In his 2015 letter to shareholders, Amazon.com Inc. CEO Jeff Bezos described some of what’s at the heart of Amazon’s success this way: “Failure and invention are inseparable twins. To invent you have to experiment.” He went on: “We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs.” And Bezos has shown he’s more than willing to use money and manpower to
propel this business philosophy.
To wit: When Amazon issues a press release announcing financial results, it includes a bullet-point list of business highlights it deems noteworthy. Its fourth quarter release last month summarized 2017 highlights. Those highlights ran seven pages, and the word “launched” or a synonym of launched appeared at least 32 times.
Among the highlights: New developer tools to extend the growth of its intelligent personal assistant Alexa’s voice-activated skill set within Amazon devices. The Alexa software is also being integrated by companies like Toyota, which will add the software to some car models this year. The launch of two private-label furniture brands. The release of 1,430 improvements to Amazon Web Services, Amazon’s high-growth (revenue was up 43% in 2017) and most profitable business segment, which sells computing services. The company also slipped in the nebulous announcement that it, Berkshire Hathaway Inc. and JPMorgan Chase & Co. are going to work together to reduce health care costs and improve employee satisfaction with healthcare. You know, no big deal; it’s on page four.
“Amazon likes to experiment and see where there is demand,” says Colin Sebastian, managing director and senior equity research analyst at investment firm R.W. Baird & Co. Sebastian sees no end to Amazon’s willingness to explore new areas, and he is bullish on Amazon’s ongoing push into delivery and logistics services. As this issue went to press, the Wall Street Journal reported the imminent launch of Shipping with Amazon, a delivery service where Amazon would pick up packages from businesses and deliver them to customers. The program is widely viewed as a challenge to UPS Inc. and FedEx Corp.’s delivery services. Amazon declined to comment about the program.
The initiatives on the earnings highlight reel are a fraction of what’s in play. For instance, Amazon’s advertising business, which includes display and pay-per-click ad products where brands and marketplace sellers can advertise, didn’t make the highlights. But Amazon’s been investing in its ad platforms and adding new ways for brands and marketplace sellers to advertise across Amazon’s websites, contributing to an explosion in high-margin, high-profit revenue flowing to Amazon.
“Amazon is in an extraordinarily established position right now,” says Rebecca Lieb, analyst and founding partner of research and advisory firm Kaleido Insights. “It is [focused on] innovation and continual expansion, and its numbers are very, very good. It seems like there’s nothing it can’t do, and it is well financed to do it.” And it’s increasingly profitable; Amazon generated $3.03 billion in profit last year on $177.87 billion
While Amazon seems omnipresent in online retailing—accounting for about $4 in every $10 spent online in the U.S.—it accounts for less than 3.0% of retail spending, second to Walmart Inc.’s 6.3% share, according to Internet Retailer’s “2017 Amazon Report.” That leaves a lot of retail runway for Amazon to eat up not only by growing its core retail businesses, but to dive into others, like grocery stores and possibly pharmaceuticals and health care, and into adjacent business areas that leverage its infrastructure, such as fulfillment, advertising and voice-activated programming.
Amazon’s philosophy starts and ends with satisfying customers and, for Amazon, this includes customers it may not yet have, in just about any market space. “Amazon starts with the customer and works backwards and it continues to invest to get it right,” says Eric Heller, founder of
Marketplace Ignition, a digital marketing consultancy specializing in Amazon.
In doing so, Amazon is becoming defined less as an e-retailer and more as a force for businesses and industries of all kinds to reckon with.
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