
Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon" - adityakothadiya
http://joelonsoftware.com/articles/fog0000000056.html
======
niklas_a
The problem with this post, and other pieces by Spolsky is that he creates an
example out of two extremes on what really is a sliding scale.

Amazon burned through a lot of capital. B&J grew slowly during decades.

In real life, things are seldom so black and white. Every company has a unique
story.

What about Facebook, that grew organically at first and then took on massive
investment once it was clear that college kids loved it and they could benefit
from outside investment to grow even faster.

Or what about DropBox that took a small seed funding round but then quickly
exploded in popularity and then took more investment. Where do they fit on
Spolsky's scale?

The truth is - they don't. Which makes the whole premise of the article wrong,
you don't need to decide if you are Amazon or B&J. Just do what makes sense
for the business you are in.

~~~
dextorious
"""The problem with this post, and other pieces by Spolsky is that he creates
an example out of two extremes on what really is a sliding scale. Amazon
burned through a lot of capital. B&J grew slowly during decades. In real life,
things are seldom so black and white."""

Maybe, but shades of gray are neither guiding principles nor reference points.

We measure shades of gray as 10% white or 20% black etc, i.e distances from
the extreme, not with reference to other shades of gray or as an absolute gray
value. (Even if we could enumerate enough sub-segments on the "sliding slice",
we still intuitively understand segment 4/10 to mean something like: 4/10
close to white, 6/10 close to black).

"Every company has a unique story" is another way of saying: I cannot
understand and generalize anything specific about how companies operate. Not
very helpful. Science works with generalization and taxonomy.

"""What about Facebook, that grew organically at first and then took on
massive investment once it was clear that college kids loved it and they could
benefit from outside investment to grow even faster."""

Then they went towards the white end of the scale first, the black later.

~~~
niklas_a
"Science works with generalization and taxonomy."

You still need to do the science though. Taking two examples and drawing
general conclusions from that is just wrong. It's a case study of how B&J and
Amazon have operated, which in itself is interesting.

But it's wrong to state that you either are a B&J-type company or an Amazon-
type company, nothing in the article supports the fact that those are the only
possible types.

------
InclinedPlane
The most important thing to understand about these models is that it's very
easy to get big fast but very much harder (especially with software) to get
_good_ fast.

Good almost always takes several iterations. If your market is filled with
high quality offerings by competitors then getting big fast could be a recipe
for burning a lot of capital before your product becomes good enough to
compete, or simply burning enough capital to go out of business before it has
matured.

------
FaceKicker
How does Amazon have a "strong network effect"? I'd still use it even if none
of my friends did; it's not like Facebook (or instant messaging networks, to
use the 11-year old example from the article) where my friends not using it
would render it useless (or even less useful).

The only things I can think of is that (1) customers will advertise for you by
word-of-mouth, and (2) it's cheaper per user the more users you have
(economies of scale), but Ben and Jerry's has both of these properties as well
and the author says it has "no network effect". It is true that its _reviews_
have a strong network effect, but that's not the part of their business they
profit from directly - you can easily just check Amazon for its reviews and
then go to Buy.com to actually make the purchase.

Can someone clarify what he might mean when he says Amazon's business has a
strong network effect?

I also don't really understand how Amazon has "strong customer lock-in",
either. Maybe "weak customer lock-in" would be appropriate, as once you make
an account it's easier to order more items, since you don't have to figure out
the design of the website and re-enter your credit card and shipping info.
Amazon Prime clearly has strong lock-in as you're paying for a one-year
subscription in advance, but nowhere near the majority of customers use it (I
would assume) and it didn't even exist in when this article was written.

~~~
ljf
Amazon plays off its suggestions of what else to buy, that data is from the
network, not your personal network, but the data is only valuable once you
have enough users, or else the data is too spiky.

These suggestions to just throw one or two more targeted items into your
basket is where they really excelled.

~~~
FaceKicker
Do people really use these suggestions though? I don't think I've ever used
them personally (maybe once?), but maybe others do. And even if people use
them very frequently, I still don't think that would make the usefulness of
Amazon grow as a "square" of the number of users as the article implies.

~~~
ljf
Yes, I've used them many time, and I know my (non technical) girlfriend does
too.

I've found similar novels that I've liked through the suggestions, bands I've
enjoyed and recently when buying the 'Lean Startup' I ended up buying 2 of the
suggested books.

Many time I end up not buying the item I originally went there for, instead
buying one of the suggestions, or the suggestions on a suggestion... depends
how the reviews look.

As I see it Amazon were the first to really use this data successfully and
meaningfully.

The other networks I guess would be the Amazon Wishlists which for a time were
hugely popular. I still see wishlist links on personal and informational
sites, as a way to give back to the site creator. That network is pretty
powerful too!

------
jfoucher
" If you want to chat with people, you have to go where they are, and ICQ and
AOL have the most people by far. Chances are, your friends are using one of
those services, not one of the smaller ones like MSN Instant Messenger. With
all of Microsoft's muscle, money, and marketing skill, they are just not going
to be able to break into auctions or instant messaging, because the network
effects there are so strong. "

Funny to read that in hindsight...

~~~
skore
Care to elaborate? I still use ICQ and various xmpp accounts, plus skype. Had
an MSN account a while back, but only for two friends who ended up switching
away from it.

Yes, Microsoft bought skype, but that's not really "breaking into", that's
"buying". You wouldn't say that Microsoft "broke into the FPS market by making
Halo".

~~~
Macha
Everyone I see frequently who still uses IM (and not just Facebook) uses MSN,
so I guess it's a location thing. I'm in Ireland. (And AOL is out for people
that want to talk to non-Americans, probably, as I had to jump through hoops
to get a AIM to talk to American friends) .

~~~
skore
Interesting. I really think it is a huge location thing. Making it somewhat
extra-restricted to non-virtual social networking constraints.

------
ggwicz
This is a classic look at fragility versus optimization, much like what Nassim
Taleb writes about.

A lot of his charts to demonstrate this concept (that the more "optimized"
something becomes, the more fragile it becomes) look like the ones from this
article. For example: <http://bit.ly/sKM7B0>

I'll try to find more images. Taleb's writing looks at this general concept in
great detail across almost everything; in the context of business, basically
what Joel says is right on the money. Great article.

By the way, I think I'd prefer running a small biz to an Amazon or Wal Mart.
You?

------
alabut
This is Joel's humorous version of what Steve Blank refers to as "knowing your
market type"[1]. Steve classifies them as new vs existing markets (there's
also a third called "resegmented markets" but those just sound like existing
markets to me).

He gave an example in one of his Haas lectures that I'll never forget of how
disastrous it can be to mistake the two market types by comparing the
marketing strategies of Blackberry vs Tivo.

Blackberry knew they were releasing advanced new products into a market of
users that primarily only used pagers, so they described their product as a
two-way pager, even though it's _nothing like a pager_ under the hood. They
described it in terms that people could instantly grok what the hell it was
and early adopter usage was off the charts.[2]

If Tivo followed the same model, they should've described themselves as a
tapeless VCR. But the company didn't just miss the obvious opportunity, they
_actively avoided it_ and even went so far as to ban the word VCR from any
marketing, press releases or interviews. This came straight from the top, from
the CEO, who believe that the VCR was primitive tech and the Tivo was so
technically advanced as to be in a different class of gear.

Tivo got confused about what market they were in. They had great tech that was
completely torpedoed by their marketing. As a result, Tivo's adoption curve
was much slower, never got above a few million users, and didn't cross over
into mainstream usage except as a verb.

[1] [http://steveblank.com/2009/09/10/customer-development-
manife...](http://steveblank.com/2009/09/10/customer-development-manifesto-
part-4/)

[2] _Bonus points for the self-taught MBA crowd_ : go read Clayton
Christensen's _The Innovator's Dilemma_ and figure out why Blackberry wasn't
able to sustain their lead.

------
alexro
It looks like for the amazon-type companies the company's culture gets
replaced by the founders image, as people need some way to grasp the company
as a whole.

------
temuze
Fantastic article. This is why I don't mind reposts - every once in a while,
there's a real gem that I've missed.

~~~
johnyzee
In that case, just read through _every single article_ in Joel's archive.

A real shame he's not making any more of them, too.

------
kghose
Ok, merits of the article aside:

I was reading, nodding to myself and then I read about this fantastic new
service called "PayMyBills.com which receive your bills for you, scan them in,
and show them to you on the Internet"

I was very, very puzzled. THIS guy is tech savvy? And then I saw the date on
the post.

~~~
dextorious
I don't understand what's that supposed to mean (the part until, "tech savvy",
that is).

A person can be a technical wizard and/or programming god and still not know
(nor care about) any of the latest web services/fads/etc...

