Amazon’s New Customer

[Note:  This item comes from friend David Rosenthal.  DLH]

Amazon’s New Customer
By Ben Thompson
Jun 19 2017
https://stratechery.com/2017/amazons-new-customer/

Back in 2006, when the iPhone was a mere rumor, Palm CEO Ed Colligan was asked if he was worried:

“We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said. “PC guys are not going to just figure this out. They’re not going to just walk in.” What if Steve Jobs’ company did bring an iPod phone to market? Well, it would probably use WiFi technology and could be distributed through the Apple stores and not the carriers like Verizon or Cingular, Colligan theorized.

I was reminded of this quote after Amazon announced an agreement to buy Whole Foods for $13.7 billion; after all, it was only two years ago that Whole Foods founder and CEO John Mackey predicted that groceries would be Amazon’s Waterloo. And while Colligan’s prediction was far worse — Apple simply left Palm in the dust, unable to compete — it is Mackey who has to call Amazon founder and CEO Jeff Bezos, the Napoleon of this little morality play, boss.

The similarities go deeper, though: both Colligan and Mackey made the same analytical mistakes: they mis-understood their opponents goals, strategies, and tactics. This is particularly easy to grok in the case of Colligan and the iPhone: Apple’s goal was not to build a phone but to build an even more personal computer; their strategy was not to add on functionality to a phone but to reduce the phone to an app; and their tactics were not to duplicate the carriers but to leverage their connection with customers to gain concessions from them.

Mackey’s misunderstanding was more subtle, and more profound: while the iPhone may be the most successful product of all time, Amazon and Jeff Bezos have their sights on being the most dominant company of all time. Start there, and this purchase makes all kinds of sense.

Amazon’s Goal

If you don’t understand a company’s goals, how can you know what the strategies and tactics will be? Unfortunately, many companies, particularly the most ambitious, aren’t as explicit as you might like. In the case of Amazon, the company stated in its 1997 S-1:

Amazon.com’s objective is to be the leading online retailer of information-based products and services, with an initial focus on books.

Even if you picked up on the fact that books were only step one (which most people at the time did not), it was hard to imagine just how all-encompassing Amazon.com would soon become; within a few years Amazon’s updated mission statement reflected the reality of the company’s e-commerce ambitions:

Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.

“Anything they might want to buy online” was pretty broad; the advent of Amazon Web Services a few years later showed it wasn’t broad enough, and a few years ago Amazon reduced its stated goal to just that first clause: We seek to be Earth’s most customer-centric company. There are no more bounds, and I don’t think that is an accident. As I put it on a podcast a few months ago, Amazon’s goal is to take a cut of all economic activity.

This, then, is the mistake Mackey made: while he rightly understood that Amazon was going to do everything possible to win in groceries — the category accounts for about 20% of consumer spending — he presumed that the effort would be limited to e-commerce. E-commerce, though, is a tactic; indeed, when it comes to Amazon’s current approach, it doesn’t even rise to strategy.

[snip]

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