Amazon is attacking in all directions, maintaining a strong momentum of development.
Editor's note: the writer has sold and bought goods on Amazon in a variety of ways that one person can do. He once founded an auto parts brand at Amazon, sold thousands of SKU, to Amazon and is now the founder and CEO of a startup called Stedi, which runs on Amazon Web Services, and the author has long been obsessed with Amazon's focus, so he wrote this long article to sum up his experience. He compared Amazon with Wal-Mart to understand Amazon's uniqueness from the similarities and differences between the two. And why Amazon may become an unstoppable company. Author Zack Kanter, original title What is Amazon?
The Cambrian Big Bang of SKU
The Amazon market solved a lot of problems at once. By allowing sellers to bypass gatekeepers completely, Amazon can quickly fill its unlimited shelf space with large amounts of SKU, that other retailers don't have. Moreover, Amazon can immediately provide the inventory that the seller already has in stock to eager customers, rather than slowly building up its own SKU inventory. And perhaps most importantly, it solves the problem of how to negotiate prices with the rapidly expanding SKU base. When Amazon competes with a seller for a given SKU, there are two possibilities: either Amazon negotiates the best price with the supplier and will "win" the sale, or it fails to get the best price, while another seller will win the sale, but Amazon will charge a 12-15 per cent commission and get a data point that can be used in price negotiations with the new supplier team. Of course, "losing" sales to third-party sellers still means that Amazon will retain customers.
The advent of the Internet brought about the Cambrian explosion of SKU. An increasingly connected global world means that more and more products are coming into the United States from abroad, and it is easier than ever for American companies to launch and expand new product lines. The market created by Amazon takes advantage of this trend; Amazon systematically removes the friction of sellers entering the workflow and does seemingly small things, such as removing the UPC code (a bar code for a product). This is a barrier for newer and less mature sellers. All these small changes began to increase, and Amazon became the fastest way for a company to start selling online. Customers began to associate Amazon with choice, and Amazon became the de facto storefront of the fledgling online commerce world.
As every seller registers in the Amazon market, Wal-Mart's precious supplier selection mechanism is becoming more and more like a burden. Here is an organization that optimizes for a constraint (shelf space) that is almost completely eliminated overnight. Even if Wal-Mart realized this immediately, it was a huge ship, while Amazon's SKU aggregation giant was conducting unlimited searches for customer value across the country, while Wal-Mart's fine-tuned army of retailer goalkeepers continued to conduct limited searches in the local region. The impact began to become complicated, and Amazon's e-commerce growth accelerated further.
Platform
To understand what happened after Amazon launched the market (Marketplace), you have to understand that things get very strange when you run an unlimited search on an Internet scale. When you remove the "normal" constraints imposed by the physical world, the scale becomes so large that all normal methods begin to collapse.
Wal-Mart has solved the problems of supplier management, product management and bureaucracy on an almost unfathomable scale. It designs intricate systems, adjusts incentives, and establishes a culture that focuses on small things to eliminate any possible inefficiencies. Wal-Mart solved problems that were almost impossible to solve on the scale of Wal-Mart, creating a miracle in the modern world, perhaps the pinnacle of complex coordination. At the heart of Wal-Mart is a company made up of businessmen; it is a people-oriented company, and its advantage in the market is that it sells better goods than any other company on the planet. Wal-Mart knows its customers very well, and its merchants have an influence on every product that appears on its shelves.
By contrast, Amazon shows what happens when a huge global market is freed by the Internet from previous geographical restrictions; it shows what happens when you enter a huge problem space, so that you have to bypass the human factor completely. Under the scale of Wal-Mart's shelf space, the problem can be solved barely through a well-constructed system, but it is impossible to solve when the shelf space extends to infinity. Amazon must find a way to completely abdicate its responsibility for solving these problems; through the market, Amazon has begun to master a solution.
After removing supplier bottlenecks, Amazon found the next constraint to fill its theoretically unlimited shelf space: computing power and data storage. To Bezos's shock, he found that Amazon's software engineers had to wait weeks to get technical resources such as servers and storage. They are not limited by the speed of writing code, but by the speed with which it can be deployed to Amazon's infrastructure, so while trying to significantly simplify and improve the code base (in Amazon's decade of doing business, the code base has evolved into a mass of "spaghetti"), Amazon has begun to build a platform that allows its software engineers to provide resources immediately on demand. As a radical move, the platform (Amazon's own technology infrastructure) will also be made available to outside developers, known as Amazon Web Services (AWS).
Another constraint also emerged at the same time, this time on the customer-oriented side. Amazon has virtually failed to keep up with the theoretical pace of innovation brought about by its explosive SKU catalog. In other words, Amazon cannot develop features on its website fast enough to take advantage of all the marketing opportunities offered by its products. This became apparent as other sites (run by independent third-party members of the Amazon Alliance Marketing Program) began "scraping" Amazon's catalog to emerge new products and track price changes. and provide all the other features that Amazon itself does not provide. In other words, Amazon is not limited by demand (traffic) or supply (SKU choice), it is limited by the conversion rate and average order value that can be achieved by its current directory function.
Amazon needs to implement new catalog functions faster internally, and it will also benefit by allowing external innovation using the same toolkit. In a similar radical move, Bezos decided to expose Amazon's entire product catalog through the application program interface (API), so that any software developer, internal or external, can programmatically access Amazon's catalog and, within a reasonable range, use SKU data as the developer sees fit.
So, around 2002, we began to see the emergence of a pattern: 1. Amazon has encountered a bottleneck in growth, 2. It has identified some internal processes or resources as bottlenecks, 3. It has realized that it is impossible to develop and deploy sufficient resources internally to eliminate this bottleneck, 4. So instead, it creates an interface to eliminate bottlenecks and allow the wider market to solve the problem collectively. This model has emerged in terms of supplier selection (Amazon market), technology infrastructure (Amazon Web Services, or AWS), and merchandise sales (Amazon's catalog API).
Amazon is becoming a platform; that is, it provides aggregation of resources through a series of interfaces. In the case of the Amazon market, resources are the needs of customers, and the interface is a portal called seller Center, which allows sellers to list goods in Amazon's catalog and process the resulting orders. For AWS and merchandise catalogue, the resources are computing power and profitable e-commerce catalogue respectively, while the interface is the corresponding web portal and API (application program interface), which can be accessed by software developers through programs.
The emergence of the platform is a need for unconstrained search on the scale of the Internet. A company like Wal-Mart, although huge in terms of revenue, can operate as a single unit, that is, a tightly coupled set of internally oriented resources because it deals with a limited problem space. Wal-Mart's problem space (100000 SKU and 100000 square feet) is limited in most cases, and Wal-Mart can solve its own problems internally through enough effort and innovation. It can manage the choice of suppliers, it can provide goods for its own catalog, and it can manage and mitigate the growth of its own bureaucracy.
There is one obvious exception: Wal-Mart's purchase orders are so large that it can no longer manage the procurement process on its own. To solve this problem, Wal-Mart established Retail link
(perhaps Wal-Mart's first platform) exposes its procurement "resources" to the outside world. Retail Link provides Wal-Mart's suppliers with more tools to manage purchase orders, reducing the burden on Wal-Mart itself.
Wal-Mart has also begun to share its inventory data with major suppliers. The problem of coordinating Wal-Mart's inventory has become too big for Wal-Mart to solve on its own. By sharing its inventory levels and internal forecasts with suppliers, and by providing its internal figures to the outside world, Wal-Mart can take advantage of the wisdom of the broader "market" (suppliers) to achieve better results than it can achieve on an isolated island.
Like Amazon's platforms, Wal-Mart built Retail Link out of sheer necessity; without it, the procurement process would still be a constraint on Wal-Mart's development. The difference is that Amazon has encountered these problems everywhere and implemented platform solutions because of its unconstrained shelf space.
Exclusive customer
It is worth noting that there is a key difference between Wal-Mart's Retail Link platform and the platform that Amazon began to develop in the early 21st century: forced to compete.
The supplier has no choice but to use Retail Link;. The supplier is the "captive customer" of the Retail Link service. The problem with having exclusive customers is that due to the lack of external competitive pressure, a service will inevitably begin to deteriorate over time. The service provider is excluded from the feedback loop because: 1. If there are sufficient market forces, it is impossible for the supplier to stop using the service; 2. Service providers themselves do not experience the pain of using their own services. The typical example here is the DMV; although the DMV is technically a platform (meaning it makes government resources available to external "customers"), its customers cannot get services elsewhere and the DMV does not experience the pain of interacting with itself, so the DMV will at best be at a standstill.
The DMV is an extreme example, and I'm not saying that there are any similarities between using Retail Link and going to the DMV. The point is that when a service has exclusive customers, it will inevitably decline compared with other services on the market.
Amazon's risk is to become an exclusive customer of its own technical services group. With AWS, Amazon has finally found an elegant solution: it will open the platform to external customers rather than just building an internal platform so that its software engineers can requisition resources on demand. Amazon has built a strong culture of customer obsession; AWS can almost guarantee continuous improvement and innovation in any customer-oriented product. Amazon will simply use the exact same tools and products that its customers use to get exactly the same benefits as their customers. In other words, Amazon will be one of AWS's many customers, solving its own technical bottlenecks once and for all without the typical pitfalls of vertical integration. An increase in a huge, high-margin revenue stream would be a good side benefit worth $30 billion.
When examples of these same models, markets, AWS and catalogs, emerged around 2002, Jeff Bezos had his most important insight: in a world with unlimited shelf space (and the platforms that fill them), Amazon's growth will not be limited by its website traffic, or its ability to fulfill orders, or the number of SKU that can be sold; it will be its own bureaucracy. As Walter Kelly said, "We have met the enemy, and it is us." In order to thrive on the "Internet scale", Amazon needs to open itself to the feedback loop of the outside world in every way. At all costs, Amazon will have to be one of many customers for each of its internal services.
So, as Steve Yeager (Steve Yegge), a former Amazon engineer, said, Jeff Bezos issued a decree: 1. All teams will expose their data and functions through interfaces in the future, 2. Teams must communicate through these interfaces, 3. All interfaces, without exception, must be designed from scratch to be made available to external developers, 4. Those who do not do so will be fired.
This principle, this approach, this model, enables Amazon to eventually become a complex maze without collapsing because of its own weight, effectively protecting itself from bloated and bureaucratic influences, which would inevitably be a drag on the growth of any large company.
Translator: Ti Kewei