I am catching up with some New Yorker reading, after some unintended travels.
I thought that Charles Duhigg‘s overview of Amazon (Is Amazon Unstoppable?) is a fabulous and (unsurprisingly) well-written long form essay. Of course, the folks who read this blog know much of the story of founding of Amazon, the work ethic and famous atypical frugality at Amazon, and the inspiring “Day One” philosophy to stay perpetually hungry. But, it is always great to read perspectives from the “outside” of Operations angle. Towards the latter half of the article, it also becomes a character study of Bezos (Bezos, as always, declined to be interviewed). After all, until recently, Bezos story and Amazon story were almost inseparably intertwined.
Key perspectives from the story:
- The comparison between Jeff Bezos and Alfred P. Sloan.
- Perspectives from the suppliers, and the natural conflict as a platform retailer (covered elsewhere on the blog).
- Amazon as process company, as against Google and Facebook as product companies.
The last point is actually a wonderful operations point worth elaborating.
Silicon Valley is filled with product companies. Google invented two products—a spectacular search engine and a set of algorithms for matching people’s online behavior to ads—that today deliver eighty-five per cent of its revenue. Facebook invented (and acquired) addictive social-media products and then basically imitated Google’s ad-matching algorithms, and gets ninety-eight per cent of its revenue from those products.
Amazon is a process company. Last year, it collected a hundred and twenty-two billion dollars from online retail sales, and another forty-two billion by helping other firms sell and ship their own goods. The company collected twenty-six billion dollars from its Web-services division, which has little to do with selling things to consumers, and fourteen billion more from people who sign up for such subscription services as Amazon Prime or Kindle Unlimited. Amazon is estimated to have taken in hundreds of millions of dollars from selling the Echo. Seventeen billion came from sales at such brick-and-mortar stores as Whole Foods. And then there’s ten billion from ad sales and other activities too numerous to list in financial filings. No other tech company does as many unrelated things, on such a scale, as Amazon.
To emphasize…
No other tech company does as many unrelated things, on such a scale, as Amazon.
Sure, to be precise, Google and Facebook have more than one product (even as tiniest component is sometimes called a product — note the glut of “product managers” in the valley). Also, Amazon is not all process. However, there is something excitingly un-product-ly about a firm focusing on “compounding incremental improvements”.
Amazon economist Pat Bajari made this point in a talk elsewhere. (If I can, I will find his talk and post a link). Suppose that you make 1% improvement in a regularly process that is part of your business. Over 10 years, this improvement can accumulate to 10% even if you grow the business linearly. But if you have a non-linear escalation in growth rate (often termed as “exponential” growth), the returns to the marginal improvement you made 10 years earlier, are spectacular.
Operations, like good habits in life, is about making marginal changes consistently as a process, which accumulates eventually into significant dividends.
Notes:
On this post, I did not focus much on warehouse conditions, but one of the (Philadelphia based!) writers mentioned in the New Yorker essay, Emily Guendelsberger, wrote a book called On the Clock which I had came across. She spent a year each in Amazon Warehouse, a Call center and McDonalds and wrote about her experience. It has great reviews and is now on my very long to-read pile.