How Jeff Bezos’s Amazon “flywheel” dominates online retail, the cloud and pretty much anything else he wants.
Brian Dumaine – who contributes to Fortune and Inc. – offers a well-researched overview of the Amazon juggernaut and delves into the thinking of founder Jeff Bezos. Dumaine provides insights into the CEO’s strategies and the company’s apparently unbounded future. His unabashed admiration can drift into hagiography – yet he recounts criticism directed at Amazon over the years. The Washington Post called this “an illuminating exploration,” and said: “Dumaine is a careful reporter, and his descriptions of Amazon’s operations are lucid and finely detailed.”
Dumaine’s central theme is that Jeff Bezos focuses Amazon on customer service. “Bezonomics,” Dumaine contends, is the accumulation and analysis of customer data to drive growth and innovation. Amazon attracts buyers who attract sellers. More sellers bring a greater selection of merchandise, which draws more buyers – usually Amazon Prime members.
“Bezonomics, a potent cocktail of customer obsession, crazy innovation and long-term thinking driven by a relentless AI flywheel, is the business model of the 21st century.”Brian Dumaine
Dumaine characterizes this process as Amazon’s “flywheel,” which spins faster through innovation, experimentation, learning from mistakes and encouraging competition among its sellers. All that, Dumaine insists, leads to lower prices and better quality.
Dumaine provides the astonishing statistic that Amazon offers 600 million items – eight times Walmart’s selection. He paints Amazon’s incredible reach by noting than half of Americans – and particularly the more affluent – are Amazon Prime members, paying more than $100 a year for free delivery, free TV and other benefits. The company offers $15 billion worth of original movies and television shows annually through Prime, groceries through Whole Foods and millions of songs though Amazon Music. Plus, its AWS cloud service is the largest in the world.
“Anyone competing with Amazon must realize that business as usual won’t hack it. They must learn to embrace the fundamentals of Bezonomics or find safe harbors where they can operate outside its impact.” Brian Dumaine
The author further conveys Amazon’s scale by pointing out that between 2014 and 2019, it sold 50 million units of Alexa and Echo voice-recognition hardware. Though some voice privacy concerns, video-equipped Alexa and Echo devices also can facilitate some positive developments, such as telemedicine, including routine remote doctor visits and prescriptions. Dumaine cites several harbingers of Amazon’s plans to move into the field of health care, including its decision to accept Health Savings Account debit cardsand Bezos’s decision to form a health care company with investors Warren Buffet and Jamie Dimon, the CEO of JPMorgan Chase.
Experimentation and Innovation
Bezos earned his computer engineering degree at Princeton, joined a Wall Street hedge fund, married and rose to corporate vice president by age 30. But, Dumaine relates, he quit his job in 1994, moved to Seattle and launched Amazon as an online bookstore. The author returns to his oft-repeated point that Bezos built a customer base with low prices, fast delivery and book-recommending algorithms, and here he captures the beginnings of that business model.
Dumaine illuminates Amazon’s discipline and rigor by reporting that it welcomes employee ideas, but potential innovators must pitch their ideas in six pages or fewer. That’s how in-house innovators first presented Prime, Alexa and Amazon cloud services.
Bezos’s demands for speed, data and perfection can wear employees out, but, as Dumaine quickly reminds readers, just like Steve Jobs and Mark Zuckerberg, Bezos creates opportunity, employment and wealth for lots of people.
The Dark Side
Amazon’s warehouses employ hundreds of thousands of lower-skilled workers for relatively meager wages. Dumaine explains that more than two million people and firms sell products in the Amazon Marketplace, but many complain of its predatory practices. When Amazon’s algorithms discover a successful product, Dumaine discloses, the company uses its knowledge of the sellers – their manufacturing processes, products, margins, sales volumes, and the like – to create a similar item under Amazon’s own brand. Then, without warning, Amazon places its product front and center in search results and undercuts the seller’s price. Dumaine laments that some Marketplace sellers have seen years of effort evaporate overnight.
To deliver an Amazon package within the promised two days or less requires a dizzying work pace where employees are under constant pressure to meet tough goals.
Dumaine expresses surprise at Amazon’s willingness to undercut these pillars of its own business, while he also marvels that Amazon enables those two million vendors to build their entrepreneurial businesses in the first place. And why? Well, perhaps because the marketplace now account for 58% of Amazon’s sales.
Dumaine does specify Amazon’s atavistic and destructive worldwide effects: Its server farms draw enormous energy, its vehicles spew pollutants, and its business model disrupts small firms, especially in traditional brick-and-mortar retail. This, the author avows, crushes entrepreneurs and leaves boarded-up shops across the United States.
Surprisingly, Dumaine depicts Walmart as the world’s largest retailer, with a physical store infrastructure that dwarfs Amazon’s. He stresses that Walmart’s hybrid model – combining online and in-store shopping, as well as delivery and curbside pickup – works well. Even more surprisingly, Dumaine shows that Amazon accounts for less than half of all US online retail sales, 4% of overall domestic retail activity, and 1% of worldwide retail sales, both online and offline.
Nike, Casper, Sephora and Williams-Sonoma integrate their online and in-store experiences to offer individualized attention. They use customer data and tailored shopping experiences to attract a loyal clientele. These retailers, the Dumaine makes clear, thus obviate Amazon’s biggest advantage – price.
Dumaine may be too awestruck by Amazon for some readers. He unequivocally casts it as a force for good. While some reviewers had an issue with that aspect of his book, the UK’s Sunday Times is fine with it. The paper believes that “what makes this book a great read…is the way Dumaine shines an admiring light on the man who has made Amazon such a success.” Your enjoyment of this perceptive, lively work will depend entirely on how willing you are to echo that admiration. And those who don’t admire Bezos may still benefit by studying Dumaine’s depiction of his unquestionable business genius.