Amazon’s Revolutionary Retail Strategy? Recycling Old Ideas

From Wired:

I SOMETIMES THINK that if you could look in the safe behind Jeff Bezos’ desk, instead of the sports almanac from Back to the Future you’d find an Encyclopedia of Retail, written in maybe 1985. There would be Post-It notes on every page, and every one of those notes would have been turned into a team and maybe a product.

Amazon is so new, and so dramatic in its speed and scale and aggression, that we can easily forget how many of the things it’s doing are actually very old. And we can forget how many of the slightly dusty incumbent retailers we all grew up with were also once considered radical, daring, piratical new businesses that made people angry with their new ideas.

This goes back to the beginning of mass retail. In Émile Zola’s Au Bonheur des Dames, a tremendously entertaining novel about the creation of department stores in 1860s Paris, Octave Mouret builds a small shop into a vast new enterprise, dragging it into existence through force of will, inspiration, and genius. In the process, he creates fixed pricing, discounts, marketing, advertising, merchandising, display, and something called “returns.” He sends out catalogs across the country. His staff is appalled that he wants to sell a new fabric at less than cost. “That’s the whole idea!” he shouts. Loss leaders are nothing new.

Meanwhile, the other half of the story follows the small, traditional shopkeepers in the area, who are driven out of business one by one. Zola sees them as part of the past to be swept away. They’re doomed, and they don’t understand—indeed, they’re both baffled and outraged by Mouret’s new ideas. Here’s the draper Baudu:

The place would soon be really ridiculous in its immensity; the customers would lose themselves in it. Was it not inconceivable? In less than four years they had increased their figures five-fold … They were always swelling and growing; they now had a thousand employees and twenty-eight departments. Those twenty-eight departments enraged him more than anything else. No doubt they had duplicated a few, but others were quite new; for instance a furniture department, and a department for fancy goods. The idea! Fancy goods! Really those people had no pride whatever, they would end by selling fish.

Mouret had a catalog, but it was Sears Roebuck that used catalogs to transform retail again. 

. . . .

Amazon, of course, is the Sears Roebuck of our time, but it’s more than that. Amazon is systematically going through every branch of the idea tree around what retail is, and doing it without any pride. It’s trying everything that anyone has ever tried before, and anything else that it can think of that might make sense, as well. There is no one saying “that’s a good idea, but we’re a website so we wouldn’t do that.”

. . . .

The clearest place to see this is in Amazon’s moves into physical retail. This is the opposite of pride or “principle.” Amazon’s job is “to get you the thing,” not “to be a website,” so what are the best ways to do it? What else might work? The project to make a convenience store with no human checkout process is an obvious experiment, now that machine learning and computer vision offer a route to make it work. 

. . . .

More interesting, though, are the Amazon Four-Star stores, physical retail stores —currently in New York and Berkeley, California—that only sell products rated highly by users on its site. I joked on Twitter that they feel as though they were designed by very clever people who have seen shops in Google Street View but have never actually been inside one. There’s a sense of cognitive dissonance: The selection of products appears to be completely random. There’s a rice cooker, a Harry Potter Lego set, a cushion, a Roomba, a mixing bowl, a book about trees … It makes no sense. (In the words of Zola’s Baudu, “Those people have no pride!”)

Of course, sometimes “it makes no sense” is the right reaction (remember the Fire Phone after all). But when clever people do things that make no sense, it can be worth looking twice. Is this a new discovery model? A different way to change how people think about purchasing? Well, it’s another experiment.

. . . .

Sometimes the experiment is still in progress: Though Amazon has managed to put Alexa into more than 50 million homes, it’s not yet clear what strategic value it will gain. But it’s better to own the experiment and get the option value than to sit on the business you already have and watch someone else try something new.

On the other hand, it’s interesting that Amazon seems to be doing as much experimentation as possible around the logistics model—from stores to drones to warehouse robots of every kind—but much less around the buying experience.

. . . .

This has always been the gap in the Amazon model. It’s ever more efficient at finding what you already know you want and shipping it to you, but bad at suggesting things you don’t already know about, and terrible whenever a product needs something specific—just try finding children’s shoes by size.

Link to the rest at Wired

According to the bio accompanying the OP, the author is:

“a partner at Andreessen Horowitz with a focus on consumer technology, ecosystems, and mobile platform. A long-time mobile analyst, Benedict has been working in the media and technology industries for 15 years.”

Andreessen Horowitz is a Silicon Valley venture capital company.

Whenever PG reads something written by a venture capitalist, he always suspects a hidden motive.

Maybe the VC has an investment in a startup that plans to fill some gap in Amazon’s operations and is trying to prepare the ground so prospective customers realize they have a problem that the startup can solve.

On the other hand, more than a few Sili Valley veterans resent that Amazon started and grew in Seattle, driving a significant number of venture-backed eCommerce companies into bankruptcy (or worse, obscurity), when everyone knows that cool technology companies are supposed to be founded, discovered, financed, grown and monetized within a reasonable drive-time from Stanford.

The simple fact is that Amazon is very, very good at its core businesses.

And it has continued to be very, very good for a long period of time, eternity in internet time, and nobody has so much as put a dent into Amazon’s retail operations.

The Fire phone was an experiment that failed, another tech product, the Kindle Fire has not.

While no venture capitalist would permit one of his/her offspring to use anything other than the latest-model iPad, the Kindle Fire has sold a lot of units to families that don’t want to pay for a new iPad every time junior tries a science experiment with the local tablet.

The Kindle Fire also permits families with multiple children avoid arguments, screaming, crying, etc., over whose turn it is to use the tablet to purchase a Fire for each child when a similar expenditure on individual iPads (plus the replacement of science experiment casualties) would not be feasible.

Plus, Amazon offers a Kindle Fire Kids Edition with a protective case that could double as body armor at a reasonable price and Amazon provides ways of securely locking down the Fire so little Johnnie or little Suzie can’t wander off into nasty places even if little Suzie is a computer genius. The attractive features of the Amazon Fire for families also make the tablets quite attractive to schools, especially public elementary schools.

The Amazon Fire Kids Edition sells for about $75 and, for nearly-instant household peace, a parent can acquire one at the local Best Buy or Staples at the same price (and avoid the insufferable yuppie vibe of an Apple Store).

PG doesn’t know whether the company makes a profit from its various Fire tablets, but nobody who grows up with a Kids Edition is ever going to forget Amazon.

Amazon is more on what works and what its customers and prospective customers AKA pretty much the entire known universe, will use over and over and over and over than it is about the latest cool new thing that will attract the attention of a venture capitalist.

4 thoughts on “Amazon’s Revolutionary Retail Strategy? Recycling Old Ideas”

  1. You’d think after twenty-five years, people would have finally caught on: Amazon isn’t a retailer with delusions of grandeur.” It’s an old fashioned conglomerate that uses retail to churn out steady free cash flow as venture capital for new investments.

    Sure, as the lockdowns just proved, when the going gets tough, the tough go stopping. Retail, done right, is recession proof. As long as your inventory is big enough you will always have something people will need. Today it might be clothes or books or cat food. Tomorrow it might be a new TV or gaming console. People will always need stuff and as long as your inventory is broad enough and managed well enough, you’ll have the right “stuff” to sell…
    …and keep the money rolling in.

    And that’s as far as the OP goes.
    But it’s not where Amazon goes: the money that rolls in quickly rolls out to be converted into warehouses, trucks and airplanes, robots, and new businesses that have nothing to do with retail except they too offer up stuff people will gladly pay for. AWS is well known by now…as a computing hosting service. But like Amazon as a whole, AWS is also more than meets the eye. It brings in money like crazy but that money also rolls out to build even newer, bolder, more profitable businesses.

    Like SATELLITE GROUND STATION services, their latest new business:

    “Amazon has already established a foothold in the sector and counts entities like NASA, Lockheed Martin, and Geollect, which provides geospatial maritime intelligence, among its customers. On Tuesday, it announced Capella Space, which provides on-demand Earth observation data via satellite-based radar, is running its entire IT infrastructure on AWS.

    Two years ago, AWS launched Ground Station, a fully-managed service that provides satellite owners and operators global access to their space workloads. The service is used by NASA’s Jet Propulsion Lab (JPL), among other customers. ”

    And, of course, Amazon is looking at building it’s own internet satellite constellation that will need its own ground stations. Project Kuiper. Which to succeed wil need reusable, Amazon owned rockets. Rather like the ones from Bezos owned but still independent (for now) Blue Origin.

    I wonder how the OP author is going to reconcile all this when he still hasn’t realized Alexa is a voice data collection system for AWS voice services. Recycling new ideas? Or looking ahead to the coming age of private space stations, lunar outposts, and asteroid mining. There’s gold in that vacuum. 😉
    (Literally, btw.)

    Like the blind men and the elephant, pundits judge Amazon by whatever part they recognize, more or less. And if it doesn’t quite fit, it’s “because Amazon is weird” not because they’re only touching part of the beast.

    Which is fine for Bezos because the longer it takes for his foes to catch on, the longer it’ll take to catch up, if ever.

    • It’s an old fashioned conglomerate that uses retail to churn out steady free cash flow as venture capital for new investments.

      And for years, people continued to say Amazon wasn’t making a profit.

  2. Well, the OP is right about two things:
    1. Serendipity is infrequent on Amazon, just like the rest of e-commerce. To put it another way, algorithms are great at interpolation, but very bad at extrapolation.
    2. Amazon’s search sucks. There’s no parametric search (if you want to see good examples of useful parametric search, try out Digikey, Mouser, or Newegg). Of course, given the jumble of products they sell, the numbers of third party sellers, and lack of standards (heck, even in retail stores, size 9 varies brand to brand), it’s a very hard problem to fix. (IIRC, Amazon is trying a bit on clothing with feedback on “how well does this fit?”).
    3. One thing not mentioned – Amazon’s smashing of sometimes unrelated products (and reviews) together in one listing (with “options”) can cause major headaches.

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