A lot has been written recently about the big five technology giants (Microsoft, Google, Amazon, Apple, and Facebook) that dominate the technology sector. There are fears about the power and influence that they will wield and that they will crush all competitors and stifle innovation. One of my goals for 2017 was to understand these five giants better. I started off last year with Apple by reading the Walter Isaacson biography of Steve Jobs.
The Everything Store tells the story of Jeff Bezos and Amazon. Jeff Bezos possessed an extremely high IQ and attended a school for gifted children. His first job out of college was with DE Shaw a hedge fund that used algorithms to identify opportunities. As the internet started to become big in the early 90’s, Shaw had Bezos investigate a number of potential internet enabled businesses including an “everything store”. Realising that it would never truly be his if he stayed at DE Shaw, Bezos made the decision to quit and start up by himself. He made the decision using what he called the “regret minimisation framework” i.e. what would he regret more at the age of 80, giving up a big bonus or not starting a business that he was excited about?
Steve Jobs loved music and this passion surely had an impact on Apple’s decision to make music a big part of the company’s offerings. Jeff Bezos on the other hand loved books and it’s probably why it entered consideration as the item that Amazon launched with. However, there was a solid business reason as well – a book is a commodity that is the same in every store, the SKUs are large, no physical store would have them all and the number of distributors was low. Even when Amazon started to expand, the products were chosen the same way i.e. CDs, DVDs etc.
The big book stores at the time Borders, Barnes and Nobles did not take the internet seriously. Eventually, they realised the threat and began building out e-commerce departments. Analysts thought that Amazon was toast but the large companies had trouble competing as their distribution centres were optimised for their large physical stores. Secondly, in big companies, it is hard to move your best people away from the cash cow and onto emerging areas as demonstrated by Clayton Christensen (whose work had a big influence on Jeff Bezos.
Amazon is a very interesting company to study for a variety of reasons. Some of the things that struck me are as follows:
- Intense customer focus: Many companies say this, but few actually mean it. An example of this is the Amazon Marketplace. Facing a threat from Ebay, Amazon was under pressure to respond. The problem was that the Amazon website and the marketplace were two different sites and the marketplace had very very low traffic. Bezos’s genius was to allow third party sellers to be listed alongside the Amazon listing on one site. In most companies, internal politics would have prevented this move and even in Amazon there was strident opposition, but Bezos prevailed.
- Work Culture: Treatment of workers is in stark contrast to the rest of Silicon Valley where employers compete to offer perks. Work culture at Amazon is intense, with people burning out frequently. The behaviour of some of the managers at Amazon would not be accepted in most other places, yet they clearly seem to attract talented workers who are highly driven and ambitious (like Wall Street??).
- Continuous Innovation: Most companies innovate when they are small, but become more risk averse as they grow larger. Amazon has a very interesting organisational structure. Teams are highly autonomous and can choose their own technology stack. Multiple teams can work on the same problems. Bezos also formed secret teams whose mandate was to disrupt existing businesses. Amazon’s many innovations came from diverse sources.
- Kindle – Observing Apple’s disruption of the music industry and fearing the same would happen to books, Amazon had a secret team work on the Kindle.
- Prime Membership – An internal tool where employees can submit ideas was the source of this idea.
- Amazon Web Services: How did a e-commerce store become the largest seller of technology infrastructure? Bezos had always harboured ambition of being a technological innovator. The motivation was the increasingly hard process for teams to get access to resources at Amazon. Bezos was also influenced by a book called Creation that describes a video game where players guide intelligent creations rather than control them. He mandated that the primitive building blocks (storage, computation) be available for developers to use as they saw fit.
- Since the book was published Amazon has expanded its AWS offerings and released Alexa a voice activated speaker that uses AI.
Overall, I found the book quite interesting and I recommend it. I think it’s a must read for anyone who wants to understand the current technology landscape.