Amazon is one of the most extraordinary business stories of our time. Many people in the tech industry have a general understanding of this story, picking up bits and pieces of its lore and culture over the years.
But what are the real reasons for Amazon’s success? What can today’s entrepreneurs learn from what Jeff Bezos did? And where is Amazon headed next?
Two startup investors spent about two months researching Amazon in their spare time to answer questions like those, and they just shared what they learned.
Ben Gilbert, managing director at Seattle-based Pioneer Square Labs, and David Rosenthal, a San Francisco-based angel investor, this week released an epic episode of their podcast, Acquired, spanning nearly 4-and-a-half hours — providing a deeper understanding of Amazon and new insights into the company.
Gilbert joins my colleague John Cook and me on this week’s episode of the GeekWire Podcast to discuss key takeaways and highlights from their Amazon deep dive.
Listen below, and continue reading for notes from the conversation.
Why was it important to do this deep dive on Amazon?
- Amazon has been mentioned frequently on Acquired, but Ben and David felt that they hadn’t done the company justice as a subject unto itself.
- They came to realize that many people in the Bay Area, for example, might know about door-desks or two-pizza teams, but don’t understand the intricacies of the company.
- It’s a very interesting time at Amazon, but the main reason was that this company is still misunderstood.
Key insight from Ben on the Acquired episode: Amazon philosophically is a straight line, strategically a squiggly line, and tactically a random set of dots powered by a fact-finding algorithm.
- This explains why the company persists despite failures, such as its multiple attempts at the third-party retail business before coming up with the successful Amazon Marketplace.
- The philosophical straight line is customer obsession. Jeff Bezos posits that, in the extreme long-run, there is perfect alignment between customer and shareholder interests.
- How do you turn customer obsession into a product roadmap? You can’t. And so you need to squiggle your way to it, zooming around the maze, hitting a wall, backing up and trying again.
- Related to this is Amazon’s distinction between one- and two-way doors: distinguishing between decisions that are irreversible and those that aren’t, and treating decisions differently depending on that determination.
Biggest surprise from the research?
- Bezos was initially inspired by a report showing that web traffic in 1993 had grown by a factor of 2,300, or 230,000 percent, as detailed by Brad Stone in his book, The Everything Store.
- As a business opportunity, it’s difficult or impossible to identify anything that compares to that kind of growth today, and much of the biggest growth areas are the result of the internet.
- A good question for entrepreneurs: would they recognize and act on opportunities like this?
- Todd suggests quantum computing or fusion energy as the next one. John jokes that it’s the metaverse.
Pivotal early meeting between Amazon and eBay showed the difference.
- Meg Whitman, then CEO of eBay, preferred the higher profit margins of a capital-light, pure digital business.
- Bezos believed in building out the infrastructure for distribution and order fulfillment — costlier short-term but more valuable long term.
- Ben: “I don’t know how many people are spending too high of a percent of their paycheck on eBay these days. But there’s a lot more on Amazon.”
Amazon’s impact on the Seattle startup ecosystem.
- Ben on Acquired: “The biggest impediment for the Seattle startup ecosystem was the fact that Amazon facilitated entrepreneurship over and over again, for people of all stages of their career with all levels of ambition.”
- John agrees: What’s amazing about Amazon is their ability is their ability to stay innovative and entrepreneurial even as they’ve grown to more than a million employees, allowing them to retain and recruit entrepreneurial people who otherwise might have created their own startups.
Is it really still “Day One” at Amazon?
- This is Bezos’ oft-quoted mantra, meant to illustrate the growth potential ahead. In 2000, Bezos wrote, “We still believe that some 15% of retail commerce may ultimately move online.”
- Retail sales exceeded that threshold in the pandemic, declining somewhat since the peak. Based on this, Ben says, “I think it is Day Two for Amazon.”
- Ben: “Where do people think that ecommerce penetration will land as a percentage of total commerce? We’re there. And to be honest, other than maybe a house and a car, I don’t know how I could spend more money on the internet … most of it on Amazon.”
- Shift to a new CEO, Andy Jassy, is also a sign of this.
- However, Ben says, it’s important to note: “Day Two” does not mean Amazon is no longer innovative. “I think it’s Day Two, because they’re open to the idea of making money and reaping some of the value from everything that they’ve created out in the world.” Investors expect them to do this at some point.
What’s the best acquisition Amazon has made?
- Ben cites Amazon’s $300 million acquisition of Audible in 2008.
- Today, Audible has 40% of the $5 billion audiobook market, projected to reach $35 billion by 2030.
- Plus, for Amazon, it’s not just a financial asset but “incredibly intertwined” with its core business.
- Recent deals to acquire One Medical and iRobot are part of Amazon’s search for a fourth pillar of its business.
The original Amazon HQ, in a rented home in Bellevue, Wash., shows innovation can come from anywhere. Here’s our story on the 2019 sale of that home, and the significance of the oversized mailbox that was once on the curb.
What should entrepreneurs study, learn, and adopt from Bezos or Amazon that they wouldn’t do naturally?
- True customer obsession. Not just lip service. Genuine devotion to serving customers. Bezos put “every single ounce of attention and energy” into this.
- This is not a natural thing for many startups to do, despite what they may say.
- Ben: “The only way to birth Amazon into the world and to then continue to innovate the way they did for 20-plus years is to perform unnatural acts, over and over and over again.”
For much more, check out the full Amazon episode of Acquired.
Audio editing and production by Curt Milton.