Amazon is quite a company. Talk about metamorphosis and re-inventing itself, Amazon gets the highest marks.Why do I say that?
Well, it started as a e-commerce book-selling site. It survived the dotcom crash while many other B2C companies went under. The clever strategy to morph itself to a broader player started just after the dotcom crash, around the year 2000. Now, Amazon has three key businesses, each doing well as growth engines.
First, the core business of selling books got enhanced by strengthening many aspects of the consumer retail business. With tens of millions of customers in eight countries, it created the “customer intimacy” further. Examples like recommending books based on your past purchases added to the customer stickiness. This business continues stronger than ever and has caused the demise of brick-and-mortar book stores like Borders.
Second, leveraging its web infrastructure and massive fulfillment network, Amazon invited other merchants to sell their goods. Hence there grew a massive seller business which brought an additional revenue stream. Now we can buy any goods from the Amazon website at better price points. They have even introduced an annual subscription of $79 for unlimited shipping through the year. Here Amazon competes with eBay and with its seller-partner’s own website.
Third, around the year 2000, Jeff Bezos realized the potential of monetizing the massive computing power it has in the data center. Typically such data centers are underutilized by as much as 50-70%. Amazon started the Amazon Web Service (AWS) and the first service was storage rental. Instead of buying expensive hard disks, start-up companies could use “storage in the cloud”, called S3 (Simple Shared Storage) for a fraction of the cost. Then they introduced EC2 (Elastic Computing Cloud) where computing power can be rented for much cheaper price. It is elastic because you can use as much as you need and then release EC2 instances not needed anymore. It is only configuration and takes very little time (no expensive programming needed). This was the pre-curser to the notion of cloud computing and Amazon, rightfully, is given the credit of pioneering the cloud computing concept. AWS has added many more cloud services in content delivery (CloudFront), data (SimpleDB or RDS), monitoring, messaging, etc. This part of Amazon is a fast growth segment. Well known web companies like Zynga, and Netflix run 100% on AWS. The savings on CapEx for these companies are significant.
All this has brought rich dividends. Amazon’s stock price has gone up significantly over last five years. It’s revenue and market capitalization has also sky-rocketed.
Amazon is a good example of a company which has re-invented itself to stay with market dynamics. This is a must to survive in our industry, as the mortality rate is so high.