A longtime approach of making bold — and sometimes head-scratching — moves has brought Jeff Bezos staggering success.
Joke all you want about drone-delivered kale and arugula. Amazon’s $13.4 billion bet to take on the $800 billion U.S. grocery business by acquiring Whole Foods fits perfectly into the retailer’s business model.
Unlike almost any other chief executive, Amazon’s founder, Jeff Bezos, has built his company by embracing risk, ignoring obvious moves and imagining what customers want next — even before they know it.
Key to that strategy is his approach to failure. While other companies dread making colossal mistakes, Bezos seems just not to care. Losing millions of dollars for some reason doesn’t sting. Only success counts. That breeds a fiercely experimental culture that is disrupting entertainment, technology and, especially, retail.
Bezos is one of the few chief executives who joke about how much money they’ve lost.
“I’ve made billions of dollars of failures,” Bezos said at a 2014 conference, adding that it would be like “a root canal with no anesthesia” if he listed them.
There was the Fire phone, for instance, which was touted as being crucial to Amazon’s future. It was one of the biggest bombs since New Coke. At one point, Amazon cut its price to 99 cents. That did not help.
For any other company, this would have been a humiliating experience with severe repercussions. Wall Street did not blink, even when Amazon wrote off $170 million related to the device.
“If you’re going to take bold bets, they’re going to be experiments,” Bezos explained. “And if they’re experiments, you don’t know ahead of time if they’re going to work. Experiments are by their very nature prone to failure. But a few big successes compensate for dozens and dozens of things that didn’t work.”
It is an approach baked into the company since the beginning — and one that is difficult, if not impossible, for competitors to emulate. Consider how Amazon Web Services began as a small internal cloud-computing project to help Amazon’s core business. Then the company started selling excess cloud capacity to other companies.
Before Google and Microsoft realized it, Amazon had created a high-margin multibillion-dollar business that was encroaching on their turf. They are still struggling to catch up.
If the cloud-computing business just grew, Amazon Prime was a bold bet from the beginning, the equivalent of an all-you-can-eat buffet for shoppers: Pay an annual fee and all shipping costs for the year are covered. Amazon’s shipping expenses ballooned, but revenue soared so much that no one minded.
“When you have such a long-term perspective that you think in decades instead of quarters, it allows you to do things and take risks that other companies believe would not be in their best interests,” said Colin Sebastian, an analyst with the investment firm Robert W. Baird.
Almost going under
Amazon began, for those too young to remember, as a discount internet bookseller in 1995. In the headiness of the late-1990s dot-com boom, it became the symbol of how this new invention called the World Wide Web was going to change everything. Then, like many of the leading dot-com companies, it blew up. The world wasn’t quite ready for Amazon. It came very close to going under.
Bezos redoubled his focus on customers, largely closed the company off to the media and got to work doing some serious experiments. Amazon developed, for instance, the Kindle e-reader, which for a time seemed likely to kill off physical books entirely.
One thing the retailer did not do was make much money. In its two decades as a public company, Amazon has had a cumulative profit of $5.7 billion. For a company with a market value of nearly $500 billion, this is negligible. Wal-Mart, which has a market value half that of Amazon, made a profit of $14 billion in 2016 alone.
Huge profits at Amazon were always put aside so the company could invest more. This has tended to drive both skeptics — there are still a few, even now — and competitors crazy. “Did Amazon Just Jump the Shark?” was the headline on an article on the investing website Seeking Alpha on Friday.
But the tens of millions of customers do not care whether Amazon is hugely profitable. They care if it is making their lives easier or better.
“Jeff Bezos is making shopping great,” said Chris Kubica, an e-book consultant and software developer who watches Amazon closely. “He’s made me come to expect better from every checkout counter. Oh, I can scan my entire shopping cart full of groceries in one go, without stopping, as I roll into the parking lot? Yes, please. Where do I park?”
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After the company’s disastrous foray with the Fire Phone, Amazon could have done what many other also-rans in smartphones do and kept putting out devices that most people ignore in favor of Apple and Samsung devices. Instead, in 2014, it released Echo, a speaker that looks like a small poster tube. The Alexa intelligent assistant, which runs on it, can play music and tell jokes, and now Google, Apple and Microsoft are copying it.
“Bezos is ahead of the game, always,” said Sunder Kekre, a professor at the Tepper School of Business at Carnegie Mellon University. “Be it drones or Amazon Go” — a grab-and-go shopping experiment that eschews human cashiers — “he is able to craft smart business strategies and position Amazon quite distinctly from competitors.”
As Amazon pushes on with its ceaseless experimenting, however, it risks being seen as less of a cute disrupter of the old and as more of a menace. It has hired many workers for its warehouses, but it is also betting heavily on automation. Amazon Go, after all, is an attempt to drain the labor out of shopping.
“Amazon runs the risk of becoming too big,” Kekre said.
Some Amazon critics would like the Whole Foods deal to be the trigger for reining in the company. The Institute for Local Self-Reliance, a frequent foe of Amazon, noted that the company is “rapidly monopolizing online retail” and that both Prime and Echo “are strategies for locking in consumers and ensuring they don’t shop anywhere else.”
Amazon declined to comment for this article.
Where will it end?
Kubica, the e-book consultant, has thought about this. Amazon can be understood as a decades-long effort to shorten the time between “I want it” and “I have it” into as brief a period as possible. The logical end of this would be something Kubica jestingly called Amazon Imp, short for “implant” and also “impulse.” It would be a chip inserted under the skin.
“The imp would sense your impulses and desires,” Kubica wrote in an email, “and then either virtually fulfill them by stimulating your brain (for a modest payment to Amazon, of course) or it would make a box full of goodies for you appear on your doorstep (for a larger fee, of course).”
Every desire fulfilled. “I am sure that Amazon even now is building it,” Kubica said.