Bezonomics: How Amazon Is Changing Our Lives and What the World's Best Companies Are Learning from It
I started studying for CPA in my local library and realised that this library had more fresh new books, so I couldn’t resist to borrow more of them. A book on the top display shelf titled, Bezonomics: How Amazon Is Changing Our Lives and What the World's Best Companies Are Learning from It, caught my eyes so I immediately added it to the list of (so many) books to read. Surprisingly it is my first time reading a book that was written in the year that I am reading (i.e. 2020).
Anyways, after reading this book I actually felt like I know more than enough about Amazon. Bezonomics is professionally written and it deep-dives in to the company and the tech industry, which contradicts to the previous book I read (Alibaba's World) that delves more into the personal experience of the author who worked at Alibaba. From reading Bezonomics I realised that I enjoy reading more technical analysis books that I can learn from (which will prep me up to become a CFO).
As I reside in Australia and as I am not an online shopper, I honestly did not know how massive and reliable Amazon was in America and around the globe. I knew it was big but not THAT big. But on top of that, I was also shocked by the fact that Bezos came from a hedge fund background (since I am highly interested in that investment industry); And to add on to that, the fact that Amazon was a tech company from "day one", not just a Kindle store (he had a plan all along).
Since I love the US stock market (for some reason) I knew a few divisions Amazon had and projects Bezos was working on, such as:
Blue Origin (as a fan of Elon Musk, it is hard to miss out on the space exploration hype)
Alexa (thanks to media who doesn't know about Alexa, but I wouldn’t personally own one because I still think it is in the early stage of implementation; and I don’t want a stranger to listen to what is happening at my dinner table accidentally)
Amazon Go (I didn’t know the name but I surely knew about these kinds of walk-in stores without cash registers, but I didn’t know how established it was. Although, I knew China is heavily experimental with these kind of technology-based stores)
Amazon Web Service (I thought this was what was feeding Amazon itself but I didn’t know how diversified Amazon was)
Amazon Prime (there are so many ads I can’t wait to skip on Youtube about a series on Amazon Prime; I think Chris Evans was on one of the series, or may have been some other platform, but anyways now everyone has their over-the-top (OTT) platforms)
Also watching Youtube videos like this helps:
So at the end of the day, I enjoyed reading the book. I initially thought it would be a generic book where the author just briefly goes through basic stuff, such as how the company is gigantic and how AI is ruling the world blah blah, but actually no. As the chapters went on it was more extensive and explored in-depth stories behind Amazon and How Amazon Is Changing Our Lives and What the World's Best Companies Are Learning from It.
Also another thing I admired about the book was that it was not biased. Dumaine thoughtfully expanded on both positive and negative impact Amazon had on the stakeholders' lives, which helps the readers to form their own opinion.
Finally, here are some new information I have obtained from the book:
AI flywheel
The smarter the software gets, the more people it attracts; the more advertising it sells and the more resources it has to make its search engine smarter and thus attract more users. That's an AI flywheel. (p.g. 89)
This assignment highlights the power of Bezonomics and its AI flywheel, which allows Bezos to pick executives to run businesses they know little about. In 2011, he assigned Greg Hart to oversee the Alexa program even though he had no experience in voice recognition or in consumer electronics. By applying the rock-solid principles of the AI flywheel - start with the customer first, find ways to drive down costs, which frees capital to invest in more features, which attracts more customers, which allows for economies of scale to drive down costs, and so on- he made Alex a huge success. (p.g. 226)
Amazon Prime
For their $119 fee, Prime members get award-winning movies and TV shows, a music streaming service with 2 million free songs - listeners can upgrade to tens of millions of free songs for $7.99 a month, a $2 discount from what non-Prime members pay - free book downloads on Kindle, and free storage space on Amazon's cloud for family photos. Members also get discounts on groceries at Amazon-owned Whole Food stores. (p.g. 97)
One thing Prime is not is what management consultants call a breakage model. Under this strategy, a business tries to get people to sign up for a deal and not use the full value of it. All-you-can-eat buffets are one breakage model; streaming music memberships another. Gym memberships are yet another. (p.g. 99)
Here's how it works. The company assumes that if the first thing a Prime member does after signing up is watch a movie or TV show, then Prime Video was the reason the person joined Prime. (p.g. 102)
The crucial metric, however, was that the show worldwide attracted 1.15 million new Prime subscribers whose first interaction with the membership program was to watch The Man in the High Castle. Amazon spent $72 million to produce and market the series, which works out to a recruitment cost of $63 per subscriber. At the time, Prime subscribers were paying $99 a year for a Prime membership, which more than covered that cost. Perhaps most important, Prime members spend on average $1,300 a year at Amazon - almost twice as much a year as nonmembers. When viewed from that perspective, investing in The Man in the High Castle became a no-brainer. (p.g. 103)
Alexa
In China, Alibaba has its smart speaker called Tmall Genie, which is being used in cars... Tmall Genie can also be used to order and pay for things in restaurants and stores. (p.g. 117)
In other words, voice expands the number of people who can enter Amazon's world. (p.g. 121)
Amazon Go
When a customer picks a sandwich off the shelf, two things happen: the ceiling cameras track the blob grabbing the item, and, to help ensure accuracy, a sale under each shelf measures the change in weight of its items and informs the system whether, say, one and not two sandwiches have been taken. When the customers walk back out through the turnstiles, their Amazon account gets charged... On the day I visited the store, I picked a chocolate chip cookie off the shelf and walked out the door - it felt like shoplifting until I noticed later on my cell phone that $4 had been charged to my Amazon account. (p.g. 140)
In the years ahead, as automation displaces hundreds of millions of jobs, some humans will work alongside robots as "cobots" - a term to describe how humans working with robots will be more efficient than humans or robots alone. (p.g. 142)
AI (p.g. 143)
In the hotel industry, Amazon in 2018 started supplying Marriott with its Alexa-powered Echo smart speakers so guests can order a hamburger from room service, request fresh towels from housekeeping, or get a dinner recommendation - all without the help of a human. And how long before those towels get delivered to the room on a robotic cart?
For example, AI programs can now do some of the work usually reserved for first-year lawyers, bankers, writers of press releases, and, even in some cases, doctors. Stanford university researchers developed an algorithm that can diagnose chest X-rays for pneumonia better than radiologist... In 2017, Tencent's Dreamwriter, a news-writing robot, generated two thousand finance or sports-related news articles each day.
AIVA Technologies, a Luxembourg start-up, has created AI software that composes jazz, pop, and classical music that is being used in soundtracks for films, video games, and advertisements. By reading through, say, a large database of classical pieces written by Bach, Beethoven, Mozart and other greats, the software captures concepts of music theory and then composes on sheet music.
Dancing with the Devil (p.g. 146-147)
The company's critics charge that is constantly monitors which category of products is selling well on its site, and if it likes what it sees, it creates its own brand of the item to compete. (Amazon has denied that it does this.) Morgan woke up one day that year and discovered that Amazon had started selling its own travel toiletry kit for $22. Morgan's sold for $35... It cost the entrepreneur $15 to make each bag. If he sold his at $22 to match Amazon's price, his profits would disappear because he had to pay the online giant around $7 in fees for the right to sell each of his bags on Amazon.com and for the company to handle his warehousing and Prime shipping.
When Amazon offered its own line of travel cases, it featured them at the top of Morgan's product page - his most valuable real estate... To stay visible dollars to own online search terms such as "travel pouch," "toilet kits," "suitcase space saver," etc.
He also switched his strategy, trying to make up with volume what he lost to Amazon in profits. So, to buy more inventory, he borrowed $300,000 from Amazon - the company acts as a bank for tis third-party sellers, lending more than $1 billion in 2018... Then in January of 2018, Amazon's algorithm suddenly decided that Morgan was no longer credit worthy and, without notice, refused to extend his loan. It was a decision made by a machine in a black box, and it couldn't be appealed.
If Amazon gets a complaint about a seller dealing in counterfeit goods, shipping the wrong or dangerous products, or running fake review - whether the charge is true or not - the giant e-tailer suspends the seller's account until the case is resolved. "With Amazon it is you are guilty until you're proven innocent, and oftentimes that means that you are out of business," says McCabe. (p.g. 153)
Only the most successful sellers can afford great customer service from Amazon. By paying as much as $5,000 a month sellers get access to a knowledgeable customer service rep on the phone who speaks decent English and theoretically know what's going on. It's a tidy little side business for Amazon. Say the company pays one of these agents $50,000 a year, and each one on average handles twenty-five seller accounts. That's more than $1 million in revenue a year for each $50,000 agent. (p.g. 154)
Chinese hackers
One of the most common complaints is hijacking. Here a seller hacks a competitor's account and takes over its page on Amazon. It might look like the seller's page but it's not. The hackers steal the other person's web design, its images photos, and product description. The hacker controls it. When Amazon customers buy on that page, they don't know the true identity of the seller. (p.g. 156)
One European Amazon seller saw her business shrink by half when her Chinese competitors attacked her site with bots. These cyber saboteurs constantly searched with her key advertising words (for which she had paid top dollar), then clicked on her site but did not buy her product. Her rivals would also buy large numbers of her products and then return them. Amazon's ever-watchful algorithms concluded, "Hey, this seller bought these key search words and a lot of shoppers are clicking on her site but no one is buying so her product must stink." Always putting the customer first, the algorithms dropped her product down to page three of the rankings where few go to shop. "Once you're on page three," she says, "you might as well roll down the shutters and move on." (p.g. 157)
Fake reviews (p.g. 158)
Some merchants purchase fake five-star reviews for their products - there are plenty of black hat operations dwelling on Freelancer.com, Fiverr.com, and Facebook that are more than happy to serve up praise for a fee.
The most damaging fake reviews falsely charge that a competitor is selling a counterfeit product.
Then there are the review exchange clubs where sellers give reviewers free products in exchange for a write-up. Some of these reviewers are conscientious, but may are in it for the loot and get so many free products that they can't possibly properly evaluate them. Also, these reviewers ten to give only positive reviews because if they earn a reputation for negative ones, the pipeline of free products will dry up.
Even if Amazon had shut down the black hat site, Hedin says the Chinese operate on ghost accounts that just disappear and then pop up the next day under a different name. Ultimately, he decided to delist his product, but then Amazon said it would charge him for keeping the unsold inventory in its warehouses. (p.g. 159)
Delivery
To lower the cost of getting all that merchandise from producers in China, India, and elsewhere to its warehouses in the U.S. and Europe, Amazon is amassing its own fleet of container ships, jumbo cargo jets, and tractor-trailer trucks. By taking control of the packages it ships long distances, Amazon could, according to Citigroup, save $1.1 billion annually, compared to using UPS or FedEx... It's renting cargo space on container ships to handle shipments from Asia, and it says that by 2021 it will have 70 cargo jets in operation. (To put that in perspective, FedEx owns or leases 681 aircraft.)
Amazon Flex is its same-day delivery service, which operates in some ways like Uber, using independent contractors who drive their own cars and get paid by the delivery. (p.g. 172)
Self-driving vehicles
In 2016, the company earned a patent for a system that helps autonomous cars figure out which direction traffic is traveling in any particular lane to help a vehicle safely enter the proper lane.
Around the same time (early 2019), Amazon led a $530 million investment round for Aurora, a Silicon Valley self-driving vehicle start-up founded by three stars of this emerging industry: Sterling Anderson, Drew Bagnell, and Chris Urmson. Anderson ran Tesla's autopilot program, Bagnell headed the autonomy and perception team at Uber, and Urmson was the former head of Google's self-driving project, which has morphed into one of the leading self-driving car companies: Waymo. Aurora will not build cars but is developing the AI brains behind autonomous vehicles and plans to partner with retailers like Amazon and major automakers to create state-of-the art autonomous vehicles. (p.g. 175)
According to the research firm CB Insights, at least forty-six companies around the world are working on self-driving vehicle technology. The ranks include major automakers such as GM, Ford, BMW, and Audi; tech companies such as Alphabet, Baidu, Microsoft, and Cisco; Internet car services such as Uber and Didi in China; retailers such as Walmart, Kroger, and Alibaba; and a slew of start-ups like Aurora and Udelv. (p.g. 175)
One thing that's almost certain is that when autonomous vehicles do first appear in significant numbers, they'll be delivery vans. That's because carrying packages rather than human greatly reduces the risk posed by self-driving vehicles. (p.g. 176)
Amazon
In 2010, Lore and his partner capitulated and sold Quidsi to Amazon for $550 million. Looking back on the deal, Lore says that the reason he felt compelled to sell wasn't so much Amazon's fierce cost-cutting but that, once Bezos targeted his company, investors shied away from providing Quidsi with the capital it would need to sustain a long price war with the e-commerce giant. (p.g. 185)
What the company isn't good at is building a strong brand identity - who can name the brand of Amazon's chinos or its line of midcentury furniture? - and making its customers feel special. (p.g. 195)
FaceFirst's CEO, Peter Trepp, said in an eMarketer podcast that he was working with a large retailer that had found that 4 percent of its customers made up 55 percent of its revenue. (p.g. 198)
Amazon's main advantage over its rivals, though, is that it can reach people just when they're in a buying state of mind. (p.g. 221)
While Amazon controls nearly 40 percent of all online retail in the U.S., online retail only accounts for about 10 percent of all retail in the U.S. - nine out of every ten of our shopping dollars still go to brick-and-mortar stores. (p.g. 266)
Different companies
At Reader's the friendly clerks will not only walk with you to find the items you need, but also patiently give advice on the right kind of washer needed to fix a leaky faucet or the best texture of paint for kitchen cabinets and how to apply it. Although the prices at Reader's are generally slightly higher than at Home Depot or Amazon, the small store's loyal customers are willing to pay the premium for a good experience. (p.g. 149)
Here's how Stitch Fix works. Customers fill out a detailed profile - their budget, measurements, what styles, colors, and labels they like, how they plan to use the clothes, etc, - and receive a box of five pieces of clothing, shoes, or jewelry monthly, bimonthly, or quarterly. The items are handpicked by Stitch Fix's stylists, who use data they collect from customers' profiles to find clothes most likely to please. Stitch Fix charges a $20 fee for each box, which goes toward any purchases the customer makes. Clients pay for the clothing thy keep and can easily return what they don't want. (p.g. 208)
Each of the companies profiled in this chapter reflects a different critical strength. Nike, Vans, and Casper offer a remarkable in-store experience linked to a compelling online experience. WIlliams-Sonoma and Crate & Barrel provide a highly curated selection of products. Sephora and Stitch Fix and Lulus are leaders in retail technology and social media. Warby Parker profits from having a strong and clear social mission. (p.g. 213)
Financial service
The company said that it would start accepting Health Savings Account debit cards, which under U.S. federal law allow patients to use pretax dollars to pay for valid medical expenses. The significance of this move is far greater than just Amazon offering another convenience for its shoppers who want to buy a blood pressure monitor to a knee brace. Amazon is creating an all-encompassing ecosystem that not only includes shopping, media, cloud computing, and health care, but also the means to pay for all those services. Amazon, in other words, is beginning to look like a bank. (p.g. 231)
What has kept the UBI from becoming a reality is that it costs a lot... This staggering tab would have to be paid by raising taxes on the wealthy or by imposing a carbon tax, a national sales tax, or a tax on robots - or some combination of all of those. (p.g. 249)
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