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2.3 trillion) that, via stock ownership, has helped millions of families
unparalleled investment in last-mile infrastructure, made possible by an irrationally generous lender—retail investors who see the most compelling, yet simple, story ever told in business: Earth’s Biggest Store.
retailer worth more than Walmart, Target, Macy’s, Kroger, Nordstrom, Tiffany & Co., Coach, Williams-Sonoma, Tesco, Ikea, Carrefour, and The Gap combined.3
Apple fills two instinctual needs: to feel closer to God and be more attractive to the opposite sex. It mimics religion with its own belief system, objects of veneration, cult following, and Christ figure. It counts among its congregation the most important people in the world: the Innovation Class. By achieving a paradoxical goal in business—a low-cost product that sells for a premium price—Apple has become the most profitable company in history.6 The equivalent is an auto firm with the margins of Ferrari and the production volumes of
measured by adoption and usage, Facebook is the most successful thing in the history of humankind. There are 7.5 billion people in the world, and 1.2 billion
No institution has the trust and credibility of Google:
Your new favorite brand is what Google returns to you in .0000005 second.
General Motors created economic value of approximately $231,000 per employee (market cap/workforce).20 This sounds impressive until you realize that Facebook has created an enterprise worth $20.5 million per employee …
Many who write about Amazon argue the firm’s core assets are its operational capabilities, engineers, or brand. I, on the other hand, would argue that the real reasons Amazon is kicking the collective asses of its competition—and its likely ascent to a trillion dollars in value—are different.7 Similar to the other Four, Amazon’s rise rests on its appeal to our instincts. The other wind at its back is a simple, clear story that has enabled it to raise, and spend, staggering amounts of capital.
Instinct, coupled with a profit motive, makes for excess. And the worst economic system, except for all the rest—capitalism—is specifically designed to maximize that equation.
Of the four hundred wealthiest people in the world (excluding those who inherited wealth or are in finance) more names on the list are in retail than even technology.
Proximity ruled the day.
It was Harry Selfridge who coined the phrase “the customer is always right”—which
Getting our stuff at the lowest possible price was now more important than any specific company, sector, or even the health of the broader community. The invisible hand began bitch-slapping small or inefficient retailers all
“Race to Zero” began.
The march toward “more for less” created a vacuum for consumers looking for expertise and a social signal of something aspirational about their lives. Hence the rise of specialty retail, which enabled mostly affluent consumers to focus on an exclusive brand or product regardless of price. Thus Pottery Barn, Whole Foods, and Restoration Hardware.
The retailer that truly defined the specialty retail era was The Gap. Rather than spending money on advertising, The Gap invested in store experience, becoming the first lifestyle brand.
Amazon can scale to hundreds of millions of customers, and scale across almost every retail industry, without the traditional drag of having to build brick-and-mortar stores and hire thousands of employees.
every page can be a store and every customer a salesperson. And the company could grow so fast that there wouldn’t be any corners left for competitors to carve out a niche.
Bezos realized reviews could do the hard work of retailing for him. Amazon could call on the internet’s less lame attributes: selection and distribution. So, no nuance like well-lit storefronts, a door chime, and friendly salespeople. Instead, he leased a warehouse near Seattle airport and filled it in a way that robots could maneuver easily.
Amazon introduced Amazon Marketplace, letting third parties fill in the long tail.
Sellers, content with the massive customer flow, feel no compulsion to invest in retail channels of their own. Meanwhile, Amazon gets the data and can enter any business (begin selling products themselves) the moment a category becomes attractive. So,
Scale is power, and Amazon was able to offer prices no brick-and-mortar retailer could afford. He offered deals—to loyal customers, to authors, to delivery companies, to resellers agreeing to run ads on their own websites.
This kind of experimentation and aggression is what the military calls the OODA loop: “observe, orient, decide, and act.” By acting quickly and decisively, you force the enemy—in this case, other retailers—to respond to your last maneuver as you’re entering the next one.
Who’s losing? Everyone. The graph below, describing ten-year stock appreciation of major U.S. retailers (2006–2016), says it all:
Traditionally, stocks in the same sector trade sympathetically—in lockstep with one another. No more. The equity markets now believe that what’s good for Amazon is bad for retail, and vice versa.
Jeff Bezos is implementing robotics as fast as he can at Amazon. The company increased the number of robots in its warehouses 50 percent in 2016.
library of Alexandria.
Most successful VC-backed tech companies in the nineties raised less than $50 million before showing a return to investors. By comparison, Amazon raised $2.1 billion in investors’ money before the company (sort of) broke even.
Because if you have enough chips and can play until sunrise, you’ll eventually get blackjack. This cuts to Amazon’s core competence: storytelling.
replacing profits with vision and growth, via storytelling.
The Story: Earth’s Biggest Store. The Strategy: Huge investments in consumer benefits that stand the test of time—lower cost, greater selection, and faster delivery.
Amazon’s revolutionary timeline of capital allocation is what has been preached for generations in business school—total disregard for the short-term needs of investors in pursuit of long-term goals. A company that does this is as rare as a young adult who skips prom to study.
Normal business thinking: If we can borrow money at historically low rates, buy back stock, and see the value of management’s options increase, why invest in growth and the jobs that come with it? That’s risky. Amazon business thinking: If we can borrow money at historically low rates, why don’t we invest that money in extraordinarily expensive control delivery systems? That way we secure an impregnable position in retail and asphyxiate our competitors. Then we can get really big, fast.
Mr. Bezos bifurcates Amazon’s risk taking into two types: 1) Those you can’t walk back from (“This is the future of the company”), and 2) Those you can (“This isn’t working, we’re out of here”).50
Type 2 investments are cheap, because they likely will be killed before they waste too much money, and they pay big dividends in image building as a leading-edge company.
other than having a shit-ton of capital, is the willingness to perform infanticide on initiatives or products that aren’t working, thus freeing up capital (in Amazon’s case, human capital) to start new crazy initiatives.
Amazon demonstrates real discipline around not ramping investment until they know something is working.
Bezos, like any great leader, has the ability to explain a crazy idea in a way that makes it seem less crazy but practical. Wait,
ball. As Bezos wrote in Amazon’s first annual letter, in 1997, “Given a 10 percent chance of a hundred times payout, you should take that bet every time.”51 Needless to say, most CEOs don’t think this way. Most won’t even take risks that have less than a 50 percent chance of success—
They live for today and acknowledge that great success only comes with significant, even existential, risk.
failure. This failure gene is at the heart of Amazon’s and, more broadly, the U.S. economy’s success.
risky. A society that encourages you to get up after being beaned in the head, dust off your pants, step back into the batter’s box, and swing harder the next time is the secret sauce for printing billionaires.
America has the most lenient bankruptcy laws, attracts risk takers, and, as you might guess, has most of them. Twenty-nine of the fifty wealthiest people on the planet live in the United States, and two-thirds of unicorns (private companies with $1 billion–plus valuations) are headquartered here.54,55
Amazon has dominated e-commerce sales volume, but its business model isn’t easily replicated or sustained. These days, it’s easy to forget that Amazon did not turn its first profit until Q4 2001, seven years after its founding,
AWS also grew into a significant portion of Amazon’s total operating income, from 38 percent in Q1 2015 to 52 percent in Q3 2015.60
other words, while the world still thinks of Amazon as a retailer, it has quietly become a cloud company—the world’s biggest.
The market to ship stuff (mostly) across the Pacific is a $350 billion business, but a low-margin one. Shippers charge $1,300 to ship a forty-foot container holding up to 10,000 units of product (13 cents per unit, or just under $10 to deliver a flatscreen
The biggest component of that cost comes from labor: unloading and loading the ships and the paperwork. Amazon can deploy hardware (robotics) and software to reduce these costs. Combined with the company’s fledgling aircraft fleet, this could prove another huge business for Amazon.68
is its use of shitloads of assets piled up online to conquer the retail landscape offline.
