Author: Brad Stone
Amazon inventions and ideas(Amazon without borders)
Amazon unbound:This book is not about the entire history of Amazon, but only about its last, but the most important decade. During this time, the company has turned into something more than an online store: it has spread its influence over almost the entire globe, and shaped our image of the future. Its value has surpassed the fantastic mark of $1 trillion. How did Amazon reach such heights? To do this, you need to take a closer look at Amazon’s innovations, the mechanisms of its management, and the key challenges that the company has faced.
The key advantage of Amazon is that it has fundamentally simplified one of the daily and basic processes – buying anything. You no longer need to go to the store, look for goods, and if it is over, go to another store, stand in line at the checkout, return home … You just press a button and wait for the goods to be delivered to your doorstep (by the way, Amazon patented in advance one-click purchase principle). But even this may soon seem like an unjustified effort. To minimize the distance between the buyer and the store, Amazon came up with a voice assistant that is always at hand – Alexa.
By the time it appeared, users were already accustomed to talking with their gadget aloud – in 2011, Jobs 1 presented the voice assistant Siri, and this forced Bezos to accelerate the development of his device. He supervised the work personally, while the engineers had to deal with Bezos’ numerous whims, not all of which were brought to life. So, the head of Amazon wanted Alexa to talk to the owner in a dozen different voices, depending on different goals. There was a lot of debate about what the activation phrase should be (Bezos was convinced that the ideal alarm word would be “Amazon”, he was objected: the name of the corporation may be perceived by people as too official, they will be uncomfortable ordering many goods). Finally, Amazon didn’t have a voice database as Google did—it had to be built literally by hand: hundreds of volunteers wandered through dozens of hired houses, pronouncing a variety of search queries in different ways, and hidden speakers learned to recognize the signals. The rest was a matter of technique: Alexa’s mind is self-learning neural networks that develop faster the more data they receive.
The developers tried to optimize the process of creating Alexa as much as possible, but sometimes, in a strange way, they missed obvious solutions. In early 2017, Amazon’s Swedish partners asked Bezos why his company was waiting for the development of language versions of Alexa before introducing the gadget in Europe. Isn’t it more profitable to sell English-speaking Alexa everywhere? Bezos received this email at 2:00 a.m., and by the next morning, six independent groups were working to sell Alexa in 80 countries. By this time, Amazon employees were already used to this kind of mobilization: when work on Alexa was coming to an end, their workweek was eighty hours.
In 2013, a personal AI assistant, ready at any moment to suggest the exchange rate, weather, or to-do list for the day, seemed fantastic. By 2019, Amazon has sold over 100 million voice assistants. This was a triumph for Amazon, although not an absolute one. Users are still not used to using Alexa’s many skills to the maximum, they have problems connecting a voice assistant to smart home appliances. Alexa gives, though rare, but very annoying failures, recording home conversations and sending them without the knowledge of the owners to random subscribers from the assistant’s address book. On the other hand, lockdown 2020 has generated a new wave of demand for a virtual interlocutors.
Amazon Go and Amazon Fresh
No less than computer voice recognition, Bezos was interested in how AI sees a person. This interest was absolutely practical: despite the growth of online sales, brick-and-mortar stores have not disappeared, and Bezos was well aware that the real success lies in the combination of offline and virtual retail. The result is stored without salespeople who will be replaced by smart cameras and smart checkouts.
The Amazon Go project was launched in 2013 and took 5 years to develop. Hundreds of characteristics had to be carefully considered and then digitized: how deep should the product be on the shelf? How bright should the lighting be? What is the width between the shelves? What, in the end, will be sold in such stores? Regarding the last question, Bezos had no definite plans: it could be anything, the main thing is to realize the idea.
The first Amazon Go opened in December 2016 – in an experimental mode, in 2021 there are only 29 of them. The project turned out to be absolutely unprofitable. But he is only part of the concept of retail that Amazon is creating. The strength of the company lies in the speed of delivery, which is ensured by the “last mile” principle 2. It is thanks to this that in 2016 retail in the United States grew by 4%, and Amazon Prime – by 40%. To keep the last mile as short as possible, Amazon needs to have as many stores and warehouses as possible. Another important factor is to expand the range of inexpensive but necessary goods that people go to the store every day. And competitors are on the heels: Google launched Google Shopping Express, which offers customers same-day delivery of a variety of items from retailers such as Costco and Target for an annual subscription of just $95.
So, it makes sense to buy some distressed retailer. And so the company did: in the summer of 2017, Amazon opened almost 500 new outlets in wealthy areas of American cities – these are former stores of the Whole Foods grocery chain. Food is the latest product that Amazon has stepped up to people still prefer to choose meat and milk offline. On August 27, 2020, in Woodland Hills, California, Amazon opened its first Amazon Fresh offline store in test mode, which also sells Whole Foods products. The establishment has “smart” baskets: with their help, you can pay for goods without going to the checkout, and the basket withdraws money for purchases when the user leaves the store. If the visitor did not take the “smart” basket, he pays for the goods at the regular checkout. Alexa installed in the store helps you find the right products
There are still few visitors to such stores, but the idea of combining the sale of high-quality organic food from Whole Foods with Amazon’s high-tech delivery is promising.Amazon unbound summary
The company even has ordinary bookstores: in addition to books, the Echo, Kindle, and other gadgets of the company are sold there. Amazon is also actively testing pop-up store 3 stores in US malls. With or without sellers, Amazon is getting closer to us.
The faster Amazon grew, the less it could rely on third-party email services. On Christmas Eve 2013, thousands of Amazon customers were left without orders due to bad weather, an explosion in online shopping, and limited shipping capacity. Some of them did not work on Sundays – from the point of view of Amazon, this was simply outrageous. The day after the collapse, Amazon VP Dave Clark asked his staff how many sorting centers they could build before the next holiday peak. Answer: 16. “Get started!” Clark ordered.
Dealing with the thousands of drivers that are needed to deliver these orders has also been streamlined: Amazon does not hire them directly, but outsources all hired work to small subcontractors, thereby relieving itself of many responsibilities toward staff (for which Amazon is hated by unions throughout America).
The company is making full use of the possibilities not only of land but also of the sky. Every day, four Boeing 767 cargo planes take off from a California airport to deliver goods to Florida, on the other side of the country – and Amazon has dozens of such planes in total. In January 2017, Amazon announced that it would build an air hub at Cincinnati International Airport (Northern Kentucky) at a cost of $1.49 billion.
In early 2019, Amazon became the largest carrier in the US. In April of the same year, he said that Amazon Prime subscribers (and half of US households have it) can now count on one-day rather than two-day delivery of orders. Well, the more Amazon Prime subscribers, the cheaper the delivery will cost the company. Free delivery of Amazon Fresh and Whole Foods has been added to Prime membership privileges – in a few months when the Covid-19 pandemic locks people out of homes, this will come in handy.
Amazon Web Services
Since the early 1990s, Amazon has used predictive analytics and implemented it everywhere, right down to building the route of robots in order fulfillment centers. The company was the first to introduce a recommendation service – the offer of goods based on past orders. At the beginning of 2014, this entire system was fundamentally modernized. Now, deep learning algorithms are embedded in most of the site’s features, all of which ultimately serve as clues to customers (“those who bought an N coffee grinder also bought an NN microwave …”).
But smart neural networks can not only be used by yourself but also rented. That is why the AWS (Amazon Web Services) web service has become the fastest growing and most profitable part of Amazon. The company followed the same path as Google (eventually leaving it far behind): it sells cloud services and technological infrastructure to businesses.
Virtual goods are in great demand: renting them is easier than creating your own service. Not least thanks to AWS, the company’s stock more than doubled in 2015, Bezos entered the top five richest people in the world, and his brainchild finally ceased to be unprofitable. The takeoff was all the more spectacular because, for the previous decade, AWS revenues were carefully hidden: Amazon disguised them in other categories in reports so that competitors would not guess ahead of time about the profitability of the business.
2015 is also significant because since that time Amazon has been holding Prime Day – a day of giant discounts. The idea was borrowed from Chinese rival Alibaba with its Black Friday. Amazon’s goal is to keep shopping active during the season when sales are falling (for example, in 2019, Prime Day was held in July, in 2020 – in October). The results of the first year were contradictory: on the one hand, the market capitalization of Amazon for the first time surpassed the capitalization of Walmart, on the other hand, the sales mechanisms had not yet been worked out and the company faced strong criticism in social networks. One Amazon executive in charge of Prime Day remarked with a bitter chuckle, “That’s the whole point of Amazon. Even if you’ve had the most successful sales day in the company’s history, be prepared to start your report by saying, “We screwed up.”Amazon unbound summary
Amazon Prime offers its customers not only free shipping within two days (or, like Amazon Prime Now, two hours) but also online streaming of music and movies, including Amazon’s own content.
At one time, Amazon missed the opportunity to buy Netflix: the price seemed too high. In the 2010s, it turned out that Netflix was probably worth overpaying for – now competitors have gone into the lead. In 2014, Amazon’s video catalog had 40,000 titles and Netflix’s 60,000, the two companies competing to buy out-licensed content (Amazon was even willing to pay 20th Century Fox $240 million).
However, the race under such conditions was lost in advance: only Hollywood studios selling licenses benefited. It was much more reasonable to create TV hits ourselves. Here Bezos was, as always, decisive and ambitious: “We need our own Game of Thrones!”. But his proposals looked strange. It is necessary to create a “scientific studio” on Amazon, where anyone can send a script (it didn’t work: experienced scriptwriters were already in business, but amateurs bombarded them with offers). You need to test concepts and stories with the help of a focus group of viewers: the “wisdom of the crowd” that helps Amazon sales will work (did not work: masterpieces are difficult to guess. After all, assistants reminded Bezos, many hits like Breaking Bad were not used at first special love of the audience).
Bezos was wrong about two things: he wanted to get the result too quickly and he believed too much that the creation of a work of art could be calculated using algorithms. In the end, it was decided to focus not on the quantity, but on the quality of content, not on standard solutions, but on the exotic. In recent years, Amazon series and films have regularly appeared in reviews of new products – remember, for example, the series “Mozart in the Jungle” (about the backstage life of the New York Philharmonic Orchestra) or “Bosch” (about an LAPD detective). The company may well compete for its share of attention with Disney and Paramount. And as other merchants lower shipping rates, Prime Video is becoming another Amazon subscription bargain. At the same time, the project is extremely expensive (in 2018 it cost $5 billion, in 2019 – $7 billion), and its “relative” Amazon Game Studios (game production) is completely unprofitable.
The conquest of space is Bezos’s personal dream, he has been dreaming about it since he was five years old. Back in 2000, the head of Amazon founded the private space company Blue Origin – a place was allocated for it on his own ranch in Texas. Bezos’ business goal was suborbital space tourism. The idea is this: the ship rises to a height of 100 km, the crew spends several minutes in weightlessness, enjoying the views of the Earth, then flies back. For this, the New Shepard 4 automatic system was created, consisting of a reusable suborbital rocket and a reusable habitable capsule with parachute landing. In November 2015, its first fully successful launch took place.
However, Bezos has a serious competitor in the fight for space – Elon Musk. Musk and Bezos have pursued different strategies from the start. The first was striving for profitability in every possible way, fighting for government contracts. The latter financed the entire space project himself and relied on longer-term goals (“Build not just a spaceship, but a company that builds spaceships!” he wrote in a welcome letter to Blue Origin employees).
Alas, Musk has achieved much greater success: his rockets have long been sent into orbit by commercial and military satellites, replenishing supplies to the ISS. But Bezos benefited from anti-Russian sanctions. Rival United Launch Alliance (ULA) is using a Vulcan Centaur rocket instead of its own Atlas V launch vehicle, which requires banned Russian rocket engines. The “stuffing” of the Vulcan Centaur is created by Blue Origin.
And yet, Bezos’s ambitions are not inferior to those of Musk. The head of Tesla wants to colonize Mars, and the head of Amazon wants to build orbital cities around the Earth. In 2012, work began on the New Glenn 5 heavy space launch vehicle. It is assumed that in the future ships of this type will be used in space construction projects. Amazon unbound summary
Behind the Scenes at Amazon
Amazon’s ideas surprise, baffle, and at times seem counterproductive, to say the least. Many of them are frankly unprofitable. What’s the matter? What is the strategy behind this? Here are three principles that are not openly declared (or completely hushed up) by Amazon, but underlie the management of the company.
1. More risk!
Cities in orbit? Flying warehouses? Delivery of goods by drones and development of their protection against crossbow arrows? Hmm… However, all of these are real projects of Amazon, which always overstates the stakes. Ordinary managers are not always ready to take risks, even if the risk is 50%. Bezos takes risks even with a 10% chance of success. His favorite metaphor is from baseball: hit the ball with all your might in the hope of hitting a home run every time .; while a home run in baseball scores only four points, Amazon hits can score thousands of points. Let fantastic projects never pay off (in the case of Blue Origin, Bezos admits this openly), but they will attract investors. Although it is extremely expensive to build warehouses near large cities (Amazon spent more than $ 7 billion on delivery in 2015 alone – this is a net cost of $ 5 billion), Walmart and other competitors will never be able to afford to reduce the delivery time to one day and, therefore, will always fall behind. Let Alexa never get smart enough to easily carry on small talk with you, but along the way, a lot of technological discoveries will be made that will come in handy somewhere.(Amazon unbound summary )
2. Appreciate customers, not employees
The key question for every Amazon manager is: how to maximize the productivity of each employee? This issue is being dealt with very harshly.
- No mediocrity (the performance of many departments of the company is regularly monitored and compared, employees are ranked according to their degree of performance, Amazon managers are required to constantly lay off a certain number of employees who are at the bottom of the list).
- No mercy for employees. Amazon prioritizes customers, but not the staff that serves those customers. Complaints about harsh working conditions have become the leitmotif of the “Amazonian” news. One of the most outrageous facts: Amazon delivery drivers don’t have time to go to the restroom and have to pee in bottles to deliver orders on time.
- No mistakes and no delays, let robots replace people wherever possible. Placing orders, negotiating terms with suppliers, allowing brands to initiate their own promotions – all this happens without any involvement from Amazon employees, only thanks to artificial intelligence. Kiva robots have been working in the company’s warehouses for a long time: although they do not remove goods from the shelves yet, they bring the shelves to the person, and this greatly saves time and increases work efficiency by almost four times. Let’s remember Amazon Go, stores without cash registers. This is a direct threat to the 3.4 million Americans who work as cashiers (2.6% of the employed population!).
3. Sell not only everything but everywhere
Unsurprisingly, Amazon’s ambitions extend to the most populous countries in the world, China and India. The Chinese expansion of the 2000s failed for a number of reasons:
- the initiative was seized by Alibaba, which allowed customers to pay by bank transfer faster and offered a more convenient and attractive site (Amazon completely missed this: the Chinese site looked the same as Amazon’s home pages around the world);
- Amazon employees in China were too dependent on technical and other support from the US;
- the declared “support of hundreds of thousands of independent entrepreneurs” turned into the fact that Chinese merchants flooded Amazon with counterfeit goods. In addition, Amazon’s rules provided too little verification of sellers (compared to Alibaba, where sellers were required to provide an identification number and leave a deposit);
- Amazon has failed to establish contact with the Chinese government, without which big business in the country is impossible.
Because of the Chinese fiasco, Amazon decided to leave India for a while but returned to this market in the 2010s. Bezos has committed more than $5 billion to Amazon’s expansion in the country. In 2019, Amazon opened its largest headquarters there, with 15,000 local employees. Amazon Prime loyalty program membership in India doubled in 2018-2019.
Amazon tried to take into account all the Chinese lessons, but it does not do without difficulties:
- in early 2019, the Indian government tightened e-commerce regulations;
- There is a strong competitor in the Indian market, Flipkart. Ironically, it was created by two employees who worked at Amazon. When the company left the country in the 2000s, the Bansal brothers decided they didn’t want to be employed and founded Flipkart, which became extremely successful. In 2018, Walmart paid $16 billion for a 77 percent stake in the company.
Nevertheless, Bezos does not give up hope. “The future belongs to the US, China, and India, and for us to be a truly global company, we need to gain a foothold in two of the three markets,” he repeatedly said. Amazon is investing in a digital payment service, promoting Kindle and Alexa, and adding a Bollywood movie catalog to its Prime Video service. The Indian market remains unprofitable, but not so unprofitable that Amazon left it.
Amazon vs US government
On July 29, 2020, Jeff Bezos, along with the heads of Google, Apple, and Facebook, testified before the US Congress in an antitrust case. Bezos was answering before Congress for the first time. It was inevitable: the investigation of the American authorities had been going on for a year, and more than a million internal documents of corporations were collected, indicating their foul play.
American authorities saw Amazon as a direct competitor, and with good reason. The scale of the company is such that the state needs it almost more than the state needs it. Its budget is larger than that of Hungary. Millions of people depend on it. Not surprisingly, when Amazon decided to build a second headquarters in 2017, dozens of cities applied to host the company (the residents of Stonecrest, Georgia even offered to rename their city to Amazon).
Key government claims against Amazon:
The company uses data from independent product vendors to promote its own products. Let’s say you release your own car trunk organizer after seeing an explosion in demand for that product from another company. A member of the antitrust committee said: that Amazon treats data from independent sellers as “a candy store that you can go to and feast on,” that is, to get up-to-date information at any time to your advantage. Well, Amazon promotes its goods in all possible ways: for many products, the price when ordering through a voice assistant is lower than on the site, but at the same time, Alexa offers only the company’s brands. Third-party sellers must spend more and more on additional product advertising. Not surprisingly, advertising has become the second source of income after cloud services.
- The company kills startups: first, it negotiates investments, in the process it finds out the details of technologies, and then it releases an identical product itself.
Bezos reaction? Evasive. Amazon is not the only player in the market. In the global retail market ($25 trillion), its share is less than 1%. Amazon has many competitors: Target, Costco, and Walmart (the size of this company is five times the size of Amazon). As for “data theft,” the company certainly has internal rules governing the handling of data from independent sellers to develop its own Amazon products, but he, Bezos, cannot guarantee “that employees have never violated them.”
At the same time, some accusations hung in the air, as they were related either to the shortcomings of the current legislation or to the lack of data.
- Amazon and Bezos himself manage to get millions in tax credits on billions in revenue. This is facilitated by loopholes in the tax code (for example, shares and real estate are not subject to tax legislation until they are sold).
- Amazon uses profits from AWS and advertising to subsidize its retail business, cut competitors’ prices, and take over other companies. But so far, it is impossible to prove this: Amazon did not want to share data that would help to really assess the situation.
What threatens the government’s accusations? Nothing directly, but a detailed report on the tricks of the IT giants formed the basis for further investigation. It may take a long time, but the government is already able to take some measures: to provide greater protection for the rights of independent sellers, discourage unjustified takeovers by large corporations of smaller companies, and make Amazon liable for third-party seller fraud. Admittedly, the problems provoked by Amazon are largely a consequence of the problems of modern legislation.
Amazon vs Covid-19
The pandemic could be Amazon’s greatest opportunity: when everyone stays at home, online shipping thrives. The pandemic could be Amazon’s greatest failure: the company’s hundreds of offices and warehouses were ideal conditions for the virus. How did Amazon meet this challenge?
Of course, immediately after the announcement of the pandemic, Amazon sent office workers to work remotely and made interviews with potential employees virtual. But there were still workers in order fulfillment centers, sorting centers, and transport hubs. Millions of dollars have been spent on thermal imagers to replace inefficient portable thermometers. Drone 3D printers have been reconfigured to make plastic screen protectors. By early April, Amazon had distributed millions of masks to employees. Offices in California and Kentucky have been converted into medical laboratories where tests for Covid-19 are being developed. By fall, the company said it was doing thousands of tests a day (20,000 of its 1.3 million employees tested positive). No major company has released such data.
But no other company has come under such fierce criticism from below. Amazon employees, who didn’t feel much cared for in the quiet times, resented the violation of antivirus measures in the workplace and campaigned for greater security. Many of them were fired, ostensibly for violating a corporate policy that forbids talking to the media without the company’s permission. Most of all, however, it seemed like revenge: Amazon management did not tolerate criticism.
2020 has been a bad year for employees, but not for the company. Despite huge investments in the fight against Covid-19:
- annual profit at the end of the year increased by 38% and amounted to $386.1 billion;
- Bezos himself became $70 billion richer and regained the title of the richest person in the world (after briefly losing it to Musk);
- in the fall, when a new wave of the virus passed through Europe and the United States, Amazon hired a million workers;
- Amazon has joined the game in the US healthcare market (Amazon Pharmacy service introduced in November 2020);
- as the world has gone online, the use of cloud services has skyrocketed.
By the end of the year, Amazon’s market capitalization was $1.6 trillion. Now he can’t be caught or stopped.
On February 2, 2021, Bezos announced that he was stepping down as Amazon CEO. Andy Jassi, now head of Amazon Web Services, will be the new head of the company, while Bezos will take over as executive chairman of the board and focus on the company’s new products.
This event is a milestone in the history of not only Amazon but also a global business. Nearly 30 years ago, a businessman in Seattle decided to sell books online. Now his company is worth $1.5 trillion. Amazon has changed the way we think about comfort and everyday life forever.
And, of course, it changed the entire world economy. Amazon has long been said to be “too big to fail,” meaning that its bankruptcy would spell disaster for the economy as a whole. Bezos thinks otherwise. “Amazon is NOT too big to fail,” he repeats to his employees. “Actually, I’m sure that one day Amazon will fall. He will go bankrupt. This is the fate of any large company: it does not live too long. Yes, the future of Amazon is not cloudless: remember the claims of the government, which is not going to give up. How soon will the crash happen? Now it’s up to Andy Jassi.
And one more question: has Amazon changed our lives for the better? Given the scale of his influence, we must recognize the question as useless. As Bezos himself says, “it’s a one-way street.” We can praise Amazon or hate it, but we will not return to the old world.
Top 10 Thoughts
- Amazon is such a rich company because it sells all kinds of goods? No: because he knows how to sell advertising and his cloud services.
- Both the online store and the offline store are doomed in themselves, the future lies in their merger, and Amazon is already looking in this direction.
- The main features of Bezos’ business plans are ambition and risk. Ordinary managers are not always ready to take risks, even if the risk is 50%. Bezos takes risks even with a 10% chance of success.
- Bezos is also wrong. For example, he believes that success in the television industry can be calculated in the same way as sales in a store.
- In the global retail market, Amazon’s share is less than 1%. But no one is better than Amazon at knocking down prices and managing millions of sellers.
- Amazon pays outrageously low taxes, uses third-party merchant data to promote its brand, and steals ideas from startups. Alas, gaps in the laws contribute to this dishonest game.
- Amazon principle: Sell not only everything but everywhere. “Everywhere” is primarily the US, China, and India, and it is important to capture at least two of the three markets.
- Amazon fires bad employees as soon as possible, good ones – when they squeeze all the juice out of them.
- Replacing employees with robots is Amazon’s ideal.
- Has Amazon changed the world for the better? Apparently not. Can we imagine a world without Amazon? Of course not.
- Read in our library a wonderful biography of Steve Jobs by Walter Isaacson.
- The distance connecting the client and the provider closest to him.
- Pop-up store – temporary trading platforms that open for a limited period in order to increase sales. Usually, this discovery is timed to coincide with some significant event.
- In honor of the American astronaut Alan Shepard, who made the first suborbital flight in 1961.
- In honor of astronaut John Glenn, who in 1962 was the first American to make an orbital space flight.
- A home run is a baseball hit that sends the ball out of bounds.