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Rethink: A Business By Ric Merrifield |
In Rethink,
Microsoft Corp. strategist Ric Merrifield discusses the common trap that
companies fall into when they focus on “how” to accomplish a certain business
task rather than on “what” they are trying to accomplish. In this excerpt, he
cites Amazon.com as one example among many companies that realize this.
Amazon began by selling all kinds of books, building trust
and familiarity among its customers. In the recession [after the dot-com bust],
Jeff Bezos could easily have fallen into the “how” trap by focusing on ways to
sell more books. Instead, he was savvy enough to recognize that his customers’
positive experiences gave him the license to bring more products and services
to their attention. By distilling what was most important to his customers,
Bezos expanded their relationship with Amazon (and its brand, which is a key
component of value) well beyond books.
The efficiency of Amazon’s warehouses finally paid off after
yet another software upgrade put Bezos in a whole new business. His superior
understanding of his rethought distribution operation allowed him to perform
the fulfill-order “what” for other merchants such as Target. The efficiency of
Amazon’s warehouses saved those companies money even after paying commissions,
and that revenue stream offset much of the interest Amazon was paying on its
huge debt.
An epiphany opened Amazon.com as an online market to all
comers, including competitors. Bezos invited purveyors of both new and used
goods to list their products for sale on his site, and listed all items in a
category on the same page whether they were new or used, from insiders or
outsiders. Same-page listings seemed suicidal to analysts. Was Bezos going to
risk his relationship with vendors by making them go head-to-head with cheaper
used goods?
But Bezos followed his instincts, knowing that his basic
customer-satisfaction metric depended not on the status of the goods, but on
providing more of what the customers wanted to buy. In the end, the idea became
a key part of Amazon’s strategy, opening up a new stream of revenue. The
outside vendors paid commissions on sales of goods that Amazon never touched,
producing almost pure profit for Bezos’ company.
Amazon was also building brand and customer loyalty by
making price comparisons easy. “Giving people the choice to buy new and used
side by side is good for customers,” Bezos said. “The data we have tell us that customers who buy used books
from us go on to buy more new books than they have ever bought before.”
The lesson here is that leaders need to be fully aware of
their own roles and contributions to their value chains, as well as to customer
and partner experiences. Bezos built up the Amazon brand first by moving beyond
books and then beyond proprietary goods, making its basic “what” a buying experience. Any established Amazon vendors
who resented the new competition had to weigh losing the Amazon business if
they left in a huff. In the end, most of them stayed.
Still another moment of illumination in 2002 produced what
became Amazon Web Services. Bezos came up with the idea of renting out parts of
his company’s complex infrastructure and expertise to smaller companies, which
happily paid for services that would cost more to develop themselves. In
effect, Amazon morphed into a digital utility by taking over some of its
customers’ “whats,” specifically, the management of some of their technology
needs, along with the physical handling of assorted goods. Amazon’s service
offerings include the rental of unused computer capacity on Amazon’s thousands
of servers, providing data storage on Amazon devices and the warehousing and
fulfillment of orders for small and large businesses.
As with the selling of its excess technological power,
renting out unneeded physical space is a boon for Amazon. Besides bringing in
extra revenue, the superb management of its warehouse and distribution “whats”
makes use of space that will probably be needed for Amazon’s own growth in the
long run but would be lying fallow if not for the outside clients.
Amazon’s Web Services extract revenue from “whats” designed
for a peak capacity that Amazon hardly ever needs. “We have this beautiful, elegant,
high-IQ part of our business that we have been working hard on for many years,”
Bezos explains. “We’ve gotten good at it. Why not make money off it another
way?” Some argue that he is passing up moneymaking opportunities by charging so
little for his services. But that, he says, is part of Amazon’s basic strategy:
“There are two kinds of companies: those that try to charge more and those that
work to charge less. We will be the second.”
Another of Amazon’s Web services, and possibly its most
intriguing, is one that uses human intelligence to perform chores computers
aren’t good at doing. Amazon Mechanical Turk (MTurk) had its origins in 2004,
when the company was trying to match photos with the entries in an online
Yellow Pages directory containing thousands of businesses. People can easily
recognize and match images, but computers can’t, so Amazon set up a Web site,
mturk.com, that pays anyone willing to sort them. The name pays ironic homage
to an 18th-century hoax, a chess-playing automaton dubbed “The Turk” that
actually had a human chess master hidden inside.
Amazon’s wages for this service were also counterintuitive:
It offered just a penny or two per photo. Surprisingly, photo sorters showed up
in droves. Since then, dozens of companies have used thousands of volunteer
“Turkers” to do HITs, or human intelligence tasks—odd jobs ranging from
transcribing podcast segments to retouching photos for websites. Turkers are
still paid a pittance for the work. Most seem to do it as a diversion, akin to
filling in crossword puzzles, and they count their wages as pin money. Critics
have carped that the billionaire Bezos has created a virtual sweatshop. But
Mitch Fernandez, a disabled former U.S. Army linguist, told The New York Times that he used Turking as a form of therapy to reintroduce him to work.
He said he could earn $100 a week by being a Turker for two hours a day and had
made $4,000 in nine months.
MTurk is a version of so-called crowd-sourcing, in which
practitioners tap the collective mind of the Web. But Bezos calls it
“artificial artificial intelligence,” and Amazon collects 10 percent of the
cost of every HIT that is successfully completed for a client. MTurk is yet
another example of how the smartest rethinkers focus on the outcome—the
“what”—making “how” it gets done a second-order question. As Bezos certainly
recognized, the best solution to the problem at hand was also the simplest and
cheapest. You can’t ask for anything better than that.
And Jeff Bezos is not finished yet. His eye is trained on
the race to build an even bigger “what,” the platform for the Web of the
future, the underlying layer of basic services supporting individual Web sites.
Says Tim O’Reilly, an Internet pundit and CEO of tech publisher O’Reilly Media,
“Jeff really understands that if he doesn’t become a platform player, he’s at
the mercy of those who do.”
Amazon’s Unbox and MP3 services already let customers
download videos and music. But its new-new thing, the Kindle electronic book
reader, is being hailed as a revolution in publishing. With Kindle, Amazon can
be said to be returning to its roots. It may also be preparing for another
incarnation.