Amazon

Amazon 10/26/17

Dateline, October 5, 2004

A certain member of Fortnightly was at Amazon Headquarters in Seattle by 6:30 AM in order to interview for a new position there: Vice President of Product Development, excluding books and music. Being a technology company they interview in the tech style which is this: I was in a different office talking with a different person every hour for 12 hours. This included an hour interview over lunch at a bad Chinese place in the International District.

As I moved from interview to interview they would email and call (texting was no invented yet) about concerns, additional questions to ask, etc. The purpose is to test the stamina of the applicant which I had no problem with, luckily.

After I arrived home and poured myself a glass of wine, I was describing to Greg what the job was and how they saw it working. They did not want to employ true designers but wanted to knock off their best selling items in 3 different ways at 3 different price points. There is a clue here about the ethics of Amazon.

Next, they had already created three labels to use for these three price points. They were not called Amazon 1, 2, 3 but were actually names that would be used to try to fool the customer that these products were from some other brand. In contrast, when you buy the Kirkland label at Costco you know it is Costco. They operate with more transparency than Amazon intended to do. Lack of transparency is another Amazon trait which will come up again later.

Needless to say I did not accept the job. This is a good thing because 6 months later they realized that their concept was flawed and closed this new division. Everyone in it was laid off. They got the message loudly and clearly that their idea was flawed at the time.

As an example, their bestselling product at the time was the big Kitchen Aid Mixer. It was so heavy that customers wanted it delivered so they didn’t have to lug it home. The factory making those mixers would not sell cheaper versions to Amazon and this is, in part, how they realized their idea was flawed.

By the way, if this happened today, the factory might feel differently. At the time, Amazon was only 10 years old and not in control of so much big data and so many consumers. Yet.

Amazon has had many flawed theories. And, actually, they encourage new concepts and ideas to be brought to the table and tested to such an extent that at the senior level of management, if a director or senior level manager has not had a failure or two: that is seen as a problem now. They value big ideas and the ability to test big ideas even if they have to be rethought or re-worked over time.

Now Amazon is in the fashion business using the theory they had back in 2004: they want to be the best knock off company in the fashion world. The company could be the leader in the art of fashion instead they are knocking off every brand their designers like (designers being a misnomer: they should be named copyists) so they can sell more clothing than Walmart and Target.

How are they going to do this, to sell more clothing than the two closet rivals?

By making consumers feel like they belong to a very elite, exclusive club which is how they built themselves into the largest technical retailer in the world. By making people feel ‘prime’ when they join Amazon Prime for 100$/year, people feel loyal to Amazon, as if Amazon cares about them.

Actually, the title of my presentation could be, “How Amazon uses Belonging to a Club to Dominate Retail.”

As of July of this year there were 80 million Prime Members in the US. 64% of our households have Prime accounts. Many households have more than one Prime account. These numbers are ONLY in the US. Amazon does not and is not required to report how many Prime Members they have globally.

We know they are making head way in China and India, even though they were kicked out of China so that Alibaba, the Chinese company directly competing with Amazon, could grow without interference. Smart of China, I say.

Belonging to Prime even helps members in Amazon’s own book stores and will soon in their new grocery stores: Whole Foods.

In the book stores, there are two prices for each book. One is for Prime Members and one is for non-members. You feel foolish paying more for a book in an Amazon Bookstore like the one at University Village. It is easy to join Prime on the spot so everyone does. They have a 95% sign up rate for non-members shopping in their book stores.

Why did they get onto the grocery business? Soon at Whole Foods, the checkout process will include a person or the key pad asking if you are a Prime Member. If you are not you will be asked if you want to join. If you do not to join, higher prices will be what you pay. Sound coercive? Yes. Do people care? No. Customers feel great about paying lower prices. So they apparently don’t see this coercion as a problem.

To be fair: who else has built a strong customer base with the idea of belonging to a club? Airlines with mileage plans. Nordstrom with their Club.   Hotels with their loyalty points system, etc. Many business do it. But no one as well as Amazon.

For some people, belonging to these clubs substitutes for true belonging to many other things: family, neighborhoods, circles for charitable causes, other kinds of clubs.

It is not difficult for Fortnightly members to understand the value of belonging. What we get for belonging is the possibility of friendship, camaraderie, education, good food shared with friends.

Those intangibles don’t come from Amazon Prime... you get stuff… but for people who spend less and less time with people and more and more time engaged with technology, maybe they do think their Prime Club cares about them.

Let’s talk about searches: Did you know that as of 2016 Bloomberg News reported that 55% of all product searches start on Amazon? Google has only 28% of product searches. They are the next closest to Amazon.

Search is one of the most important functions for any technology company wanting to be in the top 20 companies on the planet. Why is that? Why do technology companies want to control your internet searches?

THEY WANT YOUR DATA! Period. Full stop.

They want your data to insure that they are the largest company on the planet. Not just the largest retailer: the largest company. This was a stated goal of Jeff Bezos from the beginning.

Why do they want your data? So that they have all of the information they need to “encourage” your purchases and the information you see or don’t see on the internet, in the news media and anywhere else you look for information.

It is like the book, “1984” from George Orwell: Big Brother is watching. Except, in this case, Big Brother is Amazon and other large technology companies which are racing to see who the biggest of the big brothers will be.

These companies use your data to encourage suppliers to offer you certain products. Amazon uses the information to help their 39 other brands and their thousands of sellers market to you. Go on the Amazon Corporate website. Read the names of their 39 companies under the Amazon umbrella.

Zappos is the perfect example of this. They bought Zappos to get into the shoe business but now Zappos sells clothing and household items, too.

Another example is Amazon Studios. Amazon mines our data (They call it their data because we all gladly give it to them every time we search and/or purchase from them.) to learn what kinds of movies and shows they should make to further pull us into their realm and be able to gather even more data.

An example: If viewers love Game of Thrones, then they will make another version of it but call it something else. They say they have “original content” but all shows they create are versions of successful shows on other producing entities like TV, Cable, Netflix, etc.

A few more of the 39 other brands and companies they own that we can know about are Song.com, Abe Books, Shelfari, Brilliance Audio, Amazon Web services, Amazon Cloud Services and others. No wonder start-ups create themselves in ways that will attract Amazon to purchase them!

But data alone is not making them one of the big four companies on the planet. The BIG FOUR are Amazon, Apple, Facebook and Google at the moment.

How does Amazon seem to dominate in every field they take enter:

Here are their guiding principles:

1/ At the highest level it is ok to fail. They are continually fine tuning ideas they think are big enough ideas even if, as in the example of fashion, they revisit the idea 10-12 years later. This is rare in a publicly traded company. They are cash rich and so well-funded they can do this.

Board members really do not have a great deal to say about risk taking at Amazon. Taking risks is fundamental to Amazon and it seems to be working for Jeff and the Team at Amazon.

2/ For their founder, Jeff Bezos, there is no room for long term failure. They are allowed short term failures but not long term. Amazon can take the long term view because they are well funded and for them cash is king.

3/ If people can tolerate working there, good ideas are welcome at all levels of the company. Day to day, it is a grind and a highly stressful place to work. Starting salaries for programmers and math whizzes are $85.000. Some recruiters say $100,000 or more.

But if a person brings good ideas that are successful to the company, one may be richly rewarded. That is, if you can prove the idea was yours. Sometimes the idea people have to fight to be rewarded for their ideas. And sometimes their ideas are knocked off with slight tweaks so Amazon can call it their own. Like Kitchen aid mixers and fashion, knocking things off is OK, even the ideas of your own employees!

4/ Amazon hires flexible people who are OK being assigned to different teams without notice. One team one day: another team another day.

5/ Amazon hires really smart people. Amazingly smart people. Amazon programmers, for example come from the top academic universities in the world and are usually in the top 1% of their graduating class.

6/ Everyone working at Amazon is on a team. There are some rogue, free thinkers in various concept areas but even they belong to the Concept Team.

Why have I mentioned “team” so frequently? Because it bestows the idea of competition when it is used. Ok. It is a sport metaphor that some people don’t appreciate. But people who are attracted to teams and environments where teams thrive are generally highly motivated to win.

They are strategic thinkers who more than anything want to win. This is true of leaders of business silos and brands at Amazon and it trickles down to every programmer, every merchant and everyone else.

In fact, “Must win at all costs!” is the beginning of the description of Amazon’s founder, Jeff Bezos. He wants to win every game he and his company enter and no cost is too high. He has built the richest tech retail company on the internet and he has the money to continue to win the Big Data Game at all costs.

My cynicism about Amazon is tinged with amazement for its growth and financial success.

~ They have joined the elite club of companies that have market capitalization over 500 billion dollars. (Market Capitalization is the number that describes the total amount in-vested in a company from the stock market, institutions, individuals, etc.)

~ They are cash rich which means they can afford to fail when trying new concepts and ventures.

~ It means they can hire the best talent in the world which is not a small fight among the big four.

~ It means they can buy smaller companies that could become serious competitors.

~ It means they can buy competitors and then close them down a month later.

~ They figured out early on how to offer huge selection of products without owning inventory by making their sellers carry the inventory.

~ They take 90 days to pay their sellers even though they are paid by the consumer in less than 5 minutes via Paypal or other payment sites. They figured out how to hold cash that really belongs to other businesses. (Walmart and Target own 85% of their inventory but are working towards owning less).

~ Amazon will always offer low prices. This was a founding principal of Jeff Bezos and his wife in 1994 as they drove across America to move to Seattle, inventing Amazon along the way. They wanted Amazon to be the lowest price resource AND have the biggest volume in sales. Slow Nickel versus fast dimes” we used to say in the garment business.

The price you pay for those lower prices is the loss of your privacy and the non-proliferation of information access for things you may want but are not able to see or find quickly. Once the mathematical algorhythms have your numbers, they feed you what their artificial intelligence thinks you want and need.

What can you do about? Nothing, really. Even if you do not shop on Amazon but use them as your search engine for products, events, travel and all else you want or need in life, you are giving them you data. And you are approving that they have your data.

As the big four work to control the universe of data—artificial intelligence -- Amazon is THE Big Brother right now.

Much of what I know about Amazon – and I am no expert -- comes from five sources.

1/ Personal experience

2/ The experiences of friends and recruiters I know who were willing to talk with me about Amazon.

3/ People I know who have worked or currently work at Amazon.

4/ People I know who are sellers on Amazon.

5/ The near constant reporting in the Seattle Times, the New York Times and the New Yorker about Amazon and it’s very complex global business and it’s competition.

6/ Scott Galloway’s book: “The Four, The Hidden DNA of Amazon. Apple, Facebook and Google.” This book is a trove of information – data -- as well as sometimes snarky opinions of a seasoned tech expert and entrepreneur who teaches at New York University’s Stern’s School of Business where he focusses on brand strategy and digital marketing (data gathering) to second year MBA students,

Pat Nugent October 26, 2017