Over the course of 20 short years, Amazon.com has successfully pioneered and invested in many new ways of operating and introduced several new business models. Has it followed a strategy? With hundreds of warehouses and more than 150,000 employees, Amazon.com couldn’t possibly operate in the fast and loose manner of an agile tech startup happily pivoting its way through a fast-changing world.
It’s also doubtful that Amazon.com’s strategy would bear resemblance to any traditional characteristics such as multi-year cycles with 5-forces, 2x2s, core competencies, implementation plans, and communication programs with visually pleasing new letterheads. What, then, does Amazon.com’s strategy looks like?
During research for a book I co-wrote, “The Future of Strategy,” we studied Amazon.com because it has successfully implemented so many highly strategic moves in such a short period of time. Most of these moves are by themselves ambitious, envelope pushing, and material in investment terms. As such, they would require some serious strategic conviction. More remarkable is that these moves all appear highly concerted and mutually reinforcing.
From an implementation perspective, it appears that Amazon.com’s strategy consists of a portfolio of highly interrelated competitive goals linked by a clear overriding strategic game plan.
The products and services sold on Amazon.com represent the most obvious and traditional portfolio perspective. But this is not Amazon.com’s only apparent strategic portfolio perspective. Almost right from the start, Amazon.com has also treated its entire value chain as a portfolio of competitive and business opportunities. It has powered, for example, the online sales for several bricks and mortar competitors selling books and CDs such as Borders and Waterstones. This activity provided Amazon.com with welcome additional volume and intelligence on consumer buying behavior and represented a source of additional revenue.
Amazon.com has progressively expanded this portfolio with Amazon Services that provides (B2B) customers with any combination of e-commerce services they might require from warehousing, online sales and payment, to delivery. Marketplace is Amazon.com’s name for letting third parties sell their products side by side with Amazon’s products. Through “Fulfillment By Amazon” third-party sellers can leave the entire process to Amazon including the handling of returns. Amazon.com even has a “Selling Coach” program that helps third-party sellers, nudging them when the program identifies opportunities for improving stock levels, prices, and assortment.
Amazon.com also maintains and improves its competitive portfolio. Marketplace wasn’t an instant success. They launched it as Amazon Auctions, then transitioned it to zShops, but only when they shifted to Marketplace did it truly take off.
Look also at how Amazon.com turned its digital power into a business opportunity by creating Amazon Web Services which provides a wealth of computational and cloud services to customers. Amazon.com leverages its key strengths and scales and markets them with mega-success. In fact, Amazon.com has consistently pursued business opportunities that would also enhance its overall competitiveness. For example, it commissions and sells hardware products such as the Kindle, Fire TV, and the Echo that all help their customers to enjoy even more of Amazon.com’s offerings or get better access to them.
The consistency in Amazon.com’s strategic portfolio and the efforts to grow appears to be driven from their mission statement of “being the earth’s most customer-centric company where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.” The mission statement provides the management principles for advancing the competitive portfolio. The focus on growing volumes and creating scale advantages is crucial for being able to offer the lowest possible prices for example. A relentless focus on pushing the envelope on the delivery of products and services to customers with subscription services such as Amazon Prime sits at the crossroads of customer centricity and lowest possible prices.
Amazon.com’s strategic portfolio is also not static. New sources of potential competitive advantage are continuously added to be ready when some of the existing ones risk losing some of their luster. Some will be for the short term, and others such as deliveries by drones in 30 minutes probably for the slightly longer term.
However much formal strategy lies at the basis for Amazon’s success doesn’t really matter in the end. What we can learn from is its portfolio approach to the competitive goals it actively pursues – continuously, relentlessly, and with the results to show for it. Direct competitors and fast growing Alibaba and JD.com from China certainly seem to have taken a leaf out of Amazon.com’s book.
