On the 20th anniversary of Amazon’s IPO, Amazon’s market cap stands at $459 billion before the market opens for trading. Walmart’s? $228 billion.
A good time as any to read this excellent TechCrunch piece on how Amazon operates by Zack Kanter, co-founder of Stedi:
Amazon is the most impressive company on earth, and I think it is one of the least understood. […]
It’s the fact that each piece of Amazon is being built with a service-oriented architecture, and Amazon using that architecture to successively turn every single piece of the company into a separate platform – and thus opening each piece to outside competition.
AWS was the first result of this service-oriented architecture mindset and its success was in parts certainly the cause for this rippling through all of Amazon:
AWS) has been well-covered – the windfalls have been enormous, to the tune of a $14B annual run rate. But the revenue bonanza is a footnote compared to the overlooked organizational insight that Amazon discovered: by carving out an operational piece of the company as a platform, they could future-proof the company against inefficiency and technological stagnation. […]
In the 10+ years since AWS’s debut, Amazon has been systematically rebuilding each of its internal tools as an externally-consumable service. A recent example is AWS’s Amazon Connect – a self-service, cloud-based contact center platform that is based on the same technology used in Amazon’s own call centers. Again, the ‘extra revenue’ here is great – but the real value is in honing Amazon’s internal tools.
By building services and thus platforms that are used inside and outside the company, Amazon has created new feedback loops:
Amazon has replaced useless, time-intensive bureaucracy like internal surveys and audits with a feedback loop that generates cash when it works – and quickly identifies problems when it doesn’t. They say that money earned is a reasonable approximation of the value you’re creating for the world, and Amazon has figured out a way to measure its own value in dozens of previously-invisible areas. […]
Amazon has quietly rolled out external access in nooks and crannies across their entire ecosystem, and it is this long tail of external service availability that I think will be nearly impossible to replicate.
FBA in itself is already solving a hard problem. But imagine how much FBA and other programs have iterated over the last years. Feedback loops mean those are systems that get better faster and faster.
Given that systems like FBA handle complex challenges, the advantage on the execution side for Amazon must be substantive by now.
They are thumbing through their income statement and picking off the largest categories to ‘productize’ – first technology (AWS), then fulfillment (FBA), then COGS (the actual products themselves via Amazon’s various private label programs), and next shipping. […]
Amazon has found a way to successfully marry the vertically integrated approach and the modular (market-based) approach, if that makes sense:
Angry customers blame the retailer, and the retailer screams at UPS in turn. When Amazon is the service provider, they’re permanently dogfooding. There is nowhere for poor performance to hide. Amazon has built a feedback loop as a moat, and it is incredible to watch the flywheel start to pick up speed. […]
Amazon is externally exposing the tools it uses to set its own prices in order to guarantee that the price listed on Amazon is as low as possible for the customer. This has spawned a whole ecosystem of third-party price-optimization tools called ‘repricers,’ which use the MWS API to automatically respond to price changes in order to maximize sales for the Marketplace seller (the WSJ published a great piece on this back in March, aptly likening it to high-frequency trading). The beauty here is that Amazon doesn’t care if a seller undercuts Amazon’s price – Amazon takes a 12-15% commission on the sale regardless, and then collects FBA fees to boot.
Read that last example to get a sense of what kind of game Amazon is playing against other retailers.
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