMatter
Thanks to Dollar Shave Club, and to you for trying it out.
Voir Plus de Vidéos Connexes
The Story of Amazon.com: How a Bookstore Conquered the Internet
Marketing Information System - Components, Advantages, Limitations, Examples (Marketing Video 11)
First principles thinking is looking at a problem with fresh eyes | Jason Calacanis and Lex Fridman
Can Amazon Succeed In India?
How Amazon Uses AI To Sell You More And More Products
Inside Amazonâs Meticulous Same-Day Delivery Strategy | WSJ Shipping Wars
5.0 / 5 (0 votes)