I admire Amazon.com, both as a long-time customer and as a student of business. Amazon.com pioneered much of what makes online retailing useful: one-click ordering, personalized recommendations, and user reviews, to name a few standouts.
Beyond that, Amazon.com long ago transcended the category online retailer by providing a platform where other retailers can merchandise their wares alongside Amazon.com’s or via their own Amazon.com-hosted stores. In addition, Amazon.com created the first large affiliate-marketing program, where individuals or companies can merchandise Amazon.com products on their sites.
And in a more recent step, Amazon.com generalized its infrastructure to offer a cloud-computing service (basically, a giant on-demand computing system, available over the Internet) that other companies can rent time on, for almost any purpose, not just online retailing.
These developments have a common theme. They all anticipated important changes to how business could be done, and Amazon.com executed those changes early, before others grasped the concepts. However, as some of Amazon.com’s recent initiatives have gone further afield from Amazon.com’s core retailing business, critics have questioned whether Amazon.com is going too far. Is the company investing in areas that, at the end of the day, aren’t a retailer’s business?
That’s the subtext to a shareholder letter by Amazon.com CEO Jeff Bezos, discussing Kindle, Amazon.com’s electronic book reader. Other e-book readers exist, but Amazon.com decided to design and manufacture its own. In the letter, Bezos makes a compelling case that Amazon.com has both the expertise and missionary zeal to deliver a successful e-book reader where others have failed, yet he leaves unsaid why Amazon.com is doing it.
Here’s why: Kindle is not just an e-book reader but also a service by which one buys books from (you guessed it) Amazon.com. If this is starting to sound familiar, recall that the iPod trumped existing MP3 players not just by providing better hardware but by linking the hardware to a well-designed service for buying music (iTunes). Thus, with both the iPod and Kindle, competitive advantage is about offering a superior total experience in buying and consuming musics/books.
Note the “total experience” concept, because it goes back to the question of what business a retailer should be in. For books, Amazon.com proved it can design a great buying experience. However, let’s say digital books go the way of digital music, where the best total experience—and the dominant market position—comes from an integrated offering of hardware, software, and service. If that happens, just being an e-book retailer won’t work. Go ask the formerly leading music retailers who watched Apple’s iTunes Store go from nothing to the largest music retailer in the world.
Of course, it’s not a foregone conclusion that the e-books business will follow the iPod/iTunes model. However, Kindle is a smart hedge in case it does, since Amazon.com has a lot to lose—or, with Kindle, to gain—in that scenario.
Whatever Kindle’s fate, its existence illustrates why Amazon.com is different. Amazon.com detected e-books’ potential for disruptive change and went well outside the standard retailer’s playbook to adapt—envisioning and implementing a better way to buy and read books. That’s big thinking.
I recommend you read Bezos’ letter (here’s that link again), plus his 1997 letter to shareholders, which is on the same page. Compared to the typical CEO missive, I think you’ll find Bezos’ letters refreshing.
(Postscript: The purpose of Bezos’ shareholder letters is to explain Amazon.com’s actions and strategy, but not too much. For example, the 1997 letter notes: “We are planning to add music to our product offering, and over time we believe that other products may be prudent investments.” Apparently, he chose that sentence instead of, “We plan to expand into so many product categories that we won’t be able to fit all their tabs across the top of the screen.” ;)