The company was founded in 1994 by Jeff Bezos.
For the fiscal year ending 2015, the company increased revenues by 20% to $107 Billion. They also had a profitable year with net income coming in at $596 Million. This is significant as the previous year, the company showed a loss on its bottom line.
Amazon’s logo has an interesting distinction. There is an arrow that starts with the letter A and ends with the letter Z. This represents the fact the company sells every product from A to Z. Some may argue that Amazon does not carry every product, but most will agree it covers most products on the market.
In archive.org, where snapshots of a company’s website can be viewed, in 1996, it shows a fraction of the number of categories and products available. Of course, this makes sense as a company is expected to expand over time. To see this, enter Amazon.com in the search box from Archive.org and select some of the earlier dates.
How the Company Started
Jeff Bezos did not want to miss out on capitalizing on the internet trend. In 1995, he introduced to the world Amazon.com. The company started out in Bezos’ garage. Bezos initially decided on the top five categories being sold on the internet and felt the most profitable at the time was selling books. He entered into an agreement with Ingram and was able to secure selling the books at wholesale.
The move was not without its controversy and Amazon was sued by Barnes and Nobles, which was settled out of court. The suit contested Amazon’s claim of being the world’s largest bookstore. Barnes and Nobles asserted that Amazon was more of a book broker.
Bezos hit his parents up for the initial cash, knowing that there was a great chance for loss. His father didn’t even know what the internet was. But, he believed in his son and both parents agreed to give him seed money. This was in the order of a few hundred thousand dollars.
The company obtained private venture capital until the company registered for its Initial Public Offering (IPO).
Growing quickly draws attention for big players. As mentioned previously, Barnes and Nobles jumped on the chance to bring down Amazon’s efforts by suing the company. WalMart also joined in an intellectual suit when Amazon scalped several of its top brass. This suit was also settled out of court.
In the past several years, Amazon has responded to the Nexus affiliate laws, which taxes purchases of affiliates within those states, by restricting and removing affiliate partner relationships. An affiliate relationship exists when a vendor, such as Amazon, allows any person accepted into their partner program to earn commissions on sales from its partners. In many cases, the affiliates exist where there are distribution centers which states feel they have the right to tax. Amazon disagrees with this and has been fighting this for quite some time. The current solution for them is to simply ban affiliates in those states.
To this day, the company is criticized for treating employees poorly and not paying them fair wages. Claims made state that the company makes them work in harsh conditions and are penalized if they don’t meet targets.
Critics of the Fulfillment by Amazon (FBA) program state that Amazon undercuts the bestsellers. These claims state that Amazon uses data mining to find the products that do the best and then finds suppliers willing to give volume discounts then offers products at a lower price.
Why it Works
Amazon created an environment where anyone can buy just about any product whenever they want. They offer fast (and often free) shipping, and they back any purchase with a return policy. Amazon also allows third-party sellers to sell products via its Fulfillment by Amazon (FBA) program. This gives sellers the opportunity to send products to Amazon’s warehouses (located in several places) along with shipping materials. Amazon handles the selling and distribution of the products. Amazon is compensated for its efforts using a tiered model for payment.
Amazon also has an associates program (affiliate) where anyone accepted into the program can sell Amazon’s products for a commission. This widens Amazon’s reach exponentially. The commissions are paid on a tiered structure where sellers who sell more are rewarded with higher commissions.
Amazon has also given a voice to self-publishers. Before allowing them (for free) to sell on their platform, independent sellers were looked upon as the black sheep of the publishing industry. They were the brunt of jokes by the top publishing houses. Today, Amazon has leveled the playing field and made it possible for self-publishers to not only publish, but to excel on its platform. The move has made the big publishing houses scramble.
The company is not afraid to try new programs. It has several programs for customers including Amazon Prime, Kindle Unlimited, etc., all with the goal of helping customers get more out of Amazon’s products and services for less money.
Amazon is great at converting customers. When people visit Amazon, they do so with one purpose, i.e., to buy. Even if customers do not buy the original product they came to the site for, the chances of them buying something else is high.
Anyone who has been online for an extended period will know about Amazon. Even when Amazon is not advertising directly, browsers are likely to see products that are being sold with the Amazon logo. This constant reminder solidifies the brand.
As mentioned before, Amazon has an army of affiliates. Anyone who has implemented an affiliate program knows that this is a tremendous way to get sales with little effort. The effort falls on the affiliate. They provide traffic to Amazon at the affiliates’ cost.
Amazon is one of the first to offer customers the ability to rate products and services. Although the system is criticized as being rigged, it still allows customers to see if others purchasing products on Amazon were happy with their purchases.
Customers can issue a one- to five-star rating as well as leave comments on what they liked or didn’t like about products they purchased. Critics argue that competitors and people planted by the sellers taint the ratings. Amazon maintains that it works hard to keep the integrity of the system intact.
Lessons Learned by Amazon
- If you want to succeed in something, hire people who have succeeded with that same something, right? Actually, Jeff Bezos has taken an opposite approach. He hired people who have failed at other companies with initiatives he is interested in incorporating at Amazon. His feeling is that these people analyzed what they did wrong and are in a position to not let it happen again.
- Bezos is noted as stating, “We are stubborn on vision. We are flexible in details…” His resolve in making Amazon successful is unwavering to this day.
- Amazon management is not afraid to try new initiatives. Even if they don’t believe they will work, they feel it should be tried. This can be seen largely through all the new programs that are offered on Amazon.com.
- Bezos believes in not reinventing the wheel. He is very keen on what his competitors are doing and is not afraid to incorporate concepts that have worked for them. At the very least, there is something you can learn from competitors.
How Other Businesses Can Learn from This
Sacrifice profits in the short term, even if they are guaranteed. If there is an initiative that is for the long term which can bring it much greater profits, this is something always to take advantage of.
Amazon is a firm believer of reinvesting profits to grow the business.