
Amazon as experiment - notlukesky
https://www.ben-evans.com/benedictevans/2019/7/26/amazon-as-experiment
======
GlennS
I've recently been reading through the Amazon letters to shareholders
[[https://ir.aboutamazon.com/annual-
reports/](https://ir.aboutamazon.com/annual-reports/)].

It's clear from those letters that Amazon is not an experiment, but rather a
flawlessly executed plan about how an online retailer can exploit their
inherently better capital flows to grow very quickly.

It's almost the opposite of the modern startup approach.

Not: "We need to borrow money and take investment to get big and dominate the
market".

Instead: "If we drive our costs down and focus on fast fullfillment or
orders/inventory turnover, we'll have all this spare money sloshing around to
reinvest, and happy local customers. Therefore we can't help but get big.".

(There's a lot more to it than this.)

The first letter shows that they already understood the economics of web
retail very well in 1997!

Accusing them of lacking _pride_ is also definitely missing the mark. Amazon
are optimizing customer satisfaction and rate of fullfillment. They enter all
these other markets exactly because they are proud enough to believe they'll
win. Amazon wouldn't enter a market aiming to be 2nd best.

I haven't gotten to the present yet, so I didn't know that Amazon had opened
high-street retail shops. The earlier letters said that they wouldn't do that
unless they figured out how to make it scale faster than their expenditures,
like their online business.

~~~
jcims
>Amazon are optimizing customer satisfaction and rate of fullfillment.

This isn’t just a byproduct of high speed/low drag commerce, they
intentionally and aggressively focus on and invest in customer satisfaction.

Anecdotally and most certainly with exception in this very audience they are
easily in my top three if not GOAT for direct human to human empathetic and
effective customer service. Google in comparison leaves me feeling like I’m
twisting random knobs on someone else’s lab project.

~~~
PakG1
Looking at this now, it's amazing to compare with the public criticism that
Werner Vogels gave to the face of the corporate blogging movement back in
2006.

[https://www.allthingsdistributed.com/2006/03/naked_answers.h...](https://www.allthingsdistributed.com/2006/03/naked_answers.html)

Back then when he claimed that Amazon did a very good job of being customer
focused, I was thinking: maybe, but whatever, I'm not sure what's special
about their customer experience compared to others. Today, I'm thinking: wow,
now that's a real example of audacious vision both executed and realized.

~~~
ajaynv87
On a tangent, I recently interviewed with amazon and you can tell everyone’s
being pushed to go to great lengths when it comes to customer satisfaction.
The interview really gave me a sense of what amazons thinking when they give
you a 25 dollar discount when you call them about a delayed delivery on a 30
dollar item. From the outside looking in, you think they are crazy but when
you’ve seen the organizational obsession with customer satisfaction, it all
makes complete sense.

------
eridius
> _All of this reminds me of stories about early Google, and how the company
> systematically rethought everything from first principles. Sometimes this
> was just a painful waste of time, as it learned the lessons everyone else
> had already learned, but sometimes the result was Gmail or Maps._

Didn't Gmail start as someone's 20% project, rather than something that was
"systematically rethought from first principles"?

~~~
jasode
_> Didn't Gmail start as someone's 20% project,_

Gmail's creator, Paul Buchheit, said it was _not_ a 20% project:

[https://time.com/43263/gmail-10th-
anniversary/](https://time.com/43263/gmail-10th-anniversary/)

excerpt: _> Gmail is often given as a shining example of the fruits of
Google’s 20 percent time, its legendary policy of allowing engineers to divvy
off part of their work hours for personal projects. Paul Buchheit, Gmail’s
creator, disabused me of this notion. From the very beginning, “it was an
official charge,” he says. “I was supposed to build an email thing.”_

------
fortran77
> Of course, sometimes "it makes no sense" is the right reaction (remember the
> Fire Phone, after all). But when clever people do things that make no sense,
> it can be worth looking twice.

Even though Amazon failed with the Fire Phone, I wish they'd try again! I
think Amazon is uniquely poised to do this. Have a half-smart phone that
includes their back-end services (Alexa, shopping, movies, music, storage for
your photos) and a selection of curated apps (Uber, Lyft, some popular games)
and a decent browser, and you may have a good phone for older people, people
who want a nice phone at, say, a $150 price point but don't want to deal with
complexity

~~~
hef19898
The Fire Phone is actually a very intriguing topic. If I had to choose out one
point in time when Amazon started to change I would take the Fire Phone. What
follows is just my personal opinion and impression I had working at Amazon
back the day, so take it with grain of salt. I also was not directly involved
with the Fire Phone.

The Fire Phone arguably was Jeff's pet project. E.g. the four cameras facing
forward were his idea if I remember well. Then it failed. What should have
happened, based on leadership principles, would have been for Jeff to own it
and admit it (vocally self critical and so on). That didn't happen, my
impression was that blame was put on the lower echelons of the organization.
For that was, in retrospect, the point when leadership principles started to
be used as a political tool by some people. After that, at least for me, the
culture changed as well. It took more than a year for that effect to trickle
down, so. Amazon was still a good yet challenging place to work, but it felt
much more like any other large corp out there.

~~~
mabbo
I think the point in time that you see the LPs started being used as a
political tool depends solely on how long you've been at Amazon and the level
you're at.

Some people truly believe in the LPs. Some people truly believe they can be
used to get ahead and justify whatever actions they want to do. I've never
worked directly with Jeff, so I have no idea what his approach to them is.

The Fire Phone? That best analogy I've heard for it is that the Fire Phone is
to Jeff as the "Homer" car is to Homer Simpson[0].

[0] [https://imgur.com/a/o0Q6fw6](https://imgur.com/a/o0Q6fw6) and
[https://simpsons.fandom.com/wiki/The_Homer](https://simpsons.fandom.com/wiki/The_Homer)

~~~
ben509
> Some people truly believe in the LPs. Some people truly believe they can be
> used to get ahead and justify whatever actions they want to do.

They can be the same people. There's an incoherence in any ethical system
based on a set of values.

The false justification isn't necessarily intentional. Motivated reasoning[1]
is a natural cognitive bias, so while you're cherry-picking values that
support your desired ends, it doesn't feel like you're doing it.

A better way to approach the LPs is to recognize that they're smart business
practices, but that they're subordinate to professional ethics, which in turn
are subordinate to a moral code.

[1]:
[https://en.wikipedia.org/wiki/Motivated_reasoning](https://en.wikipedia.org/wiki/Motivated_reasoning)

~~~
mabbo
> They can be the same people

Oh, sorry, I meant that they are different people. Though I've heard of and
met one or two people who might be crazy enough to be both.

------
petra
About the last part,regarding the buying experience:

The way Amazon likes to solve problems is by creating platforms.

So they created FBA, and now others discover products for them.

They also created their affiliate program, and that's a good way(combined with
other business Intel methods) to discover online buying experiences with
potential, and than scale them.

And when they do see something non-standard with potential, they invest.

For example: printed t-shirts. They copied that idea.

And how do they win here?

A combination of a lot of traffic, the best logistics, and maybe cheaper
manufacturing costs(due to scale), combined with Amazon's execution.

And that could be a general method for creating new experiences.

~~~
streetcat1
You are correct. Moreover,amazon uses one platform to support others. For
example the eCommerce platform is supported by AWS. I would rather look at
amazon as a portfolio of platforms.

This model is very hard to beat, since usually the emerging platform operate
at a loss, which is big barrier to entry.

The key to win here is not to fight the emerging platform but the supporting
platform. For example, if one attack AWS, it would likley take down the
eCommerce part.

------
PaulHoule
I don't think Amazon can roll over supermarkets as easily as the average mall
store.

People visit mall stores sporadically enough that they might forget about the
bad experience they had or hope it might be different or feel they don't have
a choice.

Thus mall stores can damage their brand image for a quick buck; in fact they
are often brain washed by their own advertising and have no idea how the
customer sees them.

Grocery, on the other hand, has a customer that does back at least once a
week, if the brand image is not upheld they can get similar goods elsewhere.

That awful whole foods at union square with the cattle chutes at the checkout
might look good compared to the local bodega in NYC, but does not look good
compared to a good suburban supermarket (Wegmans). It is one case where urban
folk could be out of touch with the broader market.

~~~
zjaffee
I grew up near that whole foods, and you have to remember that when the store
opened there was not a single grocery store near by that was nearly as large
and as good as that one. Hell, the mall that it's in might look less high end
than the rest of Union Square, but it's far nicer than the department store
Bradley's that was there before.

Also worth noting that since that whole foods opened, the grocery situation
throughout a lot of manhattan improved in that they opened quite a few more
locations that also were rather large compared to the older grocery stores
around.

This all said, I think the real market in a place like manhattan is for
grocery delivery. Fresh Direct when they opened was tremendously popular right
away, and given amazon's hold in the online purchasing space, within manhattan
(and other cities/neighborhoods where few people drive), online grocery
purchasing experience matters more for the brand than in store experience.

~~~
tomatocracy
I don't know how it works in eg the US but Amazon's online grocery purchasing
experience is really poor compared with literally every other competitor here
in the UK in my view. The system of "add goods to a box until it's full based
on size and pay by the box" just gets in the way as it's so alien compared
with most online shopping experiences. The traditional supermarkets charge a
fixed fee based on time of your delivery slot and it's much more intuitive
(popular times are more expensive to allow supermarkets to smooth the
deliveries).

Where I think they do get it right in that sort of space is the Subscribe and
Save programme which must cannibalise a fair amount of supermarket purchases.
The "set and forget" nature of it works really well for stuff like
nappies/diapers (it's a bit more painful for things like toothpaste because
the quantities/frequencies aren't quite right).

Historically the quality of their fresh produce was also relatively poor (not
particularly fresh and lower grade I think, although that just put them on a
par with eg Asda or Morrisons) but I don't know if that's changed since the
Whole Foods purchase (I'd like to think so).

------
Scramblejams
I guess I took the wrong thing away from this piece — where do I lay my hands
on a sweet, sweet physical copy of the 1908 Sears catalog?!

~~~
zeristor
From Amazon of course!

[https://www.amazon.co.uk/1908-Sears-Roebuck-Catalogue-
Schroe...](https://www.amazon.co.uk/1908-Sears-Roebuck-Catalogue-
Schroeder/dp/0873490185)

There’s also a copy on the Internet Archive, I’ve yet to find the portable
forge:

[https://archive.org/details/catalogueno11200sear/](https://archive.org/details/catalogueno11200sear/)

~~~
zeristor
High grade wagon scales is my favourite find to date:

[https://archive.org/details/catalogueno11200sear/page/760](https://archive.org/details/catalogueno11200sear/page/760)

(Scales is singular, isn’t it?)

~~~
sudhirj
In the same way that pants or trousers are singular, yeah. It’s really a pair
of pants, trousers or scales. With all these things you need two to make them
work.

~~~
kgwgk
Glasses as well, for two-eyed people.

~~~
zeristor
Or four eyed

------
scarface74
From a profitability standpoint, I am just not seeing how Amazon retail has
any chance at the long term success that the market does. Even as they have
taken over different verticals, they still had to keep prices down and margins
slim. They have no pricing power and have huge fixed cost.

Of course, AWS is a different story.

~~~
falcor84
>...huge fixed cost

What fixed costs are you referring to? It seems to me that almost their entire
cost structure is variable and quite low, compared to competitors.

~~~
scarface74
Retail - warehouses and warehouse workers and automation.

~~~
mensetmanusman
Those costs are lowering with automation, green energy/power, and autonomous
transportation.

~~~
scarface74
Autonomous transportation - the same story that Uber and Lyft are saying as
the savior for their businesses that will help them finally turn a profit.

------
cityzen
> Amazon is so new

Amazon is 25 years old.

I saw a comment on Medium the other day that summed up my feelings on Amazon:

Third, his “business” isn’t even a business. Amazon, for 99% of its history,
lost more money than it earned. The reason it even still exists today is
because it was propped up by truly gigantic loans in the form of stock shares
and VC capital. Propping up a non-profitable company until it grows big enough
to crush any and all competition is literally the Communist Chinese model of
“capitalism.”

Fourth, all of Bezos’s “wealth” is built on the backs of overworked,
underpaid, and horrifically mistreated employees who aren’t even allowed
enough time to use the bathroom, a sizeable percentage of which are elderly
folks who, in a more just society, would be enjoying their retirement.

[https://medium.com/@lifeinromania/jeff-bezos-is-a-
fraud-458f...](https://medium.com/@lifeinromania/jeff-bezos-is-a-
fraud-458fb8cb4b36)

Another note from another site The Street:

Using this estimate, the overall business, without AWS and Prime, lost about
$2 billion last quarter. Although advertising is included here, too, this loss
is almost all from the retail side of the business.

[https://www.thestreet.com/opinion/amazon-is-losing-money-
fro...](https://www.thestreet.com/opinion/amazon-is-losing-money-from-retail-)
operations-14571703

I don't doubt that Bezos is wicked smahhht but it doesn't take a genius to
figure out that if you borrow so much money that you can run a business at a
loss for decades and undercut everyone that you'll be successful. Except he
clearly isn't even able to do that.

~~~
mbesto
> The reason it even still exists today is because it was propped up by truly
> gigantic loans in the form of stock shares and VC capital

And those people are being rewarded for it..so what?

> Except he clearly isn't even able to do that.

Except he does. They optimize for cash flow, not income, and they're
absolutely crushing it in that department.

Let me kindly refer you to Amazon's cash flow statement:

[https://www.marketwatch.com/investing/stock/amzn/financials/...](https://www.marketwatch.com/investing/stock/amzn/financials/cash-
flow)

For more fun reading: [https://25iq.com/2014/04/26/a-dozen-things-i-have-
learned-fr...](https://25iq.com/2014/04/26/a-dozen-things-i-have-learned-from-
jeff-bezos/)

> Fourth, all of Bezos’s “wealth” is built

Bezos wealth is built by shareholders who invested in Amazon. What you're
referring to is a moral and regulatory criticism, which frankly shouldn't be a
criticism of Bezos himself but rather the people who govern his company and
wealth.

~~~
benedictevans
Amazon hasn’t raised money from investors since the IPO in 1997. It’s had
positive free cash flow since 2003.

------
blairanderson
This is the fluffiest BE article i've read.

> So maybe that’s the real test of Amazon’s pride: can it work out how to let
> us shop, rather than just buy?

Why even write this article?

