Innovation

Source: aalogics.com

What has made Amazon such a successful company?

Is it because they sell multiple products on an online platform? Yes, but so do lots of other companies. Is it because they have a diverse portfolio? Yes but again so do alot of other businesses.

I believe that the reason amazon are so successful is because they are willing to try things early (Innovators), and most importantly see something failing as a learning experience and will then try again. Their business model is to be innovative and disruptive in their market and to their own current business models.

Amazon was created by Jeff Bezos in 1994. He was working on Wall Street at the time and decided to quit and start an internet company.

https://www.fundable.com/learn/startup-stories/amazon

Bezos was an innovator, being one of the first to see the internet as a platform to sell. He chose books as due to the low cost and universal demand. This has been the foundation on which Amazon was built.

When it first launched, Amazon’s had a clear and ambitious mission. To offer:


Forbes.com 2016

Today, with business users of its Amazon Web Service representing a new type of customer, Amazon says:


https://jobs.amazon.cn/en/working/working-amazon 2018


20 years later, Amazon are still all about the customer in an almost obsessive way, Jeff Bezos explains:


https://ir.aboutamazon.com/static-files/917130c5-e6bf-4790-a7bc-cc43ac7fb30a


You can typically find a really useful summation of most of Amazons new business model initiatives in the Amazon annual report summary. The most recently published one contains their vision on the concept of Digital Agility (reprinted from 1997) this show a dedication to testing of business models that many companies do not yet have:


https://ir.aboutamazon.com/static-files/1bfd8929-81a0-46d7-a378-6aff9a203093
Moore, G. Crossing the Chasm 1990

Amazon is a market leader in innovation in an industry which has been built on innovation and change. By being so far ahead when most companies reach the chasm (shown in the image above) Amazon will have resolved or moved on from that potential business model. So why do Amazon feel the need to innovate and change so much?

It could be argued that there are several good reasons:

That is what makes Amazon the most innovative company. Lots of experiments and exploring. Its fair to say innovation doesn’t work well without experimentation, lots of action, and the odd failure.

In fact failure is something they have had before. Amazon launched auctions in March 1999, as a response to the success of eBay. These were heavily promotoed throughout its website but with little success.

For a company that had been founded on a business model of innovation and which had been so successful in its drive for market leadership off the back of this it is strange and ironic that when they tried to create a “me too” offering it should fail. It was still important for Amazon to find a way to counter the threat posed by eBay.

So how did Amazon deal with this setback? They innovated again and introduced Amazon Market Places. Third party sellers could show their competitive pricing on Amazons standard product listings. At first this may seem a bit daft as it gives the impression Amazon would lose out by enabling the sellers to sell products at lower prices than amazon did. However, the innovation was the model to charge commission on each sale which was a higher margin than amazon would have made on the sale themselves.

So why are Amazon so innovative? What drives this?

In its 2017 Securities and Exchange Comission (SEC) filing Amazon describes the environment for our products and services as ‘intensely competitive’. It views its main current and potential competitors as:


Amazon.com United States Securities and Exchange Commission 31/03/2017 Commission File No. 000-22513

It is fair to say that that is a lot of competition and competition drives innovation.. which makes Amazon’s business model a pretty good one.

So how can we analyze the performance of their digital marketing and innovation business model? Amazon use digital marketing well across all of their platforms. Using the RACE framework We can look at the impact of the business model:

https://slidemodel.com/templates/race-digital-marketing-planning-framework-powerpoint-template/
  • Reach: Amazon’s business growth is based on a detailed approach to SEO and AdWords targeting millions of keywords.
  • Act: Amazon create clear and simple customer experiences by testing and learning.
  • Convert: Through personalisation of each customer account based on previous activity and searches, and a clear and simple checkout process.
  • Engage: Amazon’s focus on customer experience, is shown by their outperformance of other retailers in their ACSI customer satisfaction rating.
https://www.theacsi.org/index.php?option=com_content&view=article&id=149&catid=&Itemid=214&c=Amazon

The benefits of the business model of innovation are the fact that they now have so many people using their service that their revenue per unique user is much higher than other commercial websites:

https://www.businessinsider.com/chart-of-the-day-revenue-per-unique-visitor-2011-1?r=US&IR=T

This would be quite different if the comparison was of profit per unique user. The cost of innovation has been the reduction of profits to shareholders. The impact of Jeff Bezos can be seen here when they discuss business model testing from a long term perspective again you can see the drive innovation through a quest for market leadership:

Thanks for reading!

References:

Amazon. (2017). letter to shareholders. Retrieved from
https://ir.aboutamazon.com/static-files/1bfd8929-81a0-46d7-a378-6aff9a203093

Amazon. (2017). United States Securities and Exchange Commission Commission File No. 000-22513 . Retrieved from https://ir.aboutamazon.com/static-files/08a843eb-d281-42e6-a30f-59c7cfdc8f62

Amazon. (2017). Annual Report. Retrieved from
https://ir.aboutamazon.com/static-files/917130c5-e6bf-4790-a7bc-cc43ac7fb30a

Forbes. (2016). How Amazons Brand and Customer Experience became synonymous. Retrieved February 15, 2019 from
https://www.forbes.com/sites/scottdavis/2016/07/14/how-amazons-brand-and-customer-experience-became-synonymous/#48c75dcc3c

Amazon. (2018). Amzon Jobs Website. Retrieved February 15, 2019 from
https://jobs.amazon.cn/en/working/working-amazon


4 thoughts on “Innovation

Add yours

  1. Hello Reza
    Thanks for the great read! It’s always fascinating to look behind the scenes of such an incredibly successful and powerful company.

    You are highlighting that part of their “secret” to success is being fiercely innovative and customer-driven which is how they have managed to develop the Amazon Market Place, a multisided digital platform business. On this platform there are 6m sellers and it is apparently the largest e-commerce business in the US (Dzieza, 2018). Incredible! This staggering success made me wonder how this works. How do you manage this platform, the sellers, the reviews, the transactions, the logistics etc.? And I stumbled across this fairly recent article (https://www.theverge.com/2018/12/19/18140799/amazon-marketplace-scams-seller-court-appeal-reinstatement) on the cut-throat-business environment the Amazon market place has become.
    These 6m sellers are basically all competing for the coveted spot to rank among the first listed. Customer-centricity has spurred Amazon to protect the consumer from any shady business such as purchased 5-star reviews. Any suspicion on this practice will lead to suspension by a secretive judicial system with a bit of doubtful proceedings. This has created loopholes for sellers to scheme against each other, e.g. buy customers to post fake 5*-reviews on the competitor’s products pages, which will then experience the merciless execution by Amazon. It also seems like Amazon is fostering this culture by not providing a fair, transparent hearing and dealing of such cases.

    I know it sounds really wild, but do you think Amazon should be also assuming their responsibility to avoid such unethical scheming and create a fair and safe trading place? We expect that from those who run malls, shopping centres and physical market places – wouldn’t it be OK to expect the same from an online platform? It seems to have enough money to be able to afford it…

    Have a look at this article – it’s very long but a worthwhile story of sci-fi, wild west and black-market drama 🙂

    Like

  2. Hi Reza!

    Great post!! I loved your use of visual resources! Very interesting to learn about some of the earliest aims of the company in comparison with those of today – I haven’t ready much about the start of Amazon for some reason despite the fact that I use a lot of their products! I think I agree with you that innovation is what really makes the company stand out in comparison to its competitors.

    Speaking about innovation – Do you think that there is a point after which a company can seem innovative when really they aren’t anymore? What I mean by that is – Do you think that Amazon can be less innovative now than they were in the beginning because they have such a strong reputation in that area? Or do you think it would be a deal breaker for them to let this side of things slip?

    Like

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