Amazon started its business from selling books, but seriously,
Why books?
Jeff made a list of twenty product categories that could be sold online, and he realized that the everything store idea is impractical- at least at the very beginning of the internet.
The category that eventually jumped out at him as the best option was books. Books are pure commodities; a copy of a book in one store is identical to the same book carried in other stores, so buyers always knew what they were getting; The book selection online is nearly infinite compared to offline store; There were two primary distributors of books at that time, Ingram and Baker and Taylor, so a new retailer wouldn’t have to approach each of the thousands of book publishers individually.
Interestingly to note, the idea of selling books online is not new. There were many online bookstores already existed before Amazon stepped in.
Giants fall behind
In the talk between Jeff and Starbucks, The founder of Starbucks pointed that Amazon online store has no physical presence and that will eventually hold business back. Even after IPO, when Jeff gave a talk in Harvard business school about Amazon, students concluded that Amazon will lose because competitors, brick-and-mortar business, stepped online area.
Jeff responded to a student that “You may be right, But I think you might be underestimating the degree to which established brick-and-mortar business, or any company that might be used to doing things in a certain way, will find it hard to be nimble or to focus attention on a new channel. “
The CIO of Amazon left Walmart and joined Amazon, even though Walmart tried to convince him to stay and Walmart promised to bet big into the e-commerce. But he declined Walmart’s offer because the online idea did not have the company’s full backing.
IPO before the dot-com bubble
Amazon went IPO in Nov 1997, three years before dot-com bubble, which burst in 2000. Two main reasons for Jeff to take IPO, looming competition from rivals and public presence. IPO is a global branding event that solidified Amazon in customers’ minds and a great opportunity to tell the story of Amazon.com.
Amazon issued junk-rated bonds to raise funds at a very cheap price because investors pay a premium for dot-com business before the crash.
For every new technology, there is a bubble emerging in the beginning. There will be a proliferation of companies in this space and most will die. There will be only a few enduring brands, and Amazon.com is one of them.
Amazon.com went public in May 1997, at that time, Amazon has zero inventory in warehouse.
After IPO, rich Amazon started aggressive expansion and bought a number of dot-net companies, including Drugstore.com.
5 years later, in Oct 2002, bubble burst. Number of acquired business defaulted.
The Amazon Web Service Pricing Strategy
Back to 2000, Amazon was a eCommerce company struggling with scalability issues. A team was formed to solve the problem by building a common infrastructure service that every internal teams can access without inventing their own infrastructure every time. The product eventually scaled into the market leader of cloud infrastructure services, with 34% market share by 2017.
In the book, author mentioned that Jeff intentionally priced AWS lower because he didn’t want to leave the competitor the impression that AWS is extremely lucrative and attract them to step into this field. Well, from game theory point, it might be true, and AWS did priced half compared to conventional infrastructure services. but remember that, at that time, EC2, the first version of AWS was not as stable as it does nowadays and only open to Linux-based platforms. The service even encountered a major service outage in the Fall of 2007, and a lot of enterprises tipping their toes in and trying it out, but not a lot running critical things on AWS.
So I suppose, the pricing strategy is purely to preempt to materialize the first mover advantage rather than deter competitor as romanticized in the book.
In reality, after AWS officially re-launched in 2006, it did take several years for a competitors responded. Microsoft and Google launched their own computing service in 2008.
AWS is also a great case of how scalability take place in tech space to achieve astronomical success by nearly zero marginal cost. The product was first invented to solve internal issues and opened to developers in 2002. The company did not realize that they could commercialize these infrastructure services until 2003 when the AWS concept was publicly reformulated.
Kindle and innovator’s dilemma?
The born of Kindle is a typical story of innovator’s dilemma. The success of iPod, both the device and music store, made Amazon to envision the idea of digital reading, which will disrupt the physical book publishing and selling business.
Digital reading is the future but a large portion of profit of Amazon comes from book sales back then. Embracing future will undermine conventional business and short-term profit. However, If Amazon want to continue to thrive in digital age, disrupting itself before someone else does it is much better than being disrupted.
“Your job is to kill your own business”, the e-reader project leader who used to run book category was told so.
The Kindle eventually become successful, like a movie-style montage, but there were a lot of stories happened. Kindle designer from Pentagram intentionally took out cluttered keyboard from the prototype even though Jeff asked, but in the end Jeff stubbornly insisted.
Kindle is not the first digital reader in the market. Ancestors were hobbled by pitifully limited catalogs. Jeff pressured, and even threaten publishers to digitalize and subsidize for low prices for Amazon customers.
There are lots of brutal details on how amazon threaten publishers, sometimes, even shut off recommendation algorithm for disobedient publisher and its books. Because of the dominate power that Amazon accumulated, publisher’s sale fell by as much as 40%.
There is no way to tell whether stories in the book are true or false. Facts are mixed with subjective views. Jeff’s wife gave one-star review on amazon, criticizing the book included several inaccurate facts and the portrayed Jeff as relentlessly goal-oriented leader.
