What makes Amazon the strategy leader of the Internet age?


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Great firms are revered for their outstanding capabilities, they symbolize excellence that is synonymous with their identity.

It is fairly straightforward to associate leading firms of the Internet age (e.g. Google, Apple, Microsoft) with a unique functional excellence - product, design or engineering. They are simpler to understand when looked at from the lens of the unique competitive advantage. Apple, is known for its high-end product-focused culture, Google and Microsoft, on the other hand are engineering driven and have thrived by building the most reliable and impact software till date. If Apple is revered for its design, Google and Microsoft are hailed for a ruthless hard-core engineering expertise.

What about Amazon?

Amazon products are highly usable and well designed, but do not evoke an aesthetic awe. Though, Amazon has built products across hardware, web and infrastructure, they wouldn't necessarily count as an engineering marvel in the popular tech- media. Still, Amazon has managed to outgrow its contemporaries.

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What does Amazon excel in?

Of all the ways to answer this question, what interests me the most is Amazon's strategy - relentless focus on playing its own board game while everyone else is busy building the next big thing. Amazon has cared less about the outcry of what's next in future or about the peer pressure, but instead it has successfully followed a strategy of compounding growth in e-commerce through new businesses and products.

E-Commerce is the at the core of Amazon's strategy, and the company has never gotten away from its core objective. Pretty much what any traditionalist MBA-trained strategist would suggest - "focus" or "believe in core competencies" - but this is just part answer. Key feature of Amazon's philosophy is hunting in pack - it unleashes attack from all fronts to capture the industry. Mistake would be to look at Amazon's disruption to retail as one single war, instead it is a series of battles to knock the incumbents down from all angles. When payment friction was an issue Amazon created one click, if remembering passwords was a turn-off Amazon added touch-id login on smartphones, if customers needed faster delivery Amazon came up with Prime Now and in near future it will solve the sparse population delivery problem by flying drones. It is hard to find any other Internet age firm synchronising its efforts so well and for so long.

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Human mind struggles to estimate the sheer size of compounding growth, and unsurprisingly similar narrative plays out in the business world. Amazon has done exceptionally well to create products and services that not only open a new source of revenue, but also add back to the core, leading to compounded growth effects. Some of the prominent innovations at Amazon haven't been sprouting of seeds of talent and resources (e.g. Alphabet's Google X) into the field, but a careful ploughing of the terrain that support the mother tree (ecommerce). Buying kindle led to buying more books on Amazon, prime subscription lead to compulsive purchases for cheaper delivery, Amazon Echo has opened the pandora's box for Amazon's Ecommerce (more on it later) and AWS has not only allowed Amazon to scale infrastructure at zero cost but has also fueled its invasion in tougher markets such as India.

Comparing with its peers, two things stand out about Amazon - value accretive innovations and stealth nature of execution. Amazon has resisted the temptation of innovating for the sake of innovating - I imagine Amazon may one day start building self-driving cars if and only if the whole idea collectively adds value to the Amazon, the e-commerce firm. Part of Amazon success comes from its non-glamorous stealth mode execution - Bezos is not seen announcing grand plans an Amazon's version of Google I/O or debuting over promising and under delivering products at public events. It builds and tests stuff and puts out into the market creating a unique sense of surprise.

Corporate Strategy in the Internet age

Corporate Strategy is concerned with how companies, create value across different businesses and how the corporation can add value over and above
that a business unit creates by itself.

Strategy itself is a fuzzy concept, and it is often better understood in hindsight. Traditionally corporate strategy has been defined within the realm of creating value across business units and the corporation. A winning corporate strategy in the Internet age is similar in principles, but different in priorities - one that places greater value to growth opportunities potential by realizing meaningful connections between users and products.

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Most of grand Internet success stories can be attributed to a combination of Product and User connections:

  • User connections (network effects) are factors that make an existing product or platform attractive to new users if there are large number of existing users

  • Product connections are factors that increase a product's utility if customers use a complementary product

Classifieds and shared economy firms are some of the straightforward examples of user connections - demand and supply connections, user-to-user connections. Apple's ecosystem is built over the nexus of its hardware products (Mac) and services (iTunes), Microsoft has long enjoyed the advantage of unique performance coupling between MS Office and Windows. Operating systems are a special case - one of the unique feature of OS is its ability to leverage cross user and product connections - the more users an operating system has more applications are developed for the OS - an early head start can soon become a strong competitive advantage.

Amazon's Echo Advantage

Google had Android and Chrome, Apple has got macOS and iOS, Microsoft still feels comfortable with Windows and Facebook has a quasi-OS app on billions of smartphone. An operating system is one of the most sought after possessions in technology, for it is the closest interface with end user that can supports wide array of applications. Although in complexity an OS is much more than an interface, the OS wars have been synonymous with the format of the interface - command line, GUI desktop, Mobile and voice.

For long, Amazon was missing a close interface with its users, it constantly feared Apple and Google's dominance on smartphone, for they are Amazon's medium to reach its users. On the surface this may seem a trivial effect of the OS dominance, but unlike web - where chrome or Safari do not monitor what websites could be opened, or define interface guidelines - mobile OS has a much stronger grip on its real estate. In the growth hungry world the worst case could easily be an OS owner launching a similar service - not long ago Spotify was strategically nervous about its iOS app's future as Apple launched its own music service.

Given, e-commerce is a central tenet to many Internet businesses, Amazon was under a constant threat from Google and Apple's interest in e-shopping. With Echo, Amazon has taken its first step to create its own interfacing layer with users, albeit in the form of voice initially, and a screen later (Echo Show). Amazon Echo technically doesn't replace a mobile phone, but much like iPads and smartwatch it is an attempt to create a new category of its own - Home PC. A computer that is omnipresent in the house, so you don't have to take it out from your bag or your pocket; a computer that is always ON - much like your refrigerator - so you don't have to bother with charging; a computer that is almost always listening - so it knows what you want and when you want.

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Amazon Echo has a three way utility for a modern house - first, it can easily become the go-to home automation monitoring device. Controlling appliances from phone is easy, but it is much easier to exert control without reaching out for your phone. Second, Echo is a frictionless medium to shop for daily needs, and third is Echo's grim opportunity to become a first true Home PC, the one that you would use to video chat with your grandparents. Echo's greatest advantage lies in the multiple connections it has at its disposal:

  • User to user connections: as one family buys echo, other family members and friends will be be better served if they buy Echo as well.
  • User to product connections: the more users Echo has, the more applications will be developed for the platform that will make Echo a better deal for the new customers. Fueled by its head start, Echo now controls 70% of the market of voice enabled speakers, with Google Home trailing in mid 20s and Microsoft's cortana isn't even in the picture yet.
  • *Product to product connections: *Android and iOS provided equal opportunity to Amazon and its competitors, but Echo is Amazon's baby and every bit of shopping dollar spent on Echo belongs to Amazon.

One way to look at these connections is understanding the working cycle of Echo Look. Echo look is Echo' hand free version, a camera based style assistant, that allows users to take full-length photos of daily look using voice and share it with friends. It does few things for Amazon: first, it establishes a meaningful connection among friends and second, it helps Amazon understand customer taste and more importantly the size and fitting for the body type. In the retail world, apparel is still an uncracked challenge for Amazon. Look allows amazon to sit within the closet of customers and facilitate apparel shopping on Amazon. Amazon very recently submitted a patent for an "on-demand" apparel manufacturing system, which can quickly fill online orders for suits, dresses and other garments. If everything goes by the plan Echo will become core driver for Amazon's apparel business.

Amazon is the most disciplined scholar of game theory in business, it pre-calculates the next steps of the competition and plays it moves just at the right time without any fanfare or any ado of superiority. It leverages its services and products to expand it core, and feeds on the connection voids in the market. Amazon's businesses are individual piece of puzzle that when put together create a formidable competitive advantage.


Originally published on LinkedIn on May 9th, 2017