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Bezos on how amazon thinks

November 14, 2011

It seems like all of a sudden Amazon has crept from being the major e-commerce player onto a list of tech powerhouses and is being cited by analysts as the one of the players who could dominate the media/tech space.

Jeff Bezos is certainly one of the smartest men in business and someone who despite having his fair share of doubters has succeeded in building one of the strongest consumer brands around.

He’s done it by paying strict attention to meeting customer needs and constantly taking risks and innovating to make sure it continues to stay ahead.

Stephen Levy’s latest interview with Bezos in Wired provides some great insight into Bezos’s inspiration and defines what he sees driving the company forward as it evolves from basic e-commerce to a radical new player that’s tough to define.

Here are some Bezos quotes from the article.

Amazon’s cultural core

“As a company, we are culturally pioneers, and we like to disrupt even our own business. Other companies have different cultures and sometimes don’t like to do that. Our job is to bring those industries along. The music industry should be a great cautionary tale: Don’t let that happen to you. Get ahead of it. I think with books, we have gotten ahead of it, as have some very forward-leaning publishers. But some of them are really leaning backward, and that’s going to hurt their business. They’ll find that other publishers are going to do very well in that vacuum.”

Moving into content creation

“Well, we have studios.amazon.com. It’s a completely new way of making movies. [Amazon crowdsources the production of a “test movie” until it reaches the point where a real studio takes over. Warner Bros. Pictures has a first-look deal with Amazon.] Some would say our approach is unworkable—we disagree.”

The secret of success- millions of customers and low margins

“There are two ways to build a successful company. One is to work very, very hard to convince customers to pay high margins. The other is to work very, very hard to be able to afford to offer customers low margins. They both work. We’re firmly in the second camp. It’s difficult—you have to eliminate defects and be very efficient. But it’s also a point of view. We’d rather have a very large customer base and low margins than a smaller customer base and higher margins.”

Social and Amazon

“It’s an open question. I think what we’re wondering is, if we have a list of 500 of your friends, how can we use that to improve ecommerce? We have some ideas. We’ve actually already done some experiments but haven’t found anything that we think is exciting yet.”

The impact of the buzz around social business

For better or worse, it is really not a part of our culture to look at things defensively. We rarely say, “Oh my God, we’ve got to do something about that existential threat.” Maybe one day we’ll become extinct because of that deficiency in our nature. I don’t know. We look at things through a different lens. We say, “Oh, here’s this incredible phenomenon called social networking. How can we be inspired by that to make our business better?” I hope we find something.”

On staying inspired

“For me, it feels like the rate of change on the Internet today is even greater than it was in 1995. It’s hard for me to imagine a more exciting arena in which to invent. And so it’s pretty easy to wake up excited.”

It’s clear Bezos is prepared to play a very high stakes game to continue to be a major player in the future, he recognizes that the only way to avoid being “taken down” is to continually delight customers and he knows that value is the way to do that. Most critical of all, Amazon clearly has customer satisfaction and delight as the beacon that he gets the company to rally around.

It’s especially interesting and perhaps indicative of the future, that even the mighty Amazon hasn’t worked out how to make social commerce work, especially since they’ve been the most innovative with recommendations, reviews and all that data that surrounds them.

With the holidays coming fast it’s clear Amazon is going to be a massive force not just from a retail perspective, but with the Fire product as well, which appears to be receiving very mixed reviews, mainly because journalists are comparing it with a tablet twice its price.

Maybe Fire isn’t really about the hardware, it’s about the media and it’s likely there are millions of consumers out there who just want a device to consume content on

As Bezos explains to Levy.

“What we really built is a fully integrated media service. Hardware is a crucial ingredient in the service, but it’s only a piece of it.”

Wall Street analysts also believe Fire will succeed, not just in hardware sales, but also in its ability to convert users to Amazon Prime…this morning a note from JP Morgan stated.

“Our analysis suggests revenue from the family of Kindle devices and ebooks will increase from 9.4% of Amazon’s revenue in 2011 to 13% in 2012 and 14% in 2013. This does not include other Fire-driven product sales. … Based on what we believe will be a strong Kindle Fire launch, and related sales, we’re raising estimates ~2% for 2012 and 3% for 2013. Importantly, we believe our top-line estimates could still be conservative based on Prime conversion and product attach rates. Our CSOI [consolidated segment operating income] margins hold steady at 2.8% in 2012 and 3.2% in 2013..based on our analysis of Amazon’s shipping revenue … assuming a 5% conversion rate for Kindle Fire owners—which could be low—we project the Fire adding 1.2 million additional subs by 2012 and 2.6 million by 2013.”

 

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