On 30 May 2017, Amazon shares traded at a record high – above $1,000 – surpassing the share price of Google parent Alphabet. Started as an online bookstore 22 years earlier, Amazon has achieved uninterrupted growth by becoming the largest internet bookstore, the largest online marketplace, a media company, and the most successful IT service provider. It recently expanded into the bricks-and-mortar retail business, launching Amazon Books across the US and beta-testing Amazon Go in Seattle. As of May 2017, it was ranked the world’s most innovative company and the fourth largest company by market capitalization. There is no perpetually excellent company – it can be brilliant at one moment and wrongheaded at another.
Amazon created a series of new markets by multi-faceted business offerings from online retailing to media and IT services. Those strategic moves opened and captured new market space instead of exploiting existing markets. By focusing on delivering meaningful value to buyers, Amazon made a significant leap in demand and achieved high growth. Furthermore, it eventually lowered the cost structure as a mass of buyers flocked and were locked-in by Amazon’s unprecedented utility.
Amazon jumped into many attractive industries and forced its entrenched resources and capabilities to bring intense competition against incumbents. These strategic moves, anchored in red ocean traps, focused on offering higher value or lower cost than the rivals, but they were not necessarily bought in by customers. Key difference between Amazon’s success and failure can be found in the presence of value innovation. Amazon achieved high growth regardless of industry condition when they pioneered a new strategy that opened up a new value-cost frontier through a step change in the kind and degree of value offered, hence creating a new market and making competition irrelevant. By contrast, Amazon failed when it focused on delivering novelty technology without buyer value or simply exercised cost leadership in order to beat high-performing incumbents.
In 2015, Amazon crossed the $100 billion mark in annual revenues. CEO Jeff Bezos claims that is the fastest any company has ever to done so. Amazon continues to grow at such a rapid rate, analysts have started to chart a path for it to become the first $1 trillion company.Because of its behemoth size, it is no wonder entrepreneurs from around the globe keep a watchful eye on what Amazon does, trying to extract insights into what makes it so successful. The good news is Jeff Bezos has been very upfront about the core operating principles that fuel Amazon’s growth. In particular, he credits their success to their commitment to the following three areas.
One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins….To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.”You’ve got to make experimenting a part of the culture of your business. That means allowing space to explore your curiosity as you try out new ways to add value to your customers.That doesn’t mean that you have to start failing big. Rather, make calculated bets on the experiments you engage in. This will allow you to get the learning you need to determine the optimal path forward, without losing your shirt in the process.
Over decades, Amazon grew aggressively, expanding beyond books at first, and then beyond online retailing, transforming industries as diverse as publishing, media and IT services and their business models. In its quest to grow big and fast, Amazon made several critical strategic moves that resulted in both sustainable growth and severe setbacks. Key difference between Amazon’s success and failure can be found in the presence of value innovation. Amazon achieved high growth regardless of industry condition when they pioneered a new strategy that opened up a new value-cost frontier through a step change in the kind and degree of value offered, hence creating a new market and making competition irrelevant. By contrast, Amazon failed when it focused on delivering novelty technology without buyer value or simply exercised cost leadership in order to beat high-performing incumbents.
“2017 Annual Report”. Ir.aboutamazon.com.
“2016 Annual Report”. Ir.aboutamazon.com.
“2015 Annual Report”. Ir.aboutamazon.com.