Amazon uses data as an input to get closer to its self-imposed goal of being a user-centric company. Top down, rather than bottom up, Amazon more closely resembles a ‘traditional company’ than the more decentralized Google. It moves more deliberately and has executed its strategy with remarkable consistency since alighting on the opportunity of internet commerce. Through a tight focus and years of investment in infrastructure, it has built up a remarkable position. Although retailing is Amazon’s day job, its real business is customer satisfaction.
There are many barriers to delivering great customer service online – customers can’t visit stores, see and touch the products, or interact with sales people. The key to delivering great service online was, paradoxically, using more, not less, technology. Amazon founder Jeff Bezos noted, ‘In the physical world, retailers will continue to use technology to reduce costs, but not to transform the customer experience. We too will use technology to reduce costs, but the bigger effect will be using technology to drive adoption and revenue.’ To construct a product detail page for a customer, the Amazon software ‘calls on between 200 and 300 services to present a highly personalized experience for that customer.’
Instead of attempting to replicate traditional sales experiences, Amazon simply created new ways to communicate and in so doing also exposed the weaknesses of traditional retail – for example by championing the concept of outsourcing the reviewing role to customers, Amazon managed to lower staff costs and increase service quality.
From the start Amazon has been able to avoid the physical limitations of shop shelf space and has operated a network of suppliers working as virtual storerooms. This model has been expanded with Fulfillment By Amazon (FBA), which allows third parties to advertise their inventory with Amazon, and utilize the same infrastructure such as customer service and shipping. On top of this, Amazon’s pioneering use of customer reviews and recommendation algorithms has made navigation and selection considerably easier than in a physical store. As a result 30% of the products now sold on the Amazon website are from third parties.
Amazon’s success as a customer-centric company is testimony to its single minded pursuit, against many obstacles, of great customer service. The company now accounts for a third of US e-commerce and is growing twice as fast as online commerce in general. It has also been growing fast internationally: almost half its revenues now come from international sales.
While moving first from books to music and then to other online retailing activities can be all considered incremental innovation, the Amazon Web Services (AWS) businesses and the Kindle are what Amazon call “clean sheet” innovation, entirely different industries – enterprise services and consumer technology hardware, respectively. Traditional retailers, booksellers in particular, were disrupted by Amazon’s online efficiencies; it seems that likely that this retail engine will also disrupt other outlets.