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  • Writer's pictureMarcio Moerbeck

Jeff Bezos' Legacy

Jeff Bezos is stepping down as CEO of Amazon as announced last week. I will spare everybody the adulation and focus on a hypothesis I have defended ever since Amazon started operating in the late 90's.

It was never about the books...

You will hear the sentence above from many analysts. They will talk about Jeff's risk-taking ability and his capacity to see revenues where most people saw costs. While I agree with those takes, what impressed me the most about Amazon was how the company used a low risk, high margin product like books to test most of his ideas before expanding into other areas of retail...

Let me explain. In the late 90's, I worked as a sales representative at Warner Bros. Publications. Our company published sheet music, instructional DVDs, Songbooks, and other types of music related publications. I worked for Note Service Music which basically was the catalog/retail arm of the company and we sold our entire catalog over the phone. It was a solid business and I learned a lot working the phones both inbound and outbound. I also loved traveling around the country in support of key accounts like Sam Ash and Guitar Center... Anyways... I got to learn a lot about the publishing business and one thing most people don't know is that books have very high margins. Also, because of how copyrights work, competition between publishers is limited to the quality of the works published...

Amazon was one of our emerging key accounts. At that time, people still debated whether consumers were willing to share their credit card numbers online and most transactions on eBay were paid for using checks - I was a Power Seller at the time - Paypal was just starting to take off and what we know today as ecommerce was just starting to take shape. Most conversations around online traffic were around Napster and illegal file sharing and the dotcom boom of the late 90's. Ecommerce was a blip on the radar of retailers and few of them were thinking about an online strategy. Net net, nobody truly thought ecommerce would take over the world, kill small business, and threaten companies like Walmart...

Around 2000, I clearly remember a conversation I had with our online account manager about Amazon. We had a meeting to talk about high potential accounts and the AM stated his case for Amazon. Many of the other account managers made fun on him saying that Amazon would be dead, that it wasn't profitable, people would never share their credit card numbers online... silly right? well blah blah blah... The AM was frustrated and it didn't help him that Warner Bros. Publications was an old school company in an old school business... Right after the meeting, I approached and asked him about Amazon... Hey, <Joe> (not his name) what are you seeing out there with Amazon... He told me... "Marcio, these people mean serious business... best purchasing... great command of what to order/return... great inventory control... these people are going to take over the world"... These were his words, not mine and I hope he invested money on Amazon. I was just starting my career and that entire conversation made an impact on me. I had never bought anything from Amazon at the time and decided to order a book just to see how the company was managing online sales. I was impressed by the website and how simple and easy to use it was and all other things you hear about Amazon... but one thing was clear to me... This isn't about books at all!

When Bezos launched Amazon he could have picked any product to sell, but my humble opinion here is that he had a thesis around the role of ecommerce regarding personalization, web experience, UX design, etc... and he chose books as the subject of his thesis. Books were the perfect low risk, low reward business he could use to test his ideas on ecommerce and the value Amazon would deliver to its customers... for example:

Personalization - we all know Amazon invented personalized shopping experiences based on your purchase history... books are the perfect vehicle to test that feature. If you buy a vampire book, you are likely to buy other books in the same genre. Code that... and see if the hypothesis of improved conversions due to personalization is true. This is about tailoring offers to a single individual online based on their purchase history. High end retailers had been doing this for decades, bringing it to EVERY customer was an incredibly pivot.

Segmentation - Products like Prime came out of Amazon's thesis that people were willing to have a monogamous relationship with a retailer. NOBODY thought that 20 years ago. With books, I can segment readers in hundreds of micro segments and continue marketing to them pushing bundles, and other products that they are highly likely to be interested in. Some would consider that a personalization strategy. Remember segmentation groups together people with similar interests, so there are multiple cross-selling/upselling opportunities all enabled by technology. why would I buy a book somewhere else when this website is showing me content that others like me are reading. Loyalty - I am sure Bezos saw the level of loyalty Costco achieved with a membership and decided to mold the model to fit ecommerce... For those who don't remember... Prime was called Super Saver Shipping... and the issue here was always shipping. Free shipping (it's never free obviously) allowed ecommerce to blow up and they provided a subsidy to figure that out. There is a great article here about the history of Prime and it is all an evolution of how Amazon wanted to segment better and best customers using one key benefit - shipping... and now other services...

UX - Amazon's website look very familiar to most now, but back in the days its UX was very unique. As a matter of fact, I feel it led other sites to change how they present their offers because it was so successful. This isn't related to books, but they needed time to collect data and using books as a product gave them ample time before they started targeting higher growth, higher revenue businesses.

In summary, if Jeff decided to sell a more competitive product like electronics or anything else Walmart was interested in, it would have been a target of giants that would either squash them or beat them at their game diverting resources from other areas of the business to beat a competitor at their own game. However, since Jeff was busy playing with books, many people made fun of Amazon until it ate their lunch. Some may not remember, but Amazon was the ecommerce arm of Target for quite a while and it also sold toys for Toys r' Us... Target has not been the same since and well... Toys r' Us just closed its last 2 stores a few weeks ago.

Obviously, these are my impressions only and I am sure I missed many other aspects of the business here, but I wanted to highlight a unique angle I don't hear about very often.

As always - take care!




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