#CZLNY: Amazon’s Performance Secrets

It was a great honor to present at the inaugural ClickZ Live in New York this week. I was asked to share some of what I presented.

For years we have paid careful attention to Amazon, and I shared a few secrets we have discovered about what makes them so incredibly successful. Say what you will about them, but they are a formidable competitor to every business out there. However, what we most admire about Jeff Bezos’ approach to business is that it is duplicatable by just about every other business out there today. It isn’t easy, but it is simple.

Amazon.com sold its first book in July of 1995. They ended 2013, selling $74.45 billion worth of stuff, all kinds of stuff. The company did not start out knowing substantially more than most other businesses starting their efforts online, but because it was willing to think ahead, develop data-driven technologies, and push the boundaries of how best to do business on the Web, it is now the largest online retailer. It now captures about 30 percent of every e-commerce dollar in the U.S. (and in many other markets as well), and it is also a successful B2B vendor, hardware developer, and publisher.

Amazon is 10 years ahead of the curve and even leads strongly data-centric companies like Walmart. Amazon was built upon Jeff Bezos’ vision and the four pillars of success:

  1. Customer Centricity 
  2. Continuous Optimization 
  3. Culture of Innovation 
  4. Corporate Agility 

“The most important single thing is to focus obsessively on the customer. Our goal is to be Earth’s most customer-centric company.” – Jeff Bezos, founder and chief executive (CEO) of Amazon.com

How Amazon Puts the Customer Front and Center

When Bezos decided to launch Amazon.com in 1994, he realized that the unique advantage of the Internet was the ability to programmatically learn more and more about your customer and personalize their experience. He realized that they could leverage every bit of data correlated with their customers’ personal unique identifiers (their email addresses) from each and every interaction. Amazon could learn from every sale, but also from every click, review, and mouse movement. This level of data was magnitudes more powerful than the traditional data that brick-and-mortar companies like Walmart had about their customers. Amazon was in the “business of helping customers buy books not in the business of selling books.” With this approach they developed millions of loyal customers. Their culture insists on great service, having every employee including the CEO sit on the customer service front lines at least two days every two years. These are just some of the ways Amazon demonstrates their Customer Centricity model.

Plan, Measure, Learn, and Adapt

Everything Amazon continuously optimizes every aspect of their business. I don’t mean the traditional marketing optimization tactics of A/B testing changing buttons or buyer flows, but they optimize operations, marketing, finance, etc. To get a full understanding of how they push all of their operations to optimize, it is worth taking a few minutes to look through the Slideshare Amazon.com: The Hidden Empire.

Back in 2004, we knew that Amazon.com was already doing more than 200 marketing optimization tests at any given time. Even today, most companies average between two and five tests a month. So imagine if Amazon has not scaled the amount of tests they had but continued to do only 200 tests a month and most of their competitors did even 10 tests a months how many more times is Amazon learning and optimizing over their competitors. The key is that Amazon.com understands that optimization is not a tactic or a project but it is a strategic competitive advantage woven into the management of their business and its ultimate responsibility lies with the CEO.

Investing More in Innovation Than Most Companies Revenues

Last year Amazon’s research and development (R&D) budget was $6.5 billion. For years they have built incredible in-house technology and has spent incredible amount acquiring start-up technologies to boost their business, everything from the Kiva robots that improve their fulfillment operations to a 3-D printing marketplace. Amazon loves to innovate. This infographic from IterateStudio, an outsource R&D lab for retailers and brands shows the impact of Amazon’s huge innovation efforts.

Managing Your Business in the Age of Agility

Amazon has a Bias for Action among their core values.

“Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.”

Their teams are organized for execution. They have small, cross-functional teams (like Apple where teams are not larger than two pies of pizza could feed) that are able to execute on things independently end-to-end without needed to gather resources from any other team. They have clearly communicated group goals and the means for all to see the data to understand how they are performing in real-time. So when events happen like the death of a celebrity or the FAA allowing electronics to be on during the takeoff and landing of planes, they can and do act on it in minutes and can be live within a couple of hours. While most companies struggle with their corporate metabolisms to call a meeting in two hours, Amazon’s culture allows them to completely reconfigure parts of their business to react in near real time.

The nature of the game is changing so fast that waiting out the next 10 years, trying to decide how or whether to change, will leave many businesses in the dust. The future of retail is pretty clear. Most companies will not be able to compete; they won’t even be able to catch up. Will you learn to adopt the four pillars of Amazon’s success or will you be waiting for them to finish crushing you?

P.S. I see numerous ways that companies can compete with Amazon.com. If I get enough requests I will publish some of those ideas in my next column.

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