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Amazon Success Story: From A Garage Bookstore To Trillion Dollar Empire
No business can be successful without a digital presence in this day. The eCommerce industry is a cut-throat industry, and only those with a strong online presence thrive and succeed in it.
But one company that happened to start off as a mere bookstore has now become the biggest and the most successful eCommerce brand in the world.
Yes, you guessed it right, it is Amazon , and this is the ever-inspiring success story of Amazon.
Amazon's success didn't come overnight. For its success, it had to conquer and do the unthinkable. It took some really hard steps down the way and stuck to a strict motto to turn its eCommerce business into a money-making machine .
Many people think they have been able to achieve this position through its innovative ideas, customer-centric strategy, and its ability to change the world of eCommerce. But in reality, there is a lot more than it had to take to reach this height.
So today, we will look into the journey that it went through to become so successful and its story of becoming a global phenomenon in the eCommerce industry. Sit back and put your reading glasses on as we are about to jump into the sea of the unrevealed Amazon Success Story !
History of Amazon as An eCommerce Brand
The Amazon website , which was founded in 1995 by Jeff Bezos , is a global eCommerce company that sells billions of products every year across more than 190 countries. Amazon has now slowly become one of the most popular eCommerce brands in the world. It is a household name and has been around for more than two decades.
Amazon started off as an online bookstore and then expanded to sell DVDs, CDs , and eventually other products.
Beginning of Amazon's Success Journey
The journey of Amazon began in 1994 in a home office in Seattle when Jeff Bezos quit his job on Wall Street to start his innovative project. Amazon was originally called “Cadabra. ” This name actually came from one of the internet’s earliest pioneers who coined the term “cadabra” meaning “it’s possible”.
The innovative idea behind the company came about after Amazon Chief Executive Jeff Bezos had a visionary experience where he saw a bunch of buildings floating on the ocean.
Company grew rapidly through the late 1990s and early 2000s, becoming one of the largest internet retailers in both North America and Europe. And today, Amazon goes on to revolutionize the way we shop online.
Due to its exponential growth during that time, Amazon became an online retailer within two decades. They also provide web services such as cloud computing/services by the name of Amazon Web Services to various sectors and use the same technology that powers Amazon.com.
Today, Amazon services cloud computing for users globally by way of their service named Amazon Web Services.
Also Read: Magical Success Story of eBay: Journey of Becoming The Global eCommerce Giant
Why Was Amazon So Successful?
Amazon Success Story over the years is based on a number of key factors. In fact, there are many reasons why Amazon was so successful. One reason is that they were one of the first companies to really capitalize on the power of the internet .
They were able to build a massive online presence early on and then use that to their advantage.
Of course, for businesses to be so successful, there are so many factors that must be taken into consideration and Amazon did just what was important. Some of the common factors include:
- Simple to use and seamless interface to manage all your eCommerce needs in a single, accessible platform.
- A leading eCommerce platform with a growing client base of more than 100,000 eCommerce clients and top-rated customer service.
- The convenience of shopping from your iOS or Android smartphone or tablet.
- Specialization in all eCommerce verticals and markets.
- Extensively used by sellers to manage their business and increase sales .
- Used by leading marketplaces, eCommerce sellers, and brands.
Apart from the above factors, they also look at the prices, listings of available products, shipping time frames, and even provide value-added services like Amazon Prime where customers have unlimited access to thousands of movies and TV shows with Prime Video – all in one package!
And all these things come without extra marketing costs, which is a huge advantage.
Another reason is that Amazon has always been a customer-focused company . They have always strived to provide the best possible experience for their customers, whether that is through low prices, fast shipping, or great customer service.
Finally, they have always been a company that is willing to innovate and try new things. They are always looking for new ways to improve the customer experience and make their business more efficient.
11 Strategies That Led Amazon to Build a Trillion-Dollar eCommerce Empire
Amazon is currently leading its way to be the no.1 ranked eCommerce brand standing above eBay, Walmart, and Alibaba . There are a few reasons why Amazon's success strategy has such a stronghold and helped make it into the trillion-dollar club in the eCommerce industry.
Amazon has been around for more than two decades and it is by far the most advanced eCommerce platform out there. Secondly, it provides a vast array of products under different categories, which gives shoppers a wide range of options to choose from.
But these are not all; the other key reasons that helped make it so big in such a short period of time include their:
- Focus on Putting Customers' Service First
- Availability of a Wide Range of Products
- Cutting-edge Technology
- Top-notch Customer Support System
- Promise to Deliver Goods Quickly
- Innovative Sales Strategies
- Product Pricing & Available Discounts
- Service to Every Door-step Worldwide
- Assurance to Protecting Consumer Safety
- Kindle Publishing Option & Focus on Book Selling
- Talented UX Team
Now let us dive into details.
1. Focus on Putting Customers' Service First
When it comes down to Amazon and top-notch customer service , the company has set itself apart as a go-to online store when it comes to shopping. With fast and reliable delivery times, cheap yet high-quality products, secure and convenient payment methods, plus the option to replace damaged or lost orders should the need arise.
Amazon is now becoming a household name and deserving of its success all because they have managed to focus on the one thing that matters most here: Consumers are always King!
2. Availability of a Wide Range of Products
Amazon sells a huge number of different products. They have categories for everything from clothing to electronics, so it's easy to find something that works for you. You can see their selection over at Amazon or buy from a third-party seller on their site .
Some of the most popular types of products that are found and sold through the Amazon website include:
Books, Appliances, Apps & Games, Arts, Crafts & Sewing, Automotive Parts & Accessories, Baby Items, Beauty & Hygiene, Vinyl & CD’s, Mobile Phones & Accessories, Fashion, Shoes & Footwear, Jewelry, Collectibles, Fine Art, Computers, and so on.
3. Cutting-edge Technology
Amazon has a wide understanding of modern technology and implements it into its business model. For example, Amazon's recent product offering, the Amazon Echo , is a voice-controlled device that allows you to request music be played, hear the news and traffic reports, control your TV set, listen to podcasts, and much more!
This product has proven to be very popular with consumers because it allows for greater convenience than any offered product from existing marketplaces.
4. Top-notch Customer Support System
Getting customer service at Amazon is easy. On their Customer Service page, you can choose a category out of many to best suit your inquiry. These include Your Order, Returns & Refunds, Digital Service & Device Support, Manage Prime, Payment Options, Your Accounts, and Safe Online Shopping .
On the order page , customers can find their recent orders and track their packages. This page also has an option for reporting any problems. You can leave feedback for the seller and write a review of the product too.
Returns & Refund page is the gateway to your return porta for the customer. The return policy is right at the top, making it easy for customers to get all of the information they need. Having a direct link to your order page helps customers who are looking into returning an item or getting a refund faster.
The Digital Services & Device Support page is separated into Things You Can Do and Popular Articles. The Things You Can Do section contains a bunch of helpful links for managing things like digital orders, downloading apps, registering a Fire Tablet to your Amazon account, and canceling subscriptions.
On the Payment Options Page, customers are able to change, add or update their payment methods for their Amazon orders.
What's More on Customer Support System?
Your Account is the customer account section where any customers can check and manage their accounts. There are six sub-categories for Addresses, Login & Security, Your Payments, Gift Cards, Prime, and Your Orders.
After managing their order, customers may also be interested in something to purchase from Stores like music, movies, or a book.
Moreover, in this category, you'll find a list of helpful articles related to topics such as ordering, your device and content preferences, digital services, emails, notifications, ways to pay, and more.
The Safe Online Shopping page provides customer support with helpful articles to educate them about their privacy and security while shopping from Amazon.
The section also listed information related to Phishing, Legal policies , Spoofing, and other relevant safety measures to be taken to ensure safe online shopping for customers.
5. Promise to Deliver Goods Quickly
Amazon’s shipping speed is consistently fast and reliable, but it depends on the customer’s geographical location. For those paying a little extra a month, Prime members get two-day shipping extensions, with some orders arriving even on the same day.
Packages also include tracking numbers which allow customers to check the status of their order wherever they are at any given time.
6. Innovative Sales Strategies
Amazon has had a lot of success with its online marketplace, Amazon.com. They recognized the potential to expand their business outside of their website and thusly opened up several more storefronts in physical locations such as Kohl’s, making it easy for customers who prefer to shop outside of the internet.
By doing so, they can sell a variety of their own brand products from their own produce or snack food line or have sales on any customer returns on-site at said location.
As this service is often offered for free, it actually enhances some positive customer experiences that are associated with Amazon by partnering with important brands such as Kohl’s, therefore growing revenue in both sales generated for Amazon’s products as well as Kohl's marketing brand image due to the connection between the two corporate companies involved through this initiative.
Though this isn’t always for money , it is still an added feature that increases convenience for customers who are positively willing to spend their money on one of the greatest websites.
7. Product Pricing & Available Discounts
Amazon offers discounts in many categories on its website, even though the Fashion category is not included in discounts in some regions.
Their frequent discount campaigns run in the name of the following categories: Today’s Deals, Watched Deals, Outlet Deals, Warehouse Deals, Lightning Deals, Coupons, eBook Deals, Subscribe & Save.
8. Service to Every Door-step Worldwide
Amazon has websites for the most popular countries, such as the United States, Canada, Australia, Brazil, China, France, Germany, India, Italy, Japan and Mexico. Amazon also provides country-specific sites worldwide. The company can be found in more than one hundred different countries.
Moreover, in countries that don't have a website, Amazon offers a Worldwide global store merging with local eCommerce platforms from where anyone in those countries can order global products directly from Amazon. Although the delivery time and shipping cost for these global products might be more than usual.
9. Assurance to Protecting Consumer Safety
Amazon and its affiliate system have very detailed security measures to ensure that customer information is safe. Amazon does not share any of their personal or financial info with anybody, and they have a system in place for reviewers to report scams or bad service if they feel the need to.
As a consumer, one trusts the Amazon team to assure customer safety and protect customers' personal information.
10. Kindle Publishing Option & Focus on Book Selling
Amazon has recently received a lot of critical acclaim in book-centric circles because of the company's endeavors in e-book publishing and promotion. This is interesting because Amazon has pretty much beaten the competition when it comes to selling printed books on its website.
Moreover, Amazon's business model is based on selling books, including self-publishing services with Kindle.
Amazon, from its early days as an online book-ordering site, has grown to offer a diverse range of written materials. With products like Kindle, Kindle Direct Publishing, Audible, and a wide selection of physical books, Amazon has a rich history in the world of literature.
11. Talented UX Team
Amazon employs a full team of specialists (also known as their UX team) to analyze users' search habits to provide each customer with only a selection of products they are most likely to be interested in finding.
This personalizes the experience for customers and improves their likelihood of making a purchase while on Amazon.com.
Interesting Stats & Facts About Amazon
Most Common FAQs on Amazon Success Story
1. how can i start an amazon marketplace account.
Amazon marketplace is a platform where sellers can offer their products to Amazon customers. Sellers need to sign up for Amazon seller central to start an Amazon marketplace account. Seller central is the one-stop shop for all things related to selling on the Amazon marketplace.
Sellers will have to provide information such as their contact details, bank account details, and tax information before they can make sales on the Amazon marketplace. Sellers will also have to pay a monthly fee for using seller central, which varies depending on factors such as category and sales volume.
2. What is a good product for the Amazon marketplace?
A good product for the Amazon marketplace is one that has a high demand and a low supply. For example, if you are selling a new type of shoe that has not been released yet, it will be difficult to find many people who are willing to buy it because they don't know it exists. This means the supply is high and the demand is low.
On the other hand, if you are selling an old type of shoe that many people know about and want to buy, then there will be few people who want to buy your product because they already have one. This means there will be a low supply and high demand for your product.
3. What are the requirements for becoming an Amazon seller?
To become an Amazon seller, you need to register and create a seller account. You also need to have a valid credit card, bank account, and U.S. address. The next step is to get your products listed on the site by uploading them on Amazon’s Seller Central portal or using Fulfillment by Amazon (FBA) to sell your items . You can only sell the items that are in stock and not prohibited from sale on Amazon's website. You can also use Amazon's fulfillment services which will allow you to store your products at their warehouses and send them out as orders are placed.
4. Is there a fee for selling on the Amazon marketplace?
Yes, there is a fee to sell on the Amazon marketplace. The fee for selling on the Amazon marketplace varies depending on your product category and other factors. For example, if you're selling a book or DVD then the fee is $0.99 per item sold. If you're selling a DVD or Blu-ray then the fee is $1.99 per item sold.
5. How do I get paid as an Amazon seller?
When your account balance is settled and you have a positive amount, Amazon makes a transfer to your bank account through Automated Clearing House or electronic funds transfer. It can take up to five days before the transfer appears in your bank balance.
6. How do I list my product on Amazon?
There are 3 ways to list your product on Amazon: ◼︎ Use Amazon's Product Advertising API to create your own listings and sync them with your store inventory. ◼︎ You can use Fulfillment by Amazon (FBA) to ship items directly from your warehouse to customers' doorsteps. ◼︎ You can use Vendor Express, which is a service for small and medium-sized businesses that want to offer products on Amazon without having an actual storefront.
Amazon Success Story: Why Not Get Your Own Marketplace Easily with WordPress?
To sum up, online sales, including ones in e-marketplaces, will keep gaining momentum because of increased demand related to the pandemic and post-pandemic times.
Many online marketplace and eCommerce business owners will be looking for ways to build their online businesses , and e-marketplaces are a great way to go about it.
In current times, it’s clearly evident that eCommerce will continue to grow. In case you are interested in selling products and services online, you should start your own e-commerce site and make sure it is secure and reliable.
So, if you are looking for a cost-effective way to build your own online business, then you may consider using the Dokan plugin , an open-source multivendor marketplace solution that allows you to create your own e-marketplaces.
With Dokan, you’ll have full control over your eCommerce website and you’ll be able to do everything you need to run a successful online business.
Hope you have enjoyed learning about the mesmerizing success journey of Amazon. if you are an eCommerce business owner, do share your success story or experience in the comments below.
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Tarun Sikder
Tarun Sikder is a player, who loves to play with words. He is now a very well-embellished and highly experienced content marketing warhead who has been in the industry for more than 5 years as a professional content writer, marketer, and strategist in a fast-paced WordPress product-based company. He believes in the philosophy of creating quality content for the user experience and not just for the sake of marketing. Not to mention he is a huge tech-geek who loves to keep on exploring new gadgets and technology all the time. He is definitely someone who loves to leave a mark on the digital platform through his visionary content and inventive copywriting.
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Table of Contents
- Selling on Amazon
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Hear how entrepreneurs around the world reach customers globally with Amazon
Bling jewelry, explore stories of sellers who expanded from other countries to the us.
It's a no-brainer. [Amazon] is where you introduce your product to new customers. Zamir Cajee iQualTech | United Kingdom
Our goal is to build a global brand. Johannes Kliesch & Felix Bauer Snocks | Germany
If I had one tip for a company interested in expanding to the US, I’d say: Do it with Amazon. Gui Perrier Dodow | France
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Herbs & crops overseas, fair havens, lanna clothes design.
[Previously], we mainly focused on manufacturing [for other sellers]. … In 2013, we began selling internationally directly to customers ourselves on Amazon. Jia Li Yang Bluedio | Shenzhen, China
My sales picked up on Amazon.com during the major sales period over Black Friday and Cyber Monday. Manish Jain Herbs & Crops Overseas | Ahmedabad, India
We thought, if we succeed on Amazon US, we can succeed over the world. We achieved 107% year-over-year growth for five consecutive years since we started selling on Amazon. Youngjo Kim Spigen | Seoul, South Korea
We are based here in Singapore but able to sell across the world. … More than half of our total sales come from Amazon. Jason Tay & Karen Fair Havens | Singapore
Within 10 months of enrolling, our sales on Amazon made up 85% of total sales. … My life has changed. My mom and my sister have full-time jobs working with me. Praew Khrutnok Lanna Clothes Design | Chiang Mai, Thailand
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Inside Amazon’s Growth Strategy
If the key to success is focus, why does Amazon work?
- Apple Podcasts
Since Amazon started as an online retailer in 1994, it has expanded into streaming, cloud computing, content creation, and even groceries. But traditional business strategy tells us that the key to success is focus. So, why does Amazon work?
“I think in Amazon’s case, everything is very tightly connected. If you remove one part, the whole becomes less,” says Harvard Business School professor Sunil Gupta . “That’s the key question: are the pieces fitting together nicely, or they just happen to be another business because it’s profitable?”
Gupta has studied Amazon’s growth strategy and he tells Cold Call host Brian Kenny how Amazon looks beyond traditional industry boundaries to define their competitors and why connecting products and services with their customers is at the core of their strategy.
Key episode topics include: business models, growth strategy, operations and supply chain management, innovation, technology and analytics, online retail, customer-centricity, customer experience, competitive strategy.
HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week.
- Listen to the original HBR Cold Call episode: If the Key to Business Success Is Focus, Why Does Amazon Work? (May 2019)
- Find more episodes of Cold Call .
- Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more at HBR.org .
HANNAH BATES: Welcome to HBR On Strategy , case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business. Amazon started as an online retailer back in 1994. Since then, it has expanded into streaming, cloud computing, content creation, and even groceries. But if traditional business strategy tells us that the key to success is focus – why does Amazon work ? Today, we bring you a conversation with Harvard Business School professor Sunil Gupta – who has studied Amazon’s growth strategy. You’ll learn how Amazon builds its business around its customers — rather than its products and services. You’ll also learn how they look beyond traditional industry boundaries to define their competitors – and why connecting products and services with their customers is at the core of their strategy. This episode originally aired on Cold Call in May 2019. Here it is.
BRIAN KENNY: In the world of computer science, Jon Wainwright is kind of a big deal. A pioneer of computer languages, he was the principle architect of both Script 5 and Manuscript. What makes Jon a legend has nothing to do with programming. Let me explain. On April 3, 1995, Jon was in need of some work-related reading material. So, he fired up his T1 modem and navigated the fledgling internet to the beta version of a new online bookstore. With the click of a mouse, he became the very first customer to make a purchase on Amazon.com. Fluid Concepts and Creative Analogies, the book he purchased, never became a best seller. But Amazon took off like a rocket ship and hasn’t slowed down since. With a market cap larger than all other retailers combined, including Walmart, Amazon owns 49% of all online sales. In the time it takes me to read this introduction, the company will earn over 300,000 dollars. Will we ever see the likes of it again? Today, we’ll hear from professor Sunil Gupta, about his case entitled, “Amazon in 2017.” I’m your host Brian Kenny. You’re listening to Cold Call, part of the HBR Presents network. Sunil Gupta is an expert in the area of digital technology and its impact on consumer behavior and firm strategy. He is the author of the recently published, Driving Digital Strategy, a guide to re-imagining your business. This case is the perfect stepping off point to cover some of the ideas in that book, Sunil. Thank you for joining me today.
SUNIL GUPTA: Thank you for having me.
BRIAN KENNY: This is your second spin I think on Cold Call. We appreciate you coming back.
SUNIL GUPTA: I enjoy doing this.
BRIAN KENNY: Good, as long as it’s not too painful for you. I like having you here. I’ve had an opportunity to read the book. The case I think is really kind of a great foundational piece to launch into some of the ideas. I’m going to assume anybody listening to this podcast has purchased something on Amazon or watched something on Amazon Prime. I had forgotten about their modest beginnings and just how much they’ve grown and expanded and changed. The case was a great reminder of that. We’ll get into some of that. Let me start by asking you, just to set it up for us. What led you to write the case?
SUNIL GUPTA: As you said, everybody knows Amazon. At the same time, Amazon has become quite complex. I mean, they have gone into businesses that defy imagination. That raises the question, is Amazon spreading itself too thin? Are they an online retailer? Are they video producers? Are they now making movies? In strategy, we learn, everybody should focus. Obviously Jeff Bezos missed that class.
BRIAN KENNY: He didn’t come to HBS by the way.
SUNIL GUPTA: You sort of start wondering as to, what is the magic behind this? What is the secret sauce that makes Amazon such a huge success? The market gap almost touched a trillion dollars a few months ago.
BRIAN KENNY: Insane.
SUNIL GUPTA: That was the reason why I thought A, everybody knows about it, and B, it’s hugely successful and C, his business model seems to defy logic.
BRIAN KENNY: The case we know by the title takes place in 2017. Maybe you can just start us off by setting it up. How does the case open up?
SUNIL GUPTA: At that point in time, Amazon had just bought Whole Foods, which was very counterintuitive because Amazon has been an online player. So why is it getting into offline business? That was against his grain as an online player. The second thing is food is a very low margin category. You sort of say, Amazon is a technology company, its stock is going to stratosphere. Why buy a low margin business that Amazon actually had been trying Amazon Fresh for 10 years and hasn’t succeeded? Why don’t they give up? That was a starting point. But of course, the case describes all the other 20 different things that they have done in the last 20 years and asked the question, what is Amazon up to?
BRIAN KENNY: Amazon and Jeff Bezos are sort of synonymous. He’s a cult of personality there, kind of like Steve Jobs was with Apple. Jeff’s been in the news a lot lately for other reasons, you know, personal reasons. He is still obviously, probably one of the best known CEOs in the world. What’s he like as a leader?
SUNIL GUPTA: I don’t know him personally. Based on the research that I’ve done, he certainly is very customer obsessed. He’s focused on customer. He always says, “You start with the customer and work backwards.” He still takes evidently calls on the call center. The culture is very entrepreneurial, but also very heart driven. I mean, the idea for example of Amazon Prime evidently didn’t come from Jeff Bezos, it came from a low person in the organization. He’s quick to adapt the ideas if he sees some merit in it. It’s almost a 25-year-old company that still works like a startup.
BRIAN KENNY: Was the original concept for Amazon … I mean, I know he sold books originally. Was it ever really a book company?
SUNIL GUPTA: I think it started more as an online retailer. Book was an easy thing because everybody knows exactly what you’re buying. It’s no concern about the quality. His premise in the online store was a very clear value proposition of three things. One was convenience that you can shop in your pajamas, so we don’t have to fight the traffic of Boston or Los Angeles. The second was infinite variety. I don’t have the constraint of a physical store. Even if I have Walmart, which is a huge store, I can only stock so many things. As a result, you only have the top sellers. In Amazon, I can have the long tail of any product if you will. The third was price. It was cheaper, simply because I don’t have fixed costs of the brick and mortar store. I can reduce the cost structure and therefore I can be cheaper. Those were the three key value propositions. That’s how it started. The idea was, I’ll start with books and then move on to electronics and other things. But then of course, it moved far beyond being an online retailer.
BRIAN KENNY: This gets into some of the ideas in your book. I was really intrigued in the book about the notion of what kind of business are we in? Just that question alone. At face value, it looked like Amazon was a retailer. They went in directions that nobody could have imagined. The case really goes into some of a litany of all the things they tried.
SUNIL GUPTA: Right. Again, the purpose of the case was to illustrate as to how these are all connected. From a distance they look completely disconnected and completely lack of focus. Let’s start with how the concept evolved. The first thing was, as I said was online retailer. Very soon it became a marketplace. Now, what is a marketplace? They basically allow third party sellers also to sell on the Amazon platform, which is distinct from a traditional retailer. Walmart doesn’t allow me to set up shop within Walmart, but Amazon allows me to do that. Now, why would they do that? Simply because it increases the variety that they can sell on the platform. Therefore, consumers are quite happy with the variety of the product they can get on Amazon. Amazon gets commission without having the inventory and the capital cost. Perhaps the most important thing of becoming a platform is it creates what we call the network effects. If there are lots of products, everything I can buy is available on Amazon. More consumers are likely to go there. Because there are more consumers, more sellers are likely to go there. It just feeds in itself. More consumers mean more sellers, more sellers mean more consumers, and it becomes a virtual cycle. That’s why there is only one Amazon. Even if I start an online retail, which is in many ways better than Amazon, nobody’s coming to gupta.com, because buyers and sellers are not there. That became the next phase, change from online retailer to marketplace. Then it went into AWS, and you sort of say, “Well, how can it go into a technology company and compete with IBM and Microsoft?” It was competing with Walmart before.
BRIAN KENNY: That’s the web services division.
SUNIL GUPTA: That’s the web services. In fact, at that point in time, Wall Street was very down on that. They said, “What is Bezos thinking?” The idea again, if you think about it, it was very simple. Amazon was building this technology for its own purpose. And then, they started giving this technology, using this technology for the third party sellers, who were selling on its platform.
BRIAN KENNY: Let me just interrupt for a second. That’s a marked, a marked change in direction. They had always been a consumer platform. Now they’re in a business-to-business play. I bet a lot of consumers don’t even know about Amazon Web Services.
SUNIL GUPTA: Correct. Again, not in a traditional sense saying, “This is my market.” That’s simply saying, “I have this capability. There’s a demand for this capability. Can I do it?” Part of that was opportunistic also. If you remember in 2001, the dot.com bubble crashed. If you’re a B2C company, you hedge your bets and get into B2B business. Part of that may have been luck. That was, again, a change of direction. And then, Amazon started producing hardware, Kindle, and now competing with Apple. You sort of say, why is an online retailer getting into hardware production? If you think a little bit about it, the answer is very easy. Kindle was designed to sell eBooks as people move from buying the hard copy books to downloading the eBooks. The Kindle is the classic razor and blade strategy. I sell razors cheap in order to make money on the blades. I’m not making that much money Kindle, but I’m making money on eBooks, which is very different from Apple’s strategy. Apple actually makes money on devices, but Amazon is not making money on devices, or at least not making huge money on devices. Similarly, it moved into online streaming of the video content and suddenly became a competition on Netflix. You sort of say, “Why is a retailer becoming a competition on Netflix?” Again, if you think a little about it, the answer becomes clear. As you and I moved on to not buying DVDs, but actually streaming the stuff, that’s what Netflix did. They used to send the DVDs to us.
BRIAN KENNY: I remember that. I still have a couple.
SUNIL GUPTA: Amazon is very good in sort of moving with the customer. If the customer moved from buying books to eBooks, I move in that direction. If customers move from buying DVDs to streaming, I move in that direction. Now, can Amazon do it? Of course, they can. They have AWS. Netflix is one of the largest customers.
BRIAN KENNY: Are they leading or following? Are they creating a market? In the beginning it seemed like they created something entirely new. Now, are they anticipating, or are they just sort of reacting to what’s happening?
SUNIL GUPTA: No, it’s a combination of both. In some ways they are actually following the consumer behavior and say consumers are moving to a streaming and move with that. They were not the first ones. Netflix actually started the streaming thing. Then, they sort of come up with it. If you think about it, Amazon became not only distributing third party content on videos, but now they have Amazon Studio. I mean, they are making movies, and the competition now becomes Hollywood instead of Walmart. You sort of say, “What has gone wrong with Jeff Bezos? Why is he making movies?” Movies are pretty expensive business and highly risky. The key to that is to understand the purpose of the movies. The purpose of the movies is to hook the consumers from Amazon Prime. If you remember, Amazon Prime started with 79 dollars per year. The benefit at that time was two-day free shipping. Now, you and I are smart enough to sort of do the math in our heads saying, how many shipments do we expect next year, and is 79 dollars worth it or not? Bezos does not want you to do that math. He basically says, “Oh, by the way, I’ll throw in some free content, some free music, some free unique movies.” Now you can’t do the calculation. Why does he care about Prime? Right now, Amazon has about one hundred million Prime customers globally. Let’s say I get an average 100 dollars per year, that’s 10 billion dollars in my pocket before I open the store.
BRIAN KENNY: Right.
SUNIL GUPTA: The research also shows that Amazon Prime customers buy three to four times more than non-Prime customers. I mean, if you’re a Prime customer, you don’t even price shop.
BRIAN KENNY: Once you’re Prime, you’ve got to justify being a member. You buy everything on Amazon.
SUNIL GUPTA: Exactly. Your purchase increases. You become price sensitive, which is fantastic. In fact Jeff Bezos has gone public and say that every time we win a Golden Globe award for our content, we sell more shoes. The purpose of creating their own content is not to make money on the content. This is another different razor to sell you more shoes. Once you understand that, what looks like disparate business is actually extremely tied together.
BRIAN KENNY: It all comes right back to the core. They haven’t always had good ideas. Have they had some misses along the way too?
SUNIL GUPTA: I think the biggest failure was Fire phone.
BRIAN KENNY: Remind us what that was?
SUNIL GUPTA: Amazon launched their own phone. They were obviously very late in the market. iPhone was already there. Samsung had done very good. You have two major players, if not many others, who are very well established. Consumers love their iPhones. The question of course was, why is Amazon launching the phone? What are the odds of success? Clearly the odds of success were low. The reason to launch it was they didn’t want to be beholden to the iPhone or the Googles of the world. They know that the world is moving towards mobile, in terms of shopping, certainly in emerging markets, everybody’s moving to mobile shopping. If tomorrow Apple or Google sort of restrict the Amazon use, or availability of Amazon, because they’re all competing with each other now. It becomes a challenge. To Amazon’s credit, I mean, it’s true for all innovations. Not all innovations succeed. You’ve got to take a shot. If you think about it, all the technology and thought process that got into Fire phone, was not completely a waste. That went into Echo. Now Alexa is a big hit.
BRIAN KENNY: They’re a market leader in that in that. Let’s talk a little bit about the ideas that underlie his Amazon case. I think it starts with knowing what business you’re in. Your book addresses this. I think I know we’re in the education space here at Harvard Business School. Should we be thinking about other businesses?
SUNIL GUPTA: You’re right. The bigger question that Amazon case raises is: how do you define what business you are in? Most of us tend to define business by the traditional industry boundaries. If I’m a bank, I’m in banking and other banks are my competition. I think industry boundaries are getting blurred today. Amazon can get into banking. I have lots of customers, I can start giving loans to small and medium enterprises.
BRIAN KENNY: They know a lot about those customers.
SUNIL GUPTA: They know a lot about customers. The key asset is now customers and data, and not the product and services that you offer. Once you know about customers, you can do lots of different things. One thing is, I would say is the industry boundaries are getting blurred. You need to think about not competition, but what do customers want. Do I have capabilities to serve that? The second thing is the traditional definition of where competitive advantage comes from is changing. What I learned, in doing my MBA class many years ago, we used to read Michael Porter’s competitive strategy stuff. If I were to simplify and summarize what I learned in competitive strategy was competitive advantage comes from making your product better or cheaper. Differentiation or cost leadership, which makes sense. If you think about it, it’s very much product-focused. I think in today’s world, competitive advantage comes from connecting products and connecting customers. The Kindle and eBooks is an example of connecting products, multiple products right? Making movies of Amazon and selling more shoes is connecting products. Razor and blade have been around forever. I think what is different today is razor and blade could be in completely different industries. Movies and shoes. The other side is connecting customers. We are in a network economy. That’s why there is only one Facebook, or one WhatsApp. If you are the only person on Facebook, what’s the value of Facebook? Not much, unless you love yourself. As more and more people get onto Facebook, the value of Facebook increases. It’s not about improving product. Without changing product, Facebook value increases. I think in this connected world that we live in, it’s about connecting products and connecting consumers.
BRIAN KENNY: We’ve got a lot of listeners out there. Many of whom are probably leading firms of one kind or another. How do they even go about exploring redefining their business?
SUNIL GUPTA: I think again, you need to think about what is your key asset? Everything starts with the consumer. In the Amazon case, you move with the consumer to some extent. I asked the same of a company for a medical device manufacturer. I said, “Who’s your competition?” The typical answer is: the other medical devices. Medical business is now becoming a lot about data. Google is getting into that. Apple. iPhone is becoming a medical device. Suddenly you have a very different kind of player getting into this thing. When I say, “What business are you in?” You need to think about who might actually get into that business and that changes the whole picture.
BRIAN KENNY: Why is Amazon so good at engaging customers?
SUNIL GUPTA: I think it comes from the culture of being customer obsessed, that no matter what the customer is right. They deliver on that promise. I mean, the level of convenience that customers expect from companies has changed. It used to be, if a company delivers a product within a week, that was considered good. Now, if you don’t deliver on the same day it just seems awful. They’ve raised the bar in everything. Of course, they’re using technology very effectively, whether it’s in their warehousing, whether now they’re investing in drones. I think they’re still a 25-year-old startup.
BRIAN KENNY: That’s another point that I wanted to touch upon. They’re able to adapt their supply chain it seems almost effortlessly to whatever business direction they move in. Is it possible for another entry to come into this space and scale in the same way that Amazon has? Is this a once-in-a-lifetime type thing?
SUNIL GUPTA: That’s a tough question. I think Amazon, it’s not that they’re adapting supply chain for everything, right? For example, I don’t think Amazon supply chain is ready for delivering frozen food yet. If I have a supply chain to ship you electronics, I can use the same supply chain to ship you prescription medication. That opens up another billion dollar, several billion dollar market. If I call myself an online retailer, I will never think of prescription drug delivery. If I think of my capabilities, I have the warehouse to deliver electronics and books. Why can’t I deliver your prescription medication? That opens up completely different businesses.
BRIAN KENNY: What are the kind of pitfalls that you need to be careful of, as you start to move into adjacent markets?
SUNIL GUPTA: I think definitely the big challenge is: how far do you go? On one hand it’s good to expand the business scope because the industry boundaries are getting blurred. The danger is do you lose focus? The classic challenge of losing focus. There’s a balance. I think in Amazon’s case, if you notice, everything is very tightly connected. If you remove one part, the whole becomes less. That’s the key question: are the pieces fitting together nicely, or they just happen to be another business because it’s profitable?
BRIAN KENNY: We’ve done a couple of cases on Cold Call that touch on the organizational impact of firms that move into new businesses. Some of them are examples of where it’s benefitted the employees. In other cases, it seems to have disrupted the culture in negative ways. How do you see this playing out at Amazon? Does it impact them in any way?
SUNIL GUPTA: If you look at Amazon, it has grown the top line 20, 25% every quarter without fail, except for one quarter in 2001. Right now, it’s in 2019, their sales are 232 billion. I don’t know that many companies, which grow at that rate, even when they’re over 200 billion. I think, if you’re on a winning team, that as an employee, it has to energize you. If you are in a culture which encourages experimentation and innovation, it has to excite you. At the same time, I’m sure it’s a very demanding culture, and there have been reports about how demanding the culture of Amazon is. It probably is not for everybody. For the people who are innovative, who are entrepreneurial, who want to be on a winning team, I’m sure it’s an exciting place.
BRIAN KENNY: There are sort of shades of Apple there. I mean, I think Apple had the same reputation. You’ve discussed this case in class with students.
SUNIL GUPTA: Oh, many students.
BRIAN KENNY: What are sort of the top line things that surprise you as you discuss it?
SUNIL GUPTA: The nice thing about this case is, everybody knows Amazon as a consumer. Everybody has shopped at Amazon. It’s very easy case. In fact, it’s a very short case that I give, at the opening of most sessions. People see it as very surface level. They sort of don’t realize the deep insights that comes out. As a three page case, you sort of say, I will be done in ten minutes, but then you peel the layers of the onion. That was a shocking thing to them, as to how you peel the layers of the onion and how you see the connection across different things. Why did Amazon buy Whole Foods? It makes no sense. Why did they get into AWS? It makes no sense. When you start un-peeling that layer, you see the connection as to why Amazon is doing all these different things. I think that’s the “A-ha” moment that comes across.
BRIAN KENNY: Much more on that in your book. How’s the book doing?
SUNIL GUPTA: Book is doing great.
BRIAN KENNY: Great.
SUNIL GUPTA: Fabulous. It was released in August. I’ve been going around on tour for many, different parts of the world.
BRIAN KENNY: I bet you can buy it on Amazon.
SUNIL GUPTA: You can certainly buy it on Amazon.
BRIAN KENNY: That’s great. Sunil, thanks for joining us today.
SUNIL GUPTA: Thank you very much Brian.
HANNAH BATES: That was Harvard Business School professor Sunil Gupta – in conversation with Brian Kenny on Cold Call . If you liked this episode and want to hear more of Harvard Business School’s legendary case studies in podcast form – search for Cold Call wherever you get your podcasts. We’ll be back next Wednesday with another hand-picked conversation about business strategy from the Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review. We’re a production of the Harvard Business Review – if you want more articles, case studies, books, and videos like this, be sure to subscribe to HBR at HBR.org. This episode was produced by Anne Saini, Ian Fox, and me, Hannah Bates. Special thanks to Maureen Hoch, Adi Ignatius, Karen Player, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you – our listener. See you next week.
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