Jeff Bezos, the Web entrepreneur

In 10 years, Amazon has become one of the biggest shops in the world. And what is so special about Amazon? It does not have a single physical point of sale. Jeff Bezos was the first to fully understand the opportunities that the Internet offered. Thanks to his vision of the market, he has been elevated from the position of the pioneer of e-commerce to its leader. Building on this position of strength, he is pursuing an offensive strategy to conquer new markets.

Jeff Bezos is staking his reputation on the launch of Amazon’s new e-book, Kindle 2. The first version prompted more talk than sales. The group has not even published any figures. According to the analysts, between 300 and 500,000 copies were sold. A minor fiasco that explains why there are not yet any plans to launch Kindle in Europe. An entrepreneur and a perfectionist But Amazon’s president is pinning his hopes on the new version to reverse this trend. Perseverance is one of his leading qualities. “After each setback, we have to ask ourselves whether we still have faith in our project. Conviction gives us the energy to continue, adopting a different approach”, he explains.

Jeff Bezos has always applied this principle. After graduating from Princeton in 1986, he worked on Wall Street in fields close to finance and computer technology. He quickly became the vice-president of Bankers Trust, a long-established US bank that was taken over by Deutsche Bank in 1998.

The president of Amazon is renowned for his perfectionism. He pays very close attention to details. He wants to know everything, from the smallest contract that is concluded, to the press releases carrying his signature.
But he does not take decisions alone. He has set up the so-called S Team, where S stands for senior. This group of senior Amazon managers meets for four hours every Thursday to address the strategic issues facing the group.
 

“Consumer first” is his motto

Jeff Bezos has a very special analysis of the market. While certain businessmen prefer to focus their surveys on analyses of their competitors, Jeff Bezos believes that the customer is more important. In his opinion, companies that develop strategies based on the competition are doomed to operate in a reactive mode and are subjected to a market crafted by others.

Conversely, in order to remain competitive and innovative, they must listen to their consumers. One consequence is that every new hire, juniors and seniors alike, has to spend a day in the call center. Then they spend two days in the call center every two years in order to discover any new developments that the group has deployed. Jeff Bezos believes that every employee should be capable of working in the call center.
Amazon’s president has also set up a “Web Lab”, which collects data on the way the website is used in order to improve the interface.

In an interview with the Harvard Business Review in 2007, Jeff Bezos claimed that, on the online sales market, “consumers want three things: the best product selection, the lowest prices and the cheapest and most convenient deliveries.” Every decision taken by Amazon is based on these fundamentals.

A strategy made up of vision and discipline Most companies strive for linear growth by building on the skills they have acquired and identifying where their qualities can be best put to use. Usually, only acquisitions give rise to exponential growth. Achieving organic exponential growth, which is what Amazon has done, requires both vision and discipline. Jeff Bezos is convinced that, in business, you have to change strategy from time to time. But this is no reason for the company to lose its way by making contradictory choices.

“The trick is to position the company in a broad variety of scenarios so that it can always remain true to its fundamentals. In other words, you need an escape plan” he explains. The Amazon guru believes that two questions must be asked to fully understand a market: “What will my customers be doing in 10 years?” and “What will they still be doing in 10 years?”. While the answer to the first question is the key to developing an innovative strategy,

finding the answer to the second one is a way of building a durable plan, while focusing on customer expectations. A valuable asset on constantly changing markets. And you must not hesitate to take risks. For Jeff Bezos, therein lies the difference between doing what you know how to do and doing what you should do. A goal that can only be achieved by investing the necessary time, energy and money.

The pioneer of e-commerce

This vision enabled him to become the precursor of online shopping. He started selling books at a time when it seemed to be a ridiculous venture. According to the legend, the idea to set up Amazon came to him on a road trip from New-York to Seattle. He drew up his business plan at the wheel and picked up 300,000 dollars when he stopped over at his parents’ home. The ball was rolling.

Despite the reticence for the Internet shown by users, Jeff Bezos was convinced that the Web was to become a unique trading place. He believes that the price is one of the important factors. If his company can bring down its prices far enough, then the customers will come to him.

Jeff Bezos opted for a single product to launch his business: books. He believes that it was an obvious choice. It is a product that can be kept for long periods. And by doing away with the storage constraints that exist in shops, he is able to offer a broader selection than his traditional competitors. And he is open for business 24x7.

A bold business plan Setting up the system still required an economic model capable of accommodating these constraints. Amazon’s first business plan was, at the very least, original. Jeff Bezos did not expect to make a profit for four to five years. He preferred to borrow in order to broaden his product range and the selection of consumer services. His strategy paid off. While his competitors achieved exponential growth, Amazon grew in a stable manner until 2000. As a consequence, Jeff Bezos received many complaints from shareholders who felt that the company was taking too long to turn a profit.

But unlike the others, Amazon survived when the Internet bubble burst. His secret was to have established trustful relations with his customers. And Amazon.com continues to have one of the highest satisfaction ratings on the web today. Every time the company came near to being profitable, Jeff Bezos set to conquer new product markets. Amazon finally turned a profit at the end of 2001. The shareholders were rewarded with just one cent per share. From then on, the company remain profitable. But it also remained in debt. In September 2007, Amazon’s debts still amounted to $1.58 billion.

Amazon, the Wal-Mart of the Web By multiplying its product offer and expanding into international sales, Amazon.com’s revenue grew constantly. Between 2005 and 2009, revenue grew by 288%. Today, the group employs some 21,000 people in 33 countries. Amazon’s goal is clearly to become the Wal-Mart of the Web. In 2009, 700 million users visited the domain Amazon.com, twice the number that visited walmart.com. Jeff Bezos does not leave any room for the competition. In 2007, he represented 6% of e-commerce in the United States, compared with 5.1% in 2006. Amazon built on its experience to broaden its activity into areas where the group was not expected. The company is no longer content with being the biggest bookshop in the world. It now sells music, perfumes, cosmetics, films, clothes and even shoes. In the United States, the group’s platform that sells music, Amazon mp3, has scored a resounding success. According to the NPD Group, the site already attracts 16% of online music buyers. Cause for concern for Apple and its iTunes Store platform. Bezos’ failures But his diversification strategy does not succeed every time. While Amazon loves to talk about its successes, the same is not true of its failures. Who has heard of pets.com, kozmo.com, living.com, A9, Unbox or Auctions, the site that was supposed to challenge eBay?

But with every failure, Jeff Bezos tries to improve his product. Amazon Unbox, launched in September 2006, offered a video on demand service. But to access the service, users need an Unbox terminal, which downloads films faster. But the product fails to break through and the need to buy a terminal is clearly an obstacle.
Two years later, Jeff Bezos improved the service, which was renamed Amazon Video on Demand. And it is no longer necessary to buy an Unbox to access the service.

Software benefiting from innovation

Many analysts believe that the Bezos model will not last forever. So what are they worried about? A wafer thin operating margin – just 4% in 2008 – that restricts investment in R&D. By way of comparison, Wal-Mart’s operating margin is about 6%. They are worried that the US firm will be overtaken by more innovative companies. But they should be reassured by 2009, when the operating margin rose by 48%.

Amazon.com was ranked as the 11th most innovative company in 2009 by Business Week. This gap can be explained by the size and the structure of the company, which falsify the data. The group comprises a software activity and a service. And this is where Jeff Bezos focuses all his efforts to innovate.
Simply because, without the software, Amazon’s site would just not be the same. The applications on the home page call on more than 100 services to collect the data and build the page. Technological innovation has enabled Amazon to improve the consumer’s experience. The group is also at the origin of the “Search Inside The Book” application that displays the first few pages of a book before you buy it, and the “Wish List”, in which users can create a list of gifts.

The Amazon group’s next goal is to become the Internet engineer. It plans to build on its dominant position in order to challenge Google. In 2002, the group launched the Amazon Web Service, which proposes cloud computing solutions.

Kindle: the iPod for books? Jeff Bezos seems to be returning to his roots. By launching the e-book, Amazon is again revolutionizing the world of books. For $359 and with 2 GB of memory, Kindle 2 can take onboard the 1,500 books that can be downloaded from Amazon.com. And the e-commerce wizard has also promised to cut his prices. “With digital technology, costs are coming down. So it is quite normal that prices follow suit. Consumers would fail to understand if it were otherwise”, he explains. Kindle 2 can also be used to surf on the Web, play MP3 audio files, read PDF and DOC documents and view images. But Amazon’s president admits that playing music and accessing the Internet are still in the experimental stage. But he remains confident about his product. “I do not want to over-simplify what is happening to the media, but I find it difficult to believe that, in 10 years, paper will still be the most common medium used to read the press”, he explains. Just a few days after the presentation, Amazon announced that it was already out of stock.

News that must have relieved the entrepreneur from Webland. But he now faces competition from Apple, another Web giant. Apple hopes that its iPad will quickly outmode Kindle 2. Jeff Bezos will then have to find another innovation to conquer this high-growth market.