Among other things, The Everything Store is an eye-opening read into the business philosophy at Amazon. As a core value, Amazon strives to put the customer first by selling products and services as inexpensively as it possibly can. Doing so allows a few things:
- It frees the company from products that create such high profit margins that the company can’t venture into lower-profit markets for fear of displeasing its shareholders. The end result of a company with exorbitantly high profit margins is that eventually the company becomes risk-averse and consequently uninnovative. It might take decades, but it’s ultimately inevitable, especially as the vision of the original founders wears away with their departure.
- It frees the company from the competition that results from selling products with high profit margins. Lower profit margins mean other companies are less likely to be interested in hotly pursuing those markets.
Amazon is a somewhat boring company in comparison to its competitors. I’ve been listening to an audio recording of The Everything Store on my runs and commute and it’s not an exciting book, really. But in terms of customer satisfaction, Amazon is soaring at the #1 spot while Google and Apple are dropping in reputation. Meanwhile Amazon has closed the gap in market cap to most of its competitors and is arguably on a trajectory to become the most valuable company in the world.
A company whose philosophy is to charge inordinately high prices will initially succeed if its products are inordinately superior. But eventually the competition catches up, allured by the lucrativeness of the markets. Meanwhile, that company has to keep charging high prices for all new things it creates, because that’s the playbook it’s created for itself and the landscape it’s taught its shareholders to expect. It’s a fundamentally flawed, non-sustainable philosophy compared to Amazon’s. The pricing structure alienates customers and is built on the hubris that the company can achieve and — this is key here — sustain inordinate superiority in all markets. That just doesn’t hold up indefinitely. Eventually the competition arrives and nibbles at the edges. Eventually the cookie crumbles.
Jeff Bezos’ company has the high ground. This is going to become much more clear to everyone over the next decade.