Why Is Amazon the Most Powerful Platform in the World?
Bezos builds businesses like no one else — and arguably better than anyone. Each of Amazon’s five major divisions would be multi-multi-billion dollar businesses on its own.
And each followed exactly the same strategy.
Let me explain.
Amazon is a platform company. They want a small (but ever-increasing) piece of all commerce. And to date, things are going according to plan.
But platforms are pretty damn hard to build — you need to aggregate a ton of users or customers. That takes time. And often money, lots of it.
You can’t set out to build a platform. That cannot be your first product.
In 1994, Amazon launched, not to build a platform, but instead to build a better online bookstore. It was super niche, super targeted.
But this wasn’t the end-all-be-all, it was phase one. It was a product, a battering ram into the hearts, minds, and homes of consumers. And it worked. It was easy to understand, affordable, and offered a better selection than any library or bookstore.
If customers can’t explain what you do in a sentence or two, they won’t try. This is key for any business.
And as you acquire customers and market share, expansion opportunities present themselves. But in the early days, Amazon sold everything, ensuring great quality and customer service — their main differentiators today.
That wasn’t scalable.
Amazon couldn’t afford to offer (i.e, own) everything. That is way too much capital. It was either compromise on growth (and grow very slowly, with only Amazon-branded products) or open up the platform (likely the original plan).
So in 2000 Amazon started allowing third-party sellers to sell on their site — it worked wonderfully. Fast forward to today. There are over 2M third-party sellers on Amazon accounting for anywhere from ~79–90% of the total products listed on Amazon as of 2015.
As Amazon grew, so too did its infrastructure needs. The bandwidth and storage required to host and display images and information across Amazon.com ballooned as the marketplace grew.
Bezos bet big on in-house and decided Amazon ought to own the infrastructure. Better still, why not follow the existing Amazon.com strategy — internal, and then sell externally?
AWS was born out of an internal need and an incredibly well-orchestrated, easy-to-use cloud infrastructure.
That is how Amazon thinks: Solve it once, then sell it — productization 101.
Today AWS is far and away the largest cloud service provider, powering ~42% of the web — more than double Microsoft, Google, and IBM combined and bringing in upwards of $4B per quarter.
The way we interact with technology is changing. Amazon (along with many others) wants to own the space/interface.
Today Amazon is winning big. Alexa is a cross-functional voice assistant/interface which in typical Amazon fashion is compatible with everything. If you are building a voice-enabled device, Amazon wants it to be powered by Alexa — an open ecosystem — even if it cannibalizes hardware sales.
Amazon gets it — the platform is the product.
Voice may well be the next search, but it may mean even more. By owning the interaction, accumulating data, and controlling the customer experience, Amazon is inserting themselves into each and every value chain (a little piece of every pie).
In this instance, Amazon broke its own rule — they built the platform before the product. And that was okay. Consumers already trusted Amazon’s brand (as did developers), meaning buy-in from both major parties.
In the case of the Amazon Echo and other Amazon-branded Alexa products, the goal is attention, not profit. Amazon is crushing Google in terms of smart speakers shipped through a combination of rock-bottom pricing and aggressive marketing and PR — flexing their ecommerce (and Whole Foods) muscle to ensure an Alexa device in every home.
Facebook, Amazon, Apple, Google — today’s most valuable companies are all platforms. That is no coincidence. Platforms have pricing power and aggregate the majority of value.
And while many debate the merits and morals of such a monopolistic system, it’s the world we’re working with.