DISRUPTION – TRANSFORMATION: the Amazon U-turn

ON THE BRINK OF DROUGHT!

We all know of Amazon as a pure digital player that has become the archetype disruptor of the traditional brick-and-mortar distribution business model for books, clothes, sports equipment and zillions of other consumer goods. But it is worth looking back and checking the facts: the reality is a little more bumpy, and therefore interesting.

In the late 1990s, Wall Street and the media perceived Amazon as an "unexciting and marginally profitable online retailer," wrote Brad Stone in his book, The Everything Store. It was all about low prices – basically following in the steps of Walmart that had coined the “Always lower prices” tag line many years before.

Amazon had managed to disrupt the retail business in number of countries, leading bookstores to close down in hundreds of cities.

But the burst of the Internet bubble in 2000 could well have killed the company that was bleeding money big time. Let’s remember that in 2000, Amazon’s revenues were 2,761,983 USD with a mesmerising loss of 1,411,272 USD!

THE "OPEN BAR" BET

The story could have ended there if Jeff Bezos had not the vision of Amazon being more than an on-line retailer but of being a technology company driven by customer-relevant innovation. In 2002, Amazon started opening up its application platform to third parties through API (Application Programming Interface) that enable all kinds of other actors of the value chain to use the Amazon assets to market their goods: “Then on July 16, 2002, Amazon launched Amazon.com Web Services allowing developers to incorporate Amazon.com content and features into their own web sites. Amazon.com Web Services (AWS) allowed third party sites to search and display products from Amazon.com in an XML format.” (http://apievangelist.com)

In the press release, Jeff Bezos said “We're putting out a welcome mat for developers -- this is an important beginning and new direction for us. Developers can now incorporate Amazon.com content and features directly onto their own websites. We can't wait to see how they're going to surprise us."

From there on Amazon was no more this closed environment, serving exclusively its own customers through its own warehouse – breaking away from its original business model by leveraging the technological disruption offered by APIs and web services. It became a major infrastructure resource to a number of major players of the digital economy. AWS today hosts some of the hottest digital brands in its data centres: Netflix, AirBnB, Pinterest, Slack, Expedia, to name a few.

THE NUMBERS SAY IT ALL

In 2015, AWS revenues were 7.880 $billion, accounting for 7.4% of Amazon’s revenues but for 41% of the net operating income! Noticeably AWS sales growth outperformed the other lines of business with year-on-year growth rates of 70%, 49%, and 69% in 2015, 2014, and 2013.

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A proactive approach to disruption strengthens the immune defences of the company in response to the major changes that may affect it. Rather than reacting ex-post to what is perceived as a threat or an attack, a company that engages in the disruption of its own – in this case young – industry is able to project itself into the future it decides to chose for itself.

The Amazon story proves that such bets pay off when smartly executed.

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About the authors: Philippe Coulot and Patrick Giry-Deloison are business consultants who work with company leaders to transform their organisations for growth in disruptive environments.

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