The Strategy of Amazon: What Is Jeff Bezos' Secret Sauce?

If you thought that Amazon is a bookstore or even an online "everything store," you would be (mostly) wrong. Amazon has moved far from its beginnings. Not only is the company revolutionizing the publishing industry through its Kindle, CreateSpace self-publishing, and used-books marketplace; many people don't know, for example, that it is now a major cloud computing platform. Beyond that, you could say that Amazon is a prime example of the "Strategic Organization": it is generating business models faster than any competitor. What is Jeff Bezos's secret?

Jeff Bezos has been known to be rough on Amazon employees, some of whom say in Brad Stone's book The Everything Store that you cannot be oversensitive if you work at Amazon. 

"Are you lazy or just incompetent?" he reportedly asked one of them. Another said Bezos told him, "Why are you wasting my life?"

But Bezos' rough style masks something much more fascinating: his company's strategy and unique approach to business model generation.

Amazon is what David C. Korten has called a “strategic organization.” Korten wrote: “The difference: A strategic organization is able to look beyond merely responding to existing circumstances or predictable opportunities.

"A strategic organization creates new opportunities, which otherwise might not occur; that is, it engages in the creation of its own future.

A strategic organization is totally unlike a traditional organization. Rather, it involves "what Ansoff et al. labeled a 'planning-learning process.'

In the strategic organization, senior managers have their work cut out for them. Why?

"The most important task of top management in a strategic organization," Korten argued, "is not the making of strategic decisions, but rather the development and maintenance of a total institutional capacity for strategic action."

The ideal is a convergence of strategic and day-to-day activities into one seamless set of actions that drive the organization forward.

All of the organization's actions, even the smallest, go through a strategic filter, nothing is done that is not strategic, and each day-to-day activity is imbued with strategic meaning. Feedback from strategic actions puts the organization on a self-correcting course to creating its own future—a future that might otherwise not occur.

Amazon is an outstanding example of the strategic organization. Forbes has called the company “the General Electric of our times” and its founder Jeff Bezos “the Jack Welch.” (Let's not forget that Welch used to be dubbed "Neutron Jack" for his at times abrasive style.)

Sure, there are other great companies in the technology space, such as Google, Apple, Facebook or Microsoft, whose greatness lies in their innovation or design.

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Amazon has long set out to be the world's most customer-centric company (see video).

But its corporate strategy goes beyond that. Amazon is the grandmaster that has systematically disrupted, taken down, and reinvented an entire industry. Witness the company’s strategic actions over the past years (as told by Venkatesh Rao in Forbes).

1. One-click shopping

2. Free shipping over $25

3. Being first to market with a meaningful and usable, but predatory, offering for self-publishers (Amazon Advantage) at a time (late 90s) when getting traditional distribution as a small or self-publisher was nearly impossible

4. Creating a used-book marketplace that made used books go from 4% of the market to something like 30% in just a few years

5. Fighting a supply-chain battle with on-demand printers, using its 24-hour shipping model as a weapon to bring print volumes to Book Surge, its in-house operation

6. Undercutting Lulu, the pioneering self-publishing operation catering to authors, with its Createspace offering, which offers authors better margins

7. Booting up the Amazon Affiliate program (which, from unverified sources, accounts for about 40% of sales)

8. Making it brain-dead simple to publish on the Kindle

9. Creating a royalty option structure for Kindle publishers (70% between $2.99 and $9.99, 35% above $9.99) that leaves you with an offer you cannot refuse for the under-$9.99 price range

10. Once the traditional supply chain had been sufficiently weakened that traditional publishers were no longer very useful, ramping up direct relationships with authors

11. Starting with an eBook experience that was as close as possible to traditional books, but pushing the envelope as fast as readers could handle, towards more flexible digital formats (blogs on the Kindle, Kindle “singles,” and with the recently announced capabilities of the Kindle format, high-quality graphics)

12. Decisively promoting a pawn (ebooks) to Queen with its book-lending model and recent offer-you-cannot-refuse for publishers who go Kindle-exclusive for at least the first 90 days (in the next year, we will likely see a shift towards an ebook-first or ebook-only strategy for many small publishers; so far, ebooks have been considered a “plus” market).

13. All the while, keeping the core shopping experience familiar, but pulling out all stops to increase conversions and same-visit sales with mechanisms ranging from book previews/searches to related-reading recommendations, and bundling recommendations.

This is far from theoretical. Many of these actions have affected me personally, as a book author and entrepreneur, over the past decade, and my life has become inextricably linked to Amazon in more ways than one.

Not only have I spent thousands of dollars and Euros on Amazon.com and Amazon.de; I make a significant portion of my income from Amazon in various regions (.com, .uk, .de, .fr, even .in and .au); I have participated in Amazon Advantage and now on the Kindle Direct Publishing (KDP) platform.

Ultimately Amazon is not in the business of selling books, or selling other things, or even publishing. Amazon is in the business of innovating business models, in dozens of different ways; Amazon Web Services (AWS), the company’s cloud computing platform, is but one of many.

The Kindle Fire was another: designed with three-moves-ahead foresight, it incorporates the recognition that the cloud provisioning end is vastly more important to control than the device itself, since the money will ultimately move to content, as the hardware turns into a commodity.

In his latest quest, Bezos demands that any customer should be able to get any product within an hour of wanting it. And Amazon is experimenting with drones to deliver products door-to-door.

Watching Amazon is like watching a chess game unfold. At any given time the company seems to choose which game to play against which opponent, and then set about winning that game. And usually the game is won before opponents fully realize it has begun.

You could say that Amazon is not offering a product in search of a business model, but a business model in search of a product. It is the strategic organization par excellence.

What do you say? What is Jeff Bezos's secret sauce? And have you witnessed other strategic organizations? I look forward to reading you on my blog:

http://thomaszweifel.blogspot.com/.

Dr. Thomas D. Zweifel is a strategy and leadership facilitator, professor and author. This article is from his latest book Strategy-In-Action: Marrying Planning, People and Performance (with co-author Ed Borey) that was just published by iHorizon.