Last year, the online distributor Amazon celebrated its 20th anniversary. However it wasn't all good news for Amazon in 2015. Amazon.com recorded a loss of $57-million (U.S.) for the first quarter ending March 31, 2015, and a $405-million loss over 12 months.
Despite this, the share price was sitting at about $466 (U.S.) at the end of 2015, up more than 50 per cent since January of the same year.
Now, how can a company record such massive losses, yet still maintain a huge trustworthy profile? The online giant has racked up cumulative sales of $408.9 billion over the last ten years, but just $1.96 billion of net income. Amazon is not necessarily a model business in terms of its ethics, (which is something else we could discuss) however in terms of a business model its strategy is phenomenal. Amazon.com reinvests the money it makes into expanding the business thereby increasing revenues to expand the business. Like an explorer on a new continent, Amazon.com is out to claim as much cyber territory as possible.
There is one key factor we must keep in our minds when discussing a company like Amazon, or indeed any company. We have to understand exactly what it is trying to do. A common mistake is to say that it is a retailer; however, this is not true. It is a distributor. You are not paying for the expertise you receive when buying a product. Often Amazon may be compared to a firm like John Lewis. However this is not a relatable comparison as when buying a product from John Lewis you are paying for the expertise which you receive as well as the product you pay for. Nobody has touched the market that Amazon is covering due to the fact that Amazon got there first and now no one can compete with it. The online distribution market is fierce but Amazon has mastered the way to combat the issues. Amazon started with one major product category: books. However, after years of evolution as a business Amazon has almost completed Jeff Bezos’ dream for Amazon to become “the everything store”. Amazon has changed the way we shop.
As a business, there is one thing that remains no matter what product you are distributing or service you are selling: customers. Customer loyalty is key; however Bezos recently said that he believes a company shouldn’t focus on its competitors, but rather on its customers. His most important lesson in service comes from the term “word of mouth.” In an interview in Wired magazine, Bezos stresses how important word of mouth is – in the physical world an unhappy customer might tell six people, but online that same customer could reach 6,000.
Amazon have no properties in expensive areas. This is a controversial topic as many people slate Amazon for their choice of where they place their storage facilities (for example, Ireland), so they can pay less tax. However they just place vast amounts of stock in a large warehouse. What is the advantage of this? It reduces costs hugely. Amazon has perfected distribution in an under promise and over deliver attitude so that it is easy for the customer, and the customer is always satisfied with the service. This is how Amazon can afford to cut prices as it has big cost savings; therefore the products become cheaper.
Now we can see that Amazon is accelerating as a company, having gone from just selling books to selling products from soup to tents to exhaust pipes. Where does this put it today. In my opinion Amazon is miles ahead of its competition. If I were to place an order today on most retailing websites, I would pay a premium price and also not expect to receive the item within the next few days. However Amazon undercut substantially on a large number of products, as well as promising fast delivery times. Amazon also “changed the game” with prime delivery. In 2005 customers could purchase prime and receive free two day delivery on unlimited items. Now even in 2016, many companies still don't offer a service like this, but Amazon has gone even better. You now get free one day delivery on unlimited items and for a small price you can pay for delivery which arrives within hours. This innovative form of selling and distributing is way ahead of its competitors.
I believe as a company, Amazon offers diversity, innovation and unbeatable execution. This is unrivalled to date and I will be very surprised if that changes for a long time to come.