Of course in 1896, it was predicted that if current trends continue, London would be six feet deep in horse manure by the 1950s. It seems that something must have replaced horse drawn vehicles in the intervening period.
The significance of Stuart’s book – one of the Bumper Bite-Sized Books – is that he understands Amazon from the inside and has such a clear-eyed view of the strengths of the company. For anyone interested in the FAANGs – Facebook, Apple, Amazon, Netflix and Google – this is really required reading.
As Stuart points out, look at everything that Amazon gets right – and I’m not just talking about the fantastic customer service where complaints are dealt with brilliantly, the way that Amazon has mopped up many of the suppliers on-line who are either selling through Amazon or not particularly important, the efficiency, the speed of fulfillment, and the ruthless pricing. I’ve always thought that the mark of a strong company is one that innovates and when that innovation doesn’t work immediately re-assesses the approach and either cuts it or changes it. Amazon has that quality in spades – and when it makes mistakes, it regroups, changes and abandons its mistakes. Amazon kills its own children with remarkable frequency – and yet has an undimmed appetite for new ones. As I always said to companies, it’s not only the successes that determine a company’s future because dealing with failure is the really hard corporate task.
I’d add to that the idea of re-invention not as something when things get hard – which is the usual time companies re-assess what they are doing but as something that you really embrace when you are doing well. If killing off mistakes is hard – this one is harder. (I always think of Kodak which really had a global lead in digital photography once – i know that’s hard to believe – but because paper-based film was so important to them and their cash cow, couldn’t bring itself to go hell for leather on digital and faced the consequences.
That constant reinvention is the mark of a company in for the very long haul – and I suspect that Amazon is wedded to that concept. So two absolute strengths: the ability to reinvent and to abandon failures.
Stuart’s analysis is compelling and I did wonder if there were any ways that it might falter. I’ve come up with two – which might provoke some discussion.
Essentially if anyone says that there is no weakness, that just cannot be true. As I see it there are two real weaknesses that are a proper threat to Amazon and they are inherent in its business model. Amazon is a consumer champion – it lives and dies by meeting consumer needs. In its definition of the world we are all consumers, which is true, absolutely true. We are also two other identities which are not only badly served by Amazon, but are actually attacked by the Amazon business model.
The first is that we are all part of a social environment. We depend upon education provision, health provision, the use of the infrastructure, whether that is utilities or roads and transport, and we need taxes to be paid for those services. Amazon also depends upon their provision, but actually freeloads on the societies where it is becoming ever more dominant. It pays negligible corporate taxes by shifting profits around the world to where it can pay the least possible tax. In the UK it pays less than 1% corporate tax on its profits because it declares them in a low tax area. I know it can pay off politicians to hide this – the UK’s Chancellor of the Exchequer a few years ago, without even being paid off apparently, declared we should all rejoice as he had actually made one of the FAANGs pay a tiny amount of corporate tax – and our current Chancellor has brought in a rather nugatory tax on revenue, but the anger that this produces as people realise what is happening means that this will not continue indefinitely. It does need a strong international approach by something larger than the individual state, so the EU is ideally placed, but it is a real danger to Amazon that if it doesn’t pay tax properly, it will be boycotted. Don’t underestimate the power citizens actually have there. (Amazon declares it pays all taxes that it is required to do – which is apparently true as long as you ignore the masses of lawyers and accountants Amazon employs to ensure that it pays the least possible.
The second weakness in the Amazon business model is that it relies on being able to dominate suppliers – you talk to any suppliers to Amazon and, crucially off the record, they will all talk about the predatory nature of Amazon. While as a consumer we might be happy with the lower prices and the customer service, as employees whose wages are cut to bolster Amazon’s profits so that companies can supply Amazon, it will be a different story. Even if there is no revolt and Amazon is too strong for individual companies to take them on, if there is less money in the economy being paid to workers, then Amazon faces a difficult market.
So Amazon is brilliant at what it does and it can ride out the sort of analysis that underpins my argument. What happens, however, if a potential competitor comes along that is prepared to pay local taxes to support local infrastructure and societies and which values its relationship with its suppliers? It won’t be an easy road for that competitor – but that would be the one real threat to Amazon, not least because it would have the support of individual countries, trade blocs, and workers.