Why has Bezos been so obsessed with the customers?
As noted earlier, he has always regarded customers as Amazon’s most valuable asset. Customers are the central piece in Amazon’s flywheel and in the entire Amazon platform. Why is Amazon able to aggressively and successfully expand into more and more categories? Because they have customers who would like to buy more. Why are third-party sellers be attracted to the Amazon platform? One of the most obvious reasons is that there are hundreds of millions of customers and, by leveraging Amazon platform, they can scale up much faster.
Despite booming business and growing customer franchise worldwide, Bezos has always remained constantly in awe of customers.
“There is no rest for the weary. I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers. Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation. And we consider them to be loyal to us – right up until the second that someone else offers them a better service.” 10
Customers’ trust is an earned privilege, not a long-term benefit to be taken for granted. Trust takes years to build, seconds to break, and forever to repair. That’s probably why Bezos emphasized, “Our pricing objective is to earn customer trust, not to optimize short-term profit dollars.”11
As one of the most (most likely the most) customer-obsessed companies on the planet, Amazon beat out Google and Apple for the top on World’s 500 Most Influential Brands list released by World Brand Lab in 2018.
Invent for the customers
As Bezos put it, “One thing I love about customers is that they are divinely discontent. Their expectations are never static – they go up. It’s human nature.”12
How do we not just meet but stay ahead of the customers’ ever-rising expectations? The only way to do this is through continuous innovation and relentless invention. In this way, the divinely discontent customers became the sources of continuous inspiration for Amazon’s invention machine.
Many traditional companies also pay serious attention to innovation and improvement, but they normally do so because of competitive or performance pressure. They may seek marginal iterations around the edges, trying to tweak here and there, especially the packaging, but rarely make systematic overhauls for completely new ideas.
What Amazon aspires to is way beyond such minor innovation. At Amazon, the relentless drive to invent dramatic new ways to delight customers never stops. They focus on very big, potentially global consumer needs by visualizing the ultimate inevitability of customer needs, things that will not change in the next ten years (price, selection, and convenience).
Unlike traditional companies that primarily use technology for cost reduction, Amazon focuses on using technology to totally transform the existing customer existing experience, and to imagine an experience that does not exist today, and invent on behalf of the customers, such as Amazon Go.
Take Kindle as another example. It was never meant to out-book the book; it was designed instead to have new capabilities impossible with the traditional book, such as having millions of titles on sale, finding a book and having it in 60 seconds, being able to underline passages and create notes and saving them in the cloud.
In the spirit of relentless drive to invent, Amazon single-handedly created entirely new markets with huge global potential, such as cloud services (AWS) and smart speakers (Echo). As Bezos pointed out:
“No one asked for AWS. No one. Turns out the world was in fact ready and hungry for an offering like AWS but didn’t know it. We had a hunch, followed our curiosity, took the necessary financial risks, and began building – reworking, experimenting, and iterating countless times as we proceeded.”13
Long-term thinking
“It’s all about the long term,” noted Bezos in his first Shareholder Letter, adding, “a fundamental measure of our success will be the shareholder value we create over the long term.” He went on to say that Amazon “will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.”
Why is long-term thinking so important for Amazon? The secret is in the very nature of its business model. Amazon is all about platform and infrastructure. So it is, in essence, a scale business characterized by high fixed costs and relatively low variable costs.
Building platform and infrastructure takes multiple years, and requires massive investments of billions or dozens of billions, if not more. From a short-term perspective, be it quarterly, annually or a two to three-year timeframe, such investments will never be able to generate enough return to cover the initial investments, not to mention generating return. Only those who can think at least seven to ten years out, are able to fully recognize the innate beauty of the platform and infrastructure business: the flywheel, the self-reinforcing mechanism and the exponential growth tilted towards the long term, and thus have the mighty daring to make such massive investments over the long term.
So how to drive the return on such a massive investment? Scale and speed really matter here. Bezos’s Letters to Shareholders up to the time of this writing constantly reinforce this philosophy.
First is scale. Increasing scale “spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions.”14 Once the scale passes a certain threshold, what Bezos calls the “tipping point,” it “allows us to launch new ecommerce businesses faster, with a higher quality of customer experience, a lower incremental cost, a higher chance of success, and a faster path to scale and profitability than any other company.”15
That’s why in 1997, in his first Shareholder Letter, Bezos stated “We will balance our focus on growth with emphasis on long-term profitability and capital management. At this stage, we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model.”
Second is speed. Platform and infrastructure are a technology game. Prior investments and faster movements captivate a larger customer base earlier, and accumulate historical data earlier, which translates into significant first-mover advantages in data analytics, algorithm enhancements and AI-driven solutions. In short, all these elements combined create Amazon’s digital core competencies.
Data is the new equity in the digital age. From customers’ data and behavioral analysis, new needs can be identified, better services and experiences can be created and thus more revenue streams can be generated, which further expands the scale, lowers the cost, and increases the return. In fact, each platform must have multiple streams of revenue; otherwise it will never make big money.
Because of its digital core competency, Amazon can continuously improve its operational efficiency while lowering its cost structure, becoming ever more competitive in serving millions more customers. Such faster iterations of continuous improvements create steep, and increasingly higher, entry barriers for latecomers.
That’s
