Amazon is known to the general public for its successes. And what successes! His boss Jeff Bezos, with personal assets close to 82 billion dollars, is on his way to becoming the richest man in the world by overthrowing Bill Gates who has held this enviable record uninterruptedly for almost twenty years. Bezos recently posted a tweet inviting people to suggest ways to spend part of this immense fortune on charity and philanthropy. He will certainly receive many suggestions. If you have any, join them! Bezos loves Italy.
Yet Amazon, along with its undisputed successes, has also accumulated many failures, less flashy but quite striking. In general, Bezos never hides these experiences, rather he talks about them casually, preceding them with a hearty laugh. Indeed, he indicates them, with a certain pride, as something that has played a fundamental role in the formation of Amazon as a great industrial power. "Failure builds character" was one of Steve Jobs' mantras that accompanied him with these words: "getting fired from Apple is the best thing that happened to me". A bit extreme as a sentiment, but it was just like that.
When Bezos presented the Kindle in November 2007, many wondered the rationale for this choice. Amazon set sail for an adventure that could undermine its core business, that of selling books on the Internet. It was worth it? Yes, as history has shown. The Kindle was a huge success An issue that had presented itself as it was to Apple, just a few months earlier, when Steve Jobs, in January 2007, had shown the iPhone that incorporated all the functions of the iPod, the device that all he era was on the shields and was selling very well. It was worth it? Yes, because the iPhone changed everything and made Apple the most capitalized company on the planet. Not for long because Saudi Aramco, the Saudi oil company, is coming, which is worth three times Apple.
Innovate or die
On this point Bezos and Jobs had a similar view. Both had forged it on the audacious theories of disruptive innovation elaborated by the Harvard scholar Clayton Christensen who had developed Schumpeter's theory of creative destruction by adapting it to advanced tertiary economies. The sense of this theory is this: if the incumbent, i.e. the market leader, does not innovate, riding the wave of the most advanced technologies and studying consumer behavior, someone else will do it and the incumbent will soon find himself in the conditions of the 'pursuer, weighed down by his structure and top-of-the-class mentality.
Therefore it pays to innovate with courage and without too much concern for existing businesses. The incumbents either become slaves of innovation or remain prisoners of their own success and self-referentiality. It is clear that very high-risk investment and even failure are somehow inherent in the very nature of disruptive innovation. This doesn't have a user manual to follow like in traditional businesses, nor is it taught in business schools because it's a totally experimental discipline. It relies exclusively on experiments, explorations and attempts aimed more at learning than at grinding profits, as the shareholders would like. It is an activity for true explorers. “Take one method and test it, if it doesn't work, try another,” said Franklin Delano Roosevelt, one of the greatest presidents of the United States.
From the outside to the inside
Can companies expand in two different ways?—?said the founder of Amazon. One is to externally develop your internal skills and ask yourself "What else can we do with what we already know how to do?" This is an approach that focuses on purely quantitative growth. Another way is to start with the customers' needs and look back inward. You observe the behavior of your customers and ask yourself "What are their needs and how can I satisfy them even if this means developing skills that I don't have". The Kindle is an example of the latter approach. To do this, you need to get out of your own field and go and look for people who have skills in the field of industrial design, hardware production, software and so on. If you start with customers and then work internally to meet their needs, then you need to think and work in the long term, you have to forget about short-term results”.
You must be ready, I would add to Bezos' words, to take risks. From the outside to the inside, it is a path strewn with attempts and failures, economic losses and tensions with shareholders, stakeholders, management, employees and the specialized media. But Amazon did it and Amazon has accumulated a good string of failures which however have contributed, more than other experiences, to forming the character of this great company which today is worth half a trillion dollars and is indicated by many as the company of the future .
David Streitfeld, who has covered Amazon for the New York Times for many years now, wrote an interesting article in the New York newspaper about Amazon's "appetite" for failure. Ilaria Amurri has translated this article for our readers. Streitfeld tells well how the e-commerce giant, with the acquisition of Whole Foods for 13,4 billion dollars (the most expensive in its history), is setting sail for a new adventure which, perhaps, aims to make disrupted the sector of natural foods and organic products in large-scale distribution. Walmart is warned and already sees in the rear-view mirror the orange-colored fireball starting the overtaking maneuver.
A fiercely experimental culture
Joke all you want about drones delivering organic kale and rocket. The $13,4 billion gamble to get its hands on supermarkets, an $800 billion business, through the Whole Foods acquisition fits perfectly with the spirit of Amazon.
Unlike almost every other CEO, Amazon founder Jeff Bezos built his company by taking risks head-on, ignoring the more obvious ploys and imagining every possible customer desire before they even thought about it.
The key to this strategy lies in the approach to failure. While other companies fear making blunders, Bezos seems unconcerned. Losing millions of dollars for some reason doesn't necessarily mean defeat. Success is the only thing that matters and this generates a fiercely experimental culture, which is disrupting entertainment, technology and especially retail.
Bezos is one of the few CEOs who joke about lost money. "I've lost billions of dollars," he told a conference in 2014, adding that listing them would be like "getting a tooth pulled without anesthesia." [explosive laughter]
The Lost Bet of the Fire Phone
The Fire Phone, for example, was touted as an item that would mark Amazon's future, one of the biggest new things since New Coke, but at one point Amazon slashed the prices to 99 cents. Nor was 99 cents attractive to consumers, who ignored it. For any other company, it would have been a humiliating experience, with serious repercussions, but Wall Street didn't even bat an eye when Amazon lost $170 million on the smartphone flop.
“When you make bold bets, should you take them as experiments?—?said Bezos?—?you can't know ahead of time whether they will work. By their very nature, experiments are prone to failure, but a few great successes make up for dozens of things that didn't work."
…and the winning one from AWS (Amazon Web service) and Prime
This approach has always been inherent in Bezos' company and it is difficult, if not impossible, for the competition to emulate. Amazon Web Services, for example, began as a small internal cloud computing project aimed at supporting Amazon's core business. Then, the company began selling excess computing capacity to other companies.
Before Google and Microsoft knew it, Amazon had built a multibillion-dollar, high-margin business that was encroaching on their turf, so much so that now they're still struggling to catch up.
If the cloud computing business has seen constant growth, Amazon Prime has been a bold bet from the outset, the equivalent of an all-you-can-eat: you pay an annual installment and all shipping costs are covered for one year. Amazon's shipping costs have skyrocketed, but profits have benefited to such an extent that no one cares anymore what the launch of Prime cost.
"When the outlook is so long-term that you think in decades rather than quarters, then you can make choices and take risks that other companies would be risky," said Colin Sebastian, an analyst at investment firm Robert W. Baird & Company.
Little attention to profits
Amazon began, for those too young to remember, as an online bookstore in 1995. In the dot-com euphoria of the late 90s, it came to symbolize how the new invention called the World Wide Web was going to change everything. Then, like many major dot-coms, it exploded. The world wasn't ready for Amazon. It almost went bankrupt. So Bezos doubled down on his customer focus, slashed the company's media exposure, and got down to business with major experiments. Amazon developed, for example, the Kindle eBook reader, which for a time threatened to spell the end of paper books.
One thing Amazon didn't do was big money. In its 5,7 years as a public company, it achieved a combined profit of $500 billion. For a company with a market value of nearly $14 billion, that's an insignificant profit. Walmart, which is half the size of Amazon, made $2016 billion in XNUMX alone.
The high profits have always been set aside, at Amazon, to be able to invest more, driving both the skeptics (still present) and the competition crazy. “Has Amazon's decline begun?” headlined a recent article on finance site Seeking Alpha after a stock market crash.
… but great attention to customers
“Jeff Bezos is making shopping a great experience,” said Chris Kubica, an eBook consultant and software developer, who watches Amazon closely. “He made sure I expect the best every time I arrive Checkout. Can I scan the entire contents of the trolley while parking in an instant? Yes, certainly. Where do I park?”.
Despite the Fire Phone's ruinous attempt, Amazon could have gone along with many other underdogs and continued to produce devices that most people ignore, in favor of Apple and Samsung. In 2014, however, it launched Echo, a voice assistant that looks like a poster tube. His voice is that of Alexa, playing music and telling jokes. Now even Google, Apple and Microsoft are copying it.
“Does Bezos always stay ahead of the game?” said Sunder Kekre, a professor at Carnegie Mellon University's Tepper School of Business.?—?Whether it's drones or Amazon Go? —?always manages to create intelligent strategies and stand out from the competition”.
However, as Amazon continues to experiment relentlessly, it risks appearing less like an innovator than a threat. He has hired a large number of employees for his warehouses, yet he is focusing heavily on automation. Amazon Go itself, after all, is an attempt to take all the effort out of the buying process.
“Amazon is in danger of outgrowing,” Kekre says.
Whole Foods
Some critics hope the deal with Whole Foods will curb the Seattle giant. The Institute for Local Self-Reliance, which has repeatedly attacked Amazon, noted that the company is "rapidly monopolizing online commerce" and that both Prime and Echo "are strategies aimed at retaining consumers to ensure they do not buy from anywhere other". Amazon refrained from commenting on the article.
How will it end? Kubica has tried to give himself the following answer. Amazon can be understood as a decades-long attempt to minimize the gap between "I want it" and "I have it." The most logical epilogue would be what the expert jokingly called "Amazon Imp" (short for "implant" or "impulse"), or a microchip under the skin.
“Would it detect our impulses and desires?—?Wrote Kubica in an email?—?and then virtually satisfy them by stimulating our brain (for a modest price, of course) or make a box full of beautiful and good things appear in front of the doorstep (at a slightly higher price, of course)”.
Every wish would be fulfilled. He added, "I'm sure Amazon is trying to do that too."
So if so, welcome to the age of Amazon.
