Wednesday, January 15, 2014

The Everything Store

In The Everything Store, Brad Stone digs deep into the story of Jeff Bezos and his company, Amazon.

Amazon is one of the more intriguing companies on the planet, at least for me. It is run by someone who appears (at least to me) to be very intelligent, and because of its size, scale and growth rate, is often compared to the likes of Google, Apple and Wal-Mart. But despite the company's ability to generate revenue at will, the company is barely profitable, which makes it difficult to know how much the company is worth.

Having read the book, I'm of two minds when it comes to this issue of profitability. On the one hand, I think Bezos makes decisions that are in the long-term interest of the company even if they hurt current profitability. For example, Amazon will often pass on cost savings to consumers to grow its market share and Bezos will sacrifice margin in order to ensure customers are satisfied.

At the same time, I'm not sure the company has the ability to make a whole lot of money even if it tried to maximize profits. Bezos has admitted that the company doesn't have a single advantage, and for this reason it must execute very well. Amazon has tried various initiatives to create advantages, including employing technicalities to avoid collecting sales taxes, cornering the ebook market, and forcing its way into the auction market, but none have worked for long. States are now wise to the tax scheme, ebooks are by no means tied only to the Kindle, and eBay's network effect was too strong to penetrate.

Nevertheless, this is an extraordinarily innovative company that you wouldn't want to compete with if you don't have an advantage yourself. Bezos comes across as both brilliant and rather ruthless. Amazon makes extensive use of data to determine which categories to go after next. In so doing, it can make enemies. For example, Amazon will partner with companies where Amazon has a need, but it will then compete with these same companies when Amazon sees its partners do well. Amazon wins by attrition. It pushes prices down, until the competitor becomes an easy acquisition target or bows out of the market. Blowing up the profitability of a category barely hurts Amazon, but has a massive effect on niche competitors. This is a competitive strategy that is also discussed in Greenwald's Competition Demystified, where managers are advised that playing hardball works best by cutting prices in segments/geographies where the competitor is concentrated.

Overall, I enjoyed the book, and look forward to checking out some of the books I haven't already read that Bezos' recommends. His list is as follows:

The Remains of the Day
Sam Walton: Made in America
Memos from the Chairman
The Mythical Man-Month
Built to Last
Good to Great
Creation: Life and How to Make It
The Innovator's Dilemma
The Goal
Lean Thinking
Data-Driven Marketing
The Black Swan

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