Episode 1 on Amazon’s Unstoppable Innovation
It was one day in 1994. A 30-year-old vice president who was working for David E. Shaw & Co., a hedge fund located on Wall Street, New York City, was reading a magazine, when he saw that the Internet had grown 2,300-fold in just a year. He immediately thought of goods that would be best sold on the Internet. ‘Books. That’s right. Books are perfect. Wherever you buy them, they are the same quality and easy to ship. While there are countless published books, there’s no offline store that has all of them. If I am going to sell books through the Internet, a large warehouse can be used to provide consumers with all the books that exist in the world.’
The young man put his thought into action immediately. He submitted his resignation and found his business partners, and then, after he moved his base from New York (on east-end) to Seattle (on west-end), he started his online shop from his garage. This is how Jeffrey Preston Bezos, or Jeff Bezos, for short, started Amazon, and the rest is history now.
Amazon from a bookseller to a seller of all contents
Opened in 1995, Amazon began in 1998 to go from books to add to the inventory various media such as music CD and video. The website moved on to sign up various distribution networks and began to provide all contents wanted by users such as clothes, electronics, and toys and devices that could play those contents.
Afterward, the online mall went beyond physical content to expand its scope of operation by adding to its list of products and services digital contents likes electronic books, apps, and games. Thus, the website transformed from a bookseller to a seller of all contents available in this world.
And perhaps such an expansion strategy deployed by Amazon was impressive enough. TIME magazine chose Bezos as the man of the year in 1999. However, Amazon continued to remain in the red ink. Finally, Amazon began its innovation.
Innovation 1. Transform from an online mall to a platform provider
Now, Amazon handled everything from furniture to sneakers, thus gradually blurring its differentiation from ordinary e-commerce websites. Its previously unique success strategy or distinctions were now blurred. The company was establishing itself as a content seller. Still, Amazon doesn’t forget its identity as a content provider. To begin with, it always displays content and content playing devices on its main page. And it offers various content subscription options to attract more users to its services. And such first step was taken when it came up with Kindle, its electronic book.
Since 2007 when Aamzon.com launched its e-book platform Kindle and a service that offered book subscription through Kindle, the company has remained on top in the US e-book market. It went so far as to have the number of printed books it sold exceed that of electronic books from 2011. Thus, the generally shared perception is that Aamzon has completely changed the way Americans read books.
Innovation 2. Easier and more convenient for customers. Easy refund, too.
Amazon began to fascinate customers. For stuffs they wanted, customers didn’t have to go anywhere else; they could find their stuffs on Amazon. And there was no need to compare prices with other venues. Amazon simply beat them. Users didn’t have to bother to consider buying things from other sellers. Customers didn’t have to go to all the trouble of making payment.
In 1999, Amazon obtained a patent for 1-Click from United States Patent and Trademark Office and applied it to its website. The system lets a customer complete his or her payment by just clicking a button once. A user who had entered credit card information in his or her Amazon account could use 1-Click right away. Greater convenience in ordering and payment greatly increased orders, which contributed to the exponential growth of Amazon. Amazon’s sales, which were merely 0.5 million dollars in 1995, skyrocketed to 74.5 billion dollars in 2013.
With Amazon, refund became as easy as payment. In those days, ordinary e-commerce sites required an agreement between a purchaser and a seller to return a product. No such hassle with Amazon. Users no longer had to haggle with sellers about returning products. Just returning a product to the address available on the shipping package would automatically take care of return and refund.
Innovation 3. Pioneered the cloud market
Black Friday, Cyber Monday, and Boxing Day are the occasions that generate consumption that is tantamount to over 20% of the US sales. What if Amazon server crashes from huge traffic with the largest number of shoppers flocking to the online mall? Its loss should be prohibitive. So, Amazon continued to expand its servers to handle such massive traffic. And the strategy was successful. Amazon servers successfully dealt with the enormous traffic of Black Friday. Amazon’s sales shot up.
With holiday shopping season over, however, the company was left with surplus servers as fallow resources. The company acquired 110 servers because they needed as many as 100 for specific time slots of the year. But ordinarily, the company has no problem providing its services with just 10 servers. It means that the company had created an excess supply of nearly 100 servers. Nonetheless, they couldn’t reduce the number to 20, for it would be like giving up its business for Black Friday.
Bezos tried to figure out ways to make use of the spare server capacity. And he came up with the idea of ‘lending spare servers to other business operators’. But, what method should he use to lend a server as hardware to other businesses? First of all, Bezos created one single available resource by not physically distinguishing a plural number of servers and instead gathering them all in one location. He drew up a plan to use ‘virtualization’ technology in allocating to some other business operator a certain portion of a server that he or she wanted. That was the beginning of AWS (Amazon Web Services), the cloud computing services from Amazon.
Amazon combined data analysis technology with the services. Equipped with traffic dispersion technology, technology for analyzing paths for visitors and the pattern of their service usage, technology for speedily saving and transferring big-size images, and technology for analyzing and organizing massive sales data, Amazon was catapulting itself from an e-commerce company into a data mining company.
This has been our description of the birth of Amazon and the innovation of its corporate strategy.