Bezonomics unveils the underlying principles Jeff Bezos uses at Amazon to achieve his dominance—customer obsession, extreme innovation, and long-term management, all supported by artificial intelligence. Most important, Bezonomics answers the fundamental question: How are Amazon and its imitators affecting the way we live, and what can we learn from them?
Amazon would go to great lengths to get its customers the best price and fastest delivery.
Even if that comes with a cost. And often that means no free lunchroom for employees, and lavish expense accounts are out of the question. During one holiday season, Bezos even asked his executive team to work a series of night shifts in its Seattle warehouse to keep up with the sea of orders. Amazon is also known for its contest to see who could pick items off the shelf the fastest.
“We kept banging on getting friction out of our customers’ lives. Customers came first and we’d work backwards from there. At Amazon, the employees are not customers”, said one of the company’s executives. “We were never going to get brunch or sushi, and no one had an assistant.”
Amazon would also go to great lengths to devour its competitors.
In the late 2000s, Amazon was battling with the startup Diapers.com. When the startup didn’t agree to be taken over by Amazon, Bezos decided to cut diaper prices down to zero until the decade could be made. Amazon eventually swallowed the startup.
Bezos requires six-page narrative in his meetings.
Bezos prefers six-pagers to PowerPoint presentations simply because it requires the team to get the concept right and include all the crucial facts. Sometimes, teams work tirelessly for weeks to get this report off the ground. And when a team brings a six-pager to a meeting, Bezos requires everyone spend the first twenty minutes or so carefully absorbing the narrative. No one can fake reading it. Once the reading ends, the group engages in an animated confrontational discussion, challenging premises, underlying facts and the viability of the project from the customer’s point of view.
Bezos himself reads with a high-level of concentration. One executive said Bezos reads at an Olympic level, meaning when he is reading, he looks like an Olympic skier right before a run who’s closing his eyes and visualizing and moving his body with the turns, he knows he’ll face on the run. In other words, Bezos is absorbing all information while at the same time anticipating bumps and icy patches on the road. When all is set, he begins giving both strategic and tactical feedback on the narrative in minute detail.
Every big innovation at Amazon has survived the six-page narrative.
Amazon’s biggest initiatives such as Prime, Alexa, AWS all had gone through six-pagers. In fact, all complicated or data-driven decisions are subject to six-pagers at Amazon. As a new project progresses, the narrative gets revised and revised until the project is ready for prime time. In some instances, the six-pager eventually evolves into the actual press release of the product.
Bezos is surrounded by what he calls the S-team, a team of loyal lieutenants.
S-team consist of eighteen top executives who know how Bezos thinks, understand his values and have a strong desire to ferret out the truth. Many have worked with Bezos for years, some over a decade and rarely leave the company. At one of his all-hands meetings, Bezos said “I’m very happy that we don’t’ have a lot of turnover on the S-team. I don’t intend to change that – I like you guys a lot.”
Bezos requires some of his S-team members to mentor him.
A number of S-team executives were at some point in their career became Bezos’s technical advisors- more informally known as ‘shadow’. Early in Amazon’s history, Bezos would mentor a few select executives, but the effort wasn’t paying off as much as he hoped. So he selected Andy Jassy, a Harvard MBA with no technical background as his first full-time shadow. Jassy eventually helped build and now runs AWS, the largest cloud service business in the world, an amazing accomplishment for someone with a non-tech background.
From that point on, technical advisor program became an integral part of Amazon’s culture and over the years Bezos has put a string of successful executives through the program.
Bezos sends public the signal that his S-team can take over him at any moment.
Amazon is one of the few companies that are associated with its founders. Needless to say, not only its investors also its employees worry what would happen to Amazon beyond the reign of Bezos. With his S-team, Bezos seems to be sending the signal that when he retires Amazon has a deep bench of all-pro players who could step in and drive the company. Sure, whether or not his talented successor would have the vision, intuition and genius of a Jeff Bezos, is still questionable.
Bezos is in some way similar to Jobs, when it comes to brutal honesty.
In meetings, it’s uncommon for Bezos to erupt into one of his well-documented ‘nutters’, which is a euphemism for his outbursts. Bezos would occasionally snap at unprepared team members “I’m sorry did I take my stupid pills today”, “If I hear that idea again, I’m going to have to kill myself.”, “Are you lazy or just incompetent?”.
Having said that, his nutters indicate he’s being more clever than kind. Some who have worked closely with Bezos says, his nutters are justified because he’s almost always right.
Not everyone survived Amazon’s Navy SEAL style ‘Up or Out’ culture.
Employees are encouraged to tear apart one another’s ideas in meetings. Long emails arrive late in the midnight, followed by text messages why they were not answered. Internal phone directory is setup in a way so colleagues can send secret feedbacks to one another’s bosses. At Amazon, it’s usual to see workers weeping at their desks.
It’s an extreme culture, but also a productive one and not for the faint of heart. And certainly, not everyone can survive such pressure and scrutiny. However, in the long run both Jeff and Jobs ended up with a very loyal group of top-notch players whom they could trust to take on bigger responsibilities.
Bezos thinks in terms of decades, even centuries.
While most leaders think in terms of next quarter or perhaps two to three years, Bezos’s long-termism makes him think in terms of centuries. And he pushes his investors and employees to do the same.
Bezos bets a lot, but none of them were ‘bet the company’ bets.
Bezos took a lot of educated bets with Amazon. While some of them became huge winners like Prime and Kindle, some became big flops like Fire Phone and Pets.com.
Even when failed, in the case of Fire Phone with its late arrival to market, Amazon kept innovating because Bezos felt deeply that no matter the outcome, the effort always pays off in the long run. Amazon kept on learning the lessons from its failures and so the Fire Phone eventually ended up in Amazon’s next generation smart speaker, the Echo.
Amazonians spend their every working moment trying to push the flywheel.
Flywheel in this context is a metaphor for virtuous cycle. Amazon continuously strive to lower the costs for its shoppers and by doing that increases the number of customers who shop. That attracts more independent sellers who want a bigger reach on Amazon’s platform, which in turn generates more revenue for Amazon. That leads to economies of scale which help further lower the prices. And the circle continues. The flywheel keeps turning and turning and turning. The job of every Amazonian is to push the flywheel a little harder every day.
“Anyone who has worked at Amazon for more than a couple weeks has heard the term ‘flywheel’. In fact, I suspect that many, if not most, people who interview here discuss the flywheel as part of their onsite interviews.” said by a blog on the company’s corporate website.
When you just started pushing, it takes a lot of effort to move the flywheel.
But you don’t stop. You keep pushing and you get the second turn and then the third and then the fourth. It starts to compound upon itself. Once you get eight turns, twelve, a hundred and a thousand, that flywheel has its own momentum. And you keep on compounding that momentum. At Amazon, Amazonians keep compounding on that momentum with new ideas and technologies.
There’s no one big push to turn the flywheel.
No matter how much you’d like it, or Amazon wanted it, there’s no single big push that made the flywheel move. It’d be like asking Warren Buffet about his single act or decision that made him filthy rich. It’s a series of good investment decisions compounded over time that turned his flywheel. For Amazon, it might just be its genuine customer centricity that gave a company momentum.
Prime members are gold to Amazon.
They spend more than others, listen more, watch more and read more than the non-privileged shoppers. And that privilege comes with a cost of $119 a year. Prime members are also relatively affluent and loyal. Amazon has made a tremendous effort and spent tens of billions of dollars to keep its gold customers happy and make sure they get what they want, when they want and at a price they can’t refuse. Amazon also meticulously allocates its media production and marketing costs whether a particular movie or show is adding or subtracting from its bottom line
What started off as a bad idea, has now become a major business for the company. Prime Video, Prime Music and Amazon Shipping all are now posing a serious threat to major industry incumbents such as Netflix, Spotify, Apple Music, FedEx and UPS.
The genius of Prime model is this.
After a while, Prime members get addicted to the convenience of one-click buying, free and fast shopping and basically stops looking other e-commerce sites even if they can find a cheaper item there. Amazon has locked an army of price-insensitive shoppers into their ecosystem.
People aren’t still shopping with Alexa, although it might change soon.
Amazon won’t comment on how many Echo users shop with the device but what one thing people don’t do is asking their devices to shop for them. One survey suggests only 6% of Echo users asked Alexa to buy things online. “People are creatures of habit. When you’re looking to buy a coffee cup, it’s hard to describe what you want to a smart speaker” said one of the analysts. “Behavioral change is the hardest thing, and companies hate try to do that. But at the point where shoppers realize they can list their groceries and other times on Alexa and get them delivered on the same day, it will become frighteningly disruptive to the industry.” And by the time competitors’ figure that out, it will be too late. It’s a classic Bezos long-term chess game. Something like shopping on Alexa might well be worth billions in five years.
Working at enormous fulfillment centers isn’t an easy and pleasant job.
For those who move mountains of merchandize through its enormous warehouses, the work can be repetitive and stressful. Full-time associates toll 10 hours a day, 4 days a week with half an hour lunch break and two 15 minutes breaks. Some complain they don’t have adequate time to take bathroom breaks. They’re constantly under pressure to meet tough goals. It seems Amazon is squeezing every bit out of its industry-leading $15 minimum wage.
One worker describes the workplace as ‘lack of decency, respect and dignity’ and that resembles a low-security prison where workers don’t have enough time for lunch, get penalized for taking sick days and missing their productivity goals. He also mentions how he came across a Coca-Cola bottle of urine on a shelf, purportedly put there by a worker too scared to take a bathroom break.
Still, working at Amazon comes with perks.
Amazon realizes working at fulfillment centers is tough and hopes that people will use these jobs as a stepping-stone to a better career. For example, after an employee is with Amazon for a year, they can take any training related to a job currently in demand. And Amazon will pay for 95% of the training fees. Even if their goal is to become a nurse or programmer at another business, Amazon will pay for it. The idea is a competitive wage plus benefits act as a stepping-stone for people who want to earn some money and development opportunities to pursue their ideal careers.
For Bezos and Amazon, it’s Always Day One.
It’s worth knowing Day 1 mentality of Amazon. It means basically thinking as if the company is in day 1. In day 1, every customer matters, every penny counts and every innovation makes a difference.
“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is alwaysDay 1.” – Jeff Bezos
If you go to Amazon headquarters, you will find a building named “Day 1” where Bezos’s office is located. When he moved buildings, he took the name with him. The plate reads:
“There’s so much stuff that has yet to be invented. There’s so much new that’s going to happen.”
Robotics combined with automation may put millions out of work.
Warehouse jobs aren’t the only workforce that is vulnerable to disruption by automation. With its acquisition of the Whole Foods grocery chain and the opening of a handful of small physical stores, the company is moving into traditional retailing by leveraging automation. Walk into any Amazon Go and you’ll see a full cashier-less shopping experience. All you do is download the Amazon Go app and scan your phone at a turnstile to enter the store. After that pick out whatever you want, pop it in a bag and simply walk out of the store. The amount you owe will be charged to your Amazon account. The entire transaction is seamless from the customer’s standpoint.
For those dispossessed by the automation, it seems likely that they will find new jobs. Others will survive on a universal basic income (UBI) provided by the government and the rest will turn to the gig economy, trying to make a living in any way they can. One way to do this is to sell stuff on Amazon Marketplace. Unfortunately, that would mean having to compete directly with Amazon’s relentless AI flywheel.
However, even Amazon finds it impossible to eliminate all human labor.
The cooperation between man and machine is something to behold. Robots have already replaced humans to a large degree in Amazon’s warehouse and fulfillment centers, and this revolution is growing at an accelerated pace. Having said that, it’s still a daunting task for machines to get away with 100 percent accuracy, in most part of Amazon’s operations.
Finding a single time in a deep bin is quite a challenging task for robotic manipulation today” says Porter, an MIT-trained engineer who joined Amazon. “You can build a system that’s good at picking our fixed items like a cell phone box from a bin but given the amount and variety of new items coming into Amazon, the algorithms aren’t there yet.” , he added.
Third-party sellers who sell on Amazon’s Marketplace are constantly under threat.
Even though Amazon makes a fortune from independent merchants who sell on its platform, Amazon doesn’t seem to hesitate to compete with them directly if given an opportunity. Some get crushed when Amazon decides to launch a category similar to their best-selling product. Others get caught where merchants do anything it takes to compete with each other – sometimes ethically and sometimes not. For many, selling on Amazon means competing not only with more than 2 million third-party merchants also with endless array of look-alike Amazon-created products. On top of that, they can only dream of the advantage Amazon holds – the massive stream of product and pricing data flowing through its platform.
Amazon shoots first and asks later when it comes to business with third-party sellers. If Amazonever gets a complain about a seller dealing in counterfeit goods, shipping wrong or dangerous products or running fake reviews – whether it’s true or not – you can expect the retailer to first get suspended. Because for Amazon, the vendor is guilty until it’s proven innocent. Unfortunately, a lot of good actors end up getting abused by dishonest sellers who make false reports to cripple a competitor.
3-star reviews can reveal the most unbiased view on the product, not 5-stars nor 1-star.
Savvy consumers know something’s not right if a product gets too many 5-star reviews or if many reviewers are very short and similar fawning language. Today, everyone can pay for click/review farms to ramp up their reputation online. So, one strategy experienced shoppers use is look at the three-star reviews which can probably give them the most honest assessment of the product’s pros and cons.
Godzilla vs Mothra: Amazon vs Walmart
As the king of online moves its forces into brick-and-mortar (primarily following the acquisition of Whole Foods), it appears Amazon is sending Walmart a signal that it’s going head to head with the largest retailer in the world.
Walmart by far is the king of the US grocery industry, accounting for more than half of all sales. Whole Foods before the acquisition accounts for merely 2 percent of the market. So why did Bezos acquire this welterweight grocery chain? With the acquisition of Whole Food’s 500 plus stores, Amazon gets much-needed real estate in prime urban and suburban areas. It also gets a high-end grocery stores whose customers fit nicely into demographics of its Prime members. At the time of the takeover, roughly half of Whole Foods’ shoppers were also Prime members.
The two will clash, the competition will be fierce. But that doesn’t mean one has to die. Both Amazon and Walmart have the capital as well as expertise to transform themselves into hybrid retailers. “At the end of the day – if I had to guess how it would shake out – Amazon would be more coasts and urban, and Walmart more heartland. That’s pretty much the way it’s playing out today, where Amazon prevails in the more urban areas, and Walmart in Middle America.” says Marc Lore, CEO of Walmart’s eCommerce division.
Alexa is at the heart of Amazon’s next disruption.
As mentioned earlier, Amazon plans to change the grocery shopping by making ordering food as fast and simple as “Hey Alexa, I need milk and bananas” and then having that order at your doorstep within a few hours. It sounds simple in theory but difficult in practice. To pull that off with relative accuracy, Amazon needs tremendous AI muscle.
The last mile is where the delivery costs pile up.
The challenge for Amazon is that delivering goods is expensive. Make no mistake while Bezos accepts high shipping fees as a price to be paid to keep Amazon flywheel spinning, shipping is also costing the company a fortune. The cost of a single delivery can range from $7 to $10. In most cases, the last mile costs can be more than half of the total cost of the shipment.
To lower costs and improve speed, Amazon over the years has tried different approaches, including outsourcing its delivery efforts to FedEx, UPS and even smaller, independent logistics that charge less than major couriers. In addition to outsourcing, Amazon also rolled out Amazon Flex, its same-day delivery service which operates in some ways like Uber by paying independent contractors who drive their own cars. In its latest attempt to building a logistics powerhouse, Amazon introduced a program called Delivery Service Partners. With an initial investment “as low as $10,000,” according to Amazon, an entrepreneur can start a business that hires drivers and leases up to 40 vans to deliver packages from warehouses to homes.
Amazon is constantly innovating to gain a competitive edge in autonomous delivery.
Companies like Silicon Valley start-up Udelv, Google’s Waymo, China’s Baidu are all different approaches to autonomous delivery. But the underlying pattern seems to be no different. The customer uses a smart app to request a delivery window. The van receives the schedule and rolls up to the home. When it arrives, the customer receives a code, he walks up to the van and punches the code into a screen on the side of the van. The van opens up a slot for pick up. Once the shopper picked up the package, the van drives to the next destination.
Self-driving delivery vehicles come in all shapes and sizes. Amazon in 2019 let loose Scout delivery vehicles on the sidewalks of Washington. These battery-powered devices look like small coolers on wheels. They travel on the sidewalks at a walking pace while avoiding pedestrians and pets. When it arrives, it texts the shopper, pops open its top so the person can pick up the package. Scout then heads to the next destination. It happens Amazon liked how Scout rolls and decided to expand the program into new areas of the country.
Scout looks cool… but what if an army of Scouts one day take over the roads?
This is why Amazon is betting heavily on drone delivery despite of the complaint from general public – noise. Residents complain the loud high-pitched whirring sound of Amazon’s drones. Luckily for Amazon, the federal agency that regulates air travel stands with the company. And once the federal approves commercial drones which is likely, there might be no turning back.
When all is said and done, one truth is here to stay. Whether it’s a drone, a walking robot or a full-sized van, autonomous delivery will gradually replace human drivers because it makes more economic sense.
If there’s one thing Amazon isn’t good at, it is its brand ‘identify’.
Amazon really is phenomenal in many ways in the areas it operates, and has been transformational to the lives of countless people. That said, even a trillion-dollar-company like Amazon is far from perfect. Among its imperfections, Amazon’s brand ‘identity’ stands out the most.
Understandably at the scale at which it operates, it’s almost impossible for Amazon to offer personalized experience for the masses it serves and delight every single one of them. Doing so would likely collapse under its own weight and bleed itself to death.
Understand the weak spots of Amazon, if you want your business to survive and thrive.
- Amazon offers broadest spectrum of products (but that doesn’t mean it can offer everything in existence).
- Amazon offers low prices as well as fast delivery (but price and delivery alone don’t constitute the entire customer experience).
- Amazon touches millions of lives on a scale no one thought possible (but in some way it has created a commodity business).
So if you must compete with Amazon, make sure you
- Offer special and often hard-to-find selection of niche goods.
- Give a more differentiated level of service.
- Touch customers personally through customized experiences.
For example, Best Buy, the consumer electronics retailer is the one business that by all rights should have been crushed by Amazon. But it’s not the case if you look at it today. What gives?
Best Buy engages the customers in hand-holding manner. Take its Geek Squad for example. A team of highly trained technical experts would arrive to your door steps to install and service complex technical solutions. Of course, they also had to keep its prices down to compete, but the survival of Best Buy can be most attributed to its own unique brand of technological superiority.
Have you Amazon-proofed your business?
It’s not just the retailers that comes under the pressure of Amazon. Many companies across sectors such as banking, health care, technology and advertising are equally vulnerable. So, it looks like we have two choices (1) understand how Bezonomics work and prepare for its impact on our sectors, or (2) let Amazon and its low-price, fast-delivery and mighty AI flywheel conquer our realms.
Regardless of our choice, the truth is here to say. Bezonomics isn’t backing off anytime soon and it’s happening faster than most of us think.