Amazon is one company that has gone above and beyond in setting business records and expressing influence and dominance in both strategy and result. Top among its achievements is a steadily progressive increase in net sales revenue since 2004 (calculated as gross revenue minus all expenses), with the retail giant generating a whopping $514 billion in 2022 after recording $469 billion in 2021 and $386 billion in 2020 - when the pandemic grinded many other businesses to a halt.

In terms of business expansion, Amazon is equally an epitome of success. It started out as a simple bookstore company but today, it owns Alexa, Amazon Web Services, Amazon Prime and a variety of other products that serve shoppers, sellers, content creators, and even developers from around the world. Consequent to its expansion into new markets, data from Stock Analysis reveals that even after letting off 80,000 employees, Amazon still had an impressive 1.4 million plus people driving its mission as of June 30, 2023.

The Rise of Amazon

Amazon Business Model by Business Strategy Hub

Amazon is a household name that brings the idea of wild success, staggering business ingenuity, and plain old resilience to mind. As of today, the company represents the largest-ever retail and e-commerce business in history. It all began in 1995, in the garage of founder and former CEO, Jeff Bezos. Amazon was - at the time - a simple bookstore idea by a computer company that just seemed to be taking too many risks and doing nothing more than trying to reinvent the wheel. 

First, the company was still only growing when speculations of the dot com bubble crash erupted, with an actual crash accompanying it. Secondly, the risks of its business model were striking - for example, relying on third parties (book warehouses or manufacturers and delivery services) to help complete its bookselling process. Thirdly, Amazon was testing uncharted waters and it invested so much in doing so, meaning that the chance of failure was considerably high and that any form of failure would result in a huge loss of investment.  

Bezos clearly saw the signs. In fact, BBC remembers him saying, “when we first started selling books four years ago, everybody said, 'Look, you're just computer guys and you don't know anything about selling books.' And that was true.” So how did the entrepreneur take his Amazon business from newbies to being all-time pro? 

The answer is that he developed a customer-obsessive approach. Bezos famously quoted that “if we can keep our competitors focused on us while we stay focused on our customers, ultimately we’ll turn out all right.” Clearly, this is one strategy responsible for turning the Amazon retail service into a hub for first-person and third-person (3p) sellers. 

In addition, Bezos created an environment that welcomed failure, allowing his company to always pick the pieces and put it back together. The retail company had a humble beginning, was directly affected by the dot com bubble crash, came up with multiple failed products, and went through the 2009 global recession. Remarkably, it is still standing strong, and a good guess will point to its subtly resilience towards failure. 

How Amazon Overtook Brick-and-Mortar Stores 

For every business, having big dreams is not the deal, instead, sorting out the real-world challenges behind them is. Amazon had its fair share of this by simply trying to sell books online. Amazon’s online book-selling experience was nothing close to the norm. As you can imagine, this meant that something had to change - and it was either going to be Jeff Bezos’ way of selling books or the public’s idea about buying books outside a brick-and-mortar store. Bezos was sure to make sure that it was the public’s view that changed. 

He initiated a supply chain system to connect his company, large-scale book wholesalers and some proven delivery services. The arrangement had the online bookstore company doing the advertising, and once a customer placed an order, Amazon pushed that through to a large wholesaler who delivered the book to them. They would then process the book, package it, and send it off through their delivery partner.

Now;

• Compared to the more popular brick-and-mortar bookstores, Amazon’s online bookselling mechanism meant that it didn’t have to worry about shelf spaces since it didn’t store books at all. All ordered purchases simply came from a bookstore warehouse somewhere, passed through Amazon’s office and headed over to delivery services that waybilled them to a buyer. 
• What worked even more, perhaps, was the fact that the company had access to several different varieties of books thanks to its very resourceful suppliers. A brick-and-mortar bookstore fell short on this since the only books it ‘really’ had for sale were the ones physically available on its shelf. 
• Lastly, as the business continued to grow, Amazon switched into acquiring warehouses of its own. This new model of operation significantly reduced the delivery time for orders that originated in or around one of its warehouses or Amazon fulfilment centres as they are called. As of January 2022, the retail company reportedly had over 1,137 distribution centres of various types. It also had plans to open 331 more in order to reach deeply remote areas.

These actions were well implemented and intended to position Amazon ahead of brick-and-mortar stores. All we can say looking back now is that they worked tremendously. 

Challenges: How Amazon Survived the Dot Com Bubble Burst

Amazon's founder and former CEO Jeff Bezos has faced some peculiar challenges in building his company, especially in an era when e-commerce was still a very new concept and people preferred brick-and-mortar stores. But while we have talked much about how the company competed against regular bookstores, we haven’t just pointed out the extent of the dot com bubble crash which nearly destroyed it.   

The dot com bubble refers to the time (between 1997 and March 2000) when internet-based companies (specifically startups that had “.com” in their website address) experienced a rapid and lasting surge in investments. Brokerage houses, venture capitalists and investment banks existing at the time were all responsible for this. Even though it was only speculative, the hype around dotcoms turned out to be huge and very effective. It gave companies like Amazon a serious boost and it even drove the Nasdaq stock from below $1000 to more than $5000 in just around five years. 

But the good times were not going to last. In the year 2000, the investments began slowing down. By March that same year, dotcoms had reached new lows that most of them were forced to liquidate. The liquidation of some dotcoms led to lesser investments in the sector which led to more liquidation among dotcoms. At that point, the dotcom bubble burst was in full swing. 

What saved Amazon from disappearing (like some big names did) when the dotcom bubble erupted was its strategic move to sell converted bonds: in January 1999 and again in February 2000 - providing it with just enough funds to survive the dotcom burst through investments in other online companies and operations in entirely new markets. 

The Hard Lessons Distilled from Amazon’s Experience 

Here are 5 practical lessons that any other business can apply to achieve the level of success we have seen with Amazon. 

1. Failed Attempts are Good In their Own Rights:

We totally understand why business owners detest failures. First, it demoralises them enough to question their ideas or the quality of their decisions and moreover, certain business failures lead to outright death. But failures are also good in their own rights. They allow businesses to innovate, test options, and regulate decisions. Amazon itself has a long list of failed services and products. They include the A9 search, Amazon Auctions, Destinations, Restaurants, Wallet, its smartphone product which was called Fire Phone, and many more. 

The extent of Fire Phone’s market failure was so huge that Amazon moved the price down from $200 to $99, but buyers still didn’t purchase it. In another instance, Amazon boss Jeff Bezos is famously quoted as saying that the company came down, at some point, to be “the best place in the world to fail.”  Each of these failures probably shook Amazon. Nevertheless, the company had set up a culture that warmly embraces failures so all they did was to learn a lesson or two (from each failed product) and move on to try something new. 

2. Customer First, Literally:

Amazon portrays itself as a brand that speaks and breathes customers. They even have a mission statement that reads, “to be Earth’s most customer-centric company.” But guess what? Beyond just saying it, Amazon really proves to be what it claims. The company has a solid record of facilitating impressive customer experiences with their products and services, and impeccable customer service.  

The truth is that Amazon’s approach works. Their products and services may not always satisfy a customer, but their resolve to quickly identify and troubleshoot problems stands them out. 

3. Set Up for Recurring Revenue:

Recurring revenue identifies sources of business revenue that are stable and reliable, in the sense that they are bound to exist long into the future of the company. Businesses have good options around creating such revenue. One of the most popular is through subscription-based services and particularly, auto-renewals. Amazon has perfected its game in the subscription business. What it does is to first understand the food and home goods (also thought of as essential products) preferences of users. Next, it entices these users with the idea of getting a discount when they subscribe to purchasing these products regularly. 

Another option for achieving recurring revenue is through binding long-term contracts (where a business agrees to provide service to customers over a set period of months or years and, in turn, customers are obligated to make payments). Cell phone companies like AT&T, Sprint, and T-mobile typically make use of such contracts to give customers a phone with monthly data, call, and text allowance.  

Thirdly, growing a solid customer base works for recurring revenue as businesses are guaranteed the sales of one or all of their products or services. Beverage companies have a good ground here since their products are in high demand across large demographics of consumers. Similarly, Amazon is in the league of companies reaping these benefits thanks to its customer building efforts and large variety of appealing and affordable products. 

4. Find Out About Your Customers:

Companies like Amazon succeed by striving to know a thing or two about the people interested in their products. The giant retail finds out what they can about individual customers, monitoring the patterns they create in a sales funnel, tracking their website or product usage data, and performing other general analytics. 

With this information, Amazon works to build a personalised customer experience. They offer product recommendations (based on similar products the customer seems to be interested in), show past purchases (to reignite the customer’s interest), and even go on to reveal what products are usually purchased in groups. 

The result has been super amazing. By this, we mean a reported 29% increase in sales since Amazon began using its Recommendation engine, and a 35% revenue representation from the unique approach. 

5. Measure and Reiterate:

Jeff Bezos, Amazon’s founder, strongly believes in innovativeness from measuring and reiterating experiments. Thankfully, modern day technologies allow businesses to conduct a wide range of analysis both quickly and cheaply or at no cost at all. Like Amazon did with testing its free shipping, recommendation engine, and many more ideas, any startup can grow to great lengths by embracing the culture of measuring insights and reiterating its steps. 

Final Note

Successfully selling books on demand introduced Amazon to a hack that has worked for a long time. It is that business customers knowingly or unknowingly create trends and exhibit changes in their behaviours or preferences, and all it takes to sell right is to identify and adjust to data obtained about this. 

The usefulness of customer data is one of many things we’ve come to learn from Jeff Bezos’ behemoth company Amazon. And by reading through this article, we bet you’ve found more interesting things about the giant retail, Amazon, and also even gotten a few ideas for your own small business. While you think about panning them out, you can visit our blog for some more interesting articles.

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