our first party butt. Badly.”
4.0: Infrastructure and online and offline platform
With the $13.7 billion acquisition of Whole Foods in 2017 and the opening of Amazon Go, Amazon expanded its empire into fresh grocery and offline. Actually Amazon had been experimenting with the fresh grocery business for several years before the acquisition.
Why was this particular category so important to Amazon? Because shopping for fresh grocery is a high-frequency activity. For some, it may be once a week; for some, it may be two to three times a week; for others, it could be a daily routine. This schedule of frequent interactions with consumers is a dream come true for Amazon, a platform that has almost everything for almost everyone. In addition, Amazon was uniquely positioned to leverage its vast existing customer base, coupled with its unique fulfillment capabilities, to expand into this adjacent space both online and offline.
The most prominent and also most surprising aspect of Amazon’s business model is probably its success in infrastructure business, such as Fulfillment By Amazon (FBA, 2006), Amazon Web Services (AWS, 2006), and Alexa (2014).
Despite strong competitive pressure from Microsoft, Google, and Alibaba, AWS remains number one in the global cloud service market with over 40% market share worldwide. In 2018, AWS had millions of customers, ranging from startups to large enterprises, and from government entities to nonprofits,7 and achieved $26.7 billion revenue, 11% of Amazon’s total, and $7.3 billion operating income, 59% of Amazon’s total.8
How could Amazon make such a successful expansion into infrastructure business?
Over the years, to keep its first party selling business up and running, Amazon has accumulated tremendous expertise in fulfilment and technology. By the traditional theory of competition, companies should safeguard these core competencies as proprietary know-how, strictly using them for internal purposes only. Amazon recognized the new laws of the game in the digital age, and saw how these competitive strengths could open the door to a new option: making it a service to serve external partners.
For example, through FBA, items sold by third-party sellers would be covered under the Prime program, meaning they would quality for two-day free shipping, thus giving a significant boost to their business.
The same line of thought also applies to AWS. These flexible, affordable, convenient, and empowering services are essential for start-ups and SMEs (small to medium enterprises). With cloud services, these companies do not have to make a heavy upfront investment in building their own IT system. Instead they can rely on AWS and simply pay for usage. In this way, Amazon lowered the resources and expertise required to start and grow a business.
Alexa is even more so. It’s a cloud- and voice-based AI assistant. In addition to Echo, it is also open to both other companies that create smart devices, and external developers. As Bezos proudly announced:
“Since that first-generation Echo, customers have purchased more than 100 million Alexa-enabled devices . . . . The number of devices with Alexa built-in more than doubled in 2018. There are now more than 150 different products available with Alexa built-in, from headphones and PCs to cars and smart home devices. Much more to come!”9
In this sense, Amazon has become the enabling infrastructure provider for all types of enterprises in the digital age.
Here’s another fascinating example of Amazon enabling and anticipating customer needs despite traditional views of competition. As this book was going to press, Amazon announced on September 24, 2019 that it was joining 30 different companies in the “Voice Interoperability Initiative” to ensure as many devices as possible will work with digital assistants from different companies. Amazon is pulling together with its competitors to create an industry standard for voice assistant software and hardware. Notably, Google, Apple, and Samsung are so far sitting out the initiative.
“As much as people would like the headline that there’s going to be one voice assistant that rules them all, we don’t agree,” says Amazon’s SVP of devices and services Dave Limp in The Verge. “This isn’t a sporting event. There’s not going to be one winner.”
“The initiative is built around a shared belief that voice services should work seamlessly alongside one another on a single device, and that voice-enabled products should be designed to support multiple simultaneous wake words,” Amazon reported in its press release. “More than 30 companies are supporting the effort, including global brands like Amazon, Baidu, BMW, Bose, Cerence, ecobee, Harman, Logitech, Microsoft, Salesforce, Sonos, Sound United, Sony Audio Group, Spotify and Tencent; telecommunications operators like Free, Orange, SFR and Verizon; hardware solutions providers like Amlogic, InnoMedia, Intel, MediaTek, NXP Semiconductors, Qualcomm Technologies, Inc., SGW Global and Tonly; and systems integrators like CommScope, DiscVision, Libre, Linkplay, MyBox, Sagemcom, StreamUnlimited and Sugr.
‘Multiple simultaneous wake words provide the best option for customers,’ said Jeff Bezos, Amazon founder and CEO. “Utterance by utterance, customers can choose which voice service will best support a particular interaction. It’s exciting to see these companies come together in pursuit of that vision.’”
This is another way that throughout twenty-five years of continuous evolution, Amazon has not only grown dramatically in size, but also evolved from simple models and services to far more extensive and dynamic offerings. It has transformed itself from a consumer-facing online bookstore into a consumer-facing platform, both online and offline, both first-party and third-party, for almost everything needed in people’s lives—we have yet to see Amazon launch a dating app, but your never know what’s coming up!—and into an enterprise-facing enabling infrastructure provider, for logistics and technical services for now, and there is definitely more to come. Amazon’s sky is limitless along its multi-dimensional growth trajectory — now and even more so in the future.
Now you see that Amazon has indeed successfully conceived and constructed a continuously expanding business model, built on novel concepts of platform, ecosystem, and infrastructure in the digital age.
What’s Amazon’s central idea?
By 2019 Amazon has become a digital giant beyond most people’s wildest imagination. In a recent interview with CNBC, Charlie Munger, Warren Buffet’s right-hand man and decades-long partner, described Amazon as “a phenomenon of nature.”
The central idea of Amazon is to imagine a new customer experience that could become a very large market space and an enormous economic opportunity, and imagine a new way to provide and personalize this end-to-end experience through the use of a digital platform and construction of digital infrastructure that processes data via algorithms and orchestrates physical distribution by partners within the ecosystem.
Customer obsession
Bezos has rarely finished a speech or an interview about Amazon without talking about customer obsession or customer centricity. The first principle that he stated in his famous nine-point management and decision-making approach published in his first Shareholder Letter in 1997 said, “We will continue to focus relentlessly on our customers.” Among all 14 Leadership Principles, Customer Obsession,
