3MinSB

By Sachit Bhat

3MinSB - Issue #35: Amazon

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3MinSB

October 22 · Issue #35 · View online

Thoughts on life and the everyday.


Hello world and welcome back!
I posed a question a while back: if an alien were to visit earth, where would you take it and what view would you show to best depict our planet? Of course, answers vary greatly based on personal experiences and understanding of the world.
While writing this intro on Amazon, a similar question came to mind - if an alien showed up and asked for you to describe Amazon in just a few words, how could you? Again, I’m sure answers take on particular perspectives and keywords based on experiences and use cases. With business lines spread across retail, grocery, cloud computing, home services, digital content, and space exploration, where can one even begin? What is Amazon?
I recently read an article by Zack Kanter that tackles this question, and I found the explanation thorough and contextual. I’ve tried to summarize the points along with my thoughts below, but when you get a chance, do read the full post here.
The concept of Amazon has evolved over the years, but its disruption in a relatively steady retail market has altered the nature of business and standard business models. The company has diversified itself and experimented with ventures entirely outside its domain, yet realizes the value of asymmetric bets with the opportunity for great success. (or failure, like the Fire phone). As Bezos has mentioned time and time again,
If you know it’s going to work, it’s not an experiment
Amazon’s successes are often predicated on the ‘gaps’ of Walmart, and it’s easy to dismiss the countless innovations and calculations that turned Walmart into the retail juggernaut it is. The core premise behind Walmart was simple yet far-reaching: provide a ‘wide assortment of high quality merchandise at the lowest possible prices.’ Behind the scenes, the merchandising efforts and network of suppliers enabled distribution at scale, tied together by a POS system that measured inventory levels and sales. The relative simplicity of the system allowed for durability, yet inflated even the most minor of tracking or stocking errors. The physical nature of retail stores created for high opportunity costs in any product decision. The stocking of one brand over another could be detrimental if the demand was not properly determined - essentially, an ever-evolving game of optimization.
Walmart excelled in identifying and maintaining high quality suppliers who could absorb the needs at the scale which Walmart operated. Yet the continual filtering process could not be readily automated. A need for high quality goods at an acceptable price and sweeping scale required constant work and innovations.
Kanter compares the Walmart operation to the watchmaker analogy - the relative straightforwardness of each individual store hides the meticulous crafting and backend design that allows for such an intuitive store experience.
Unfortunately for Walmart, and as Bezos accurately predicted, the internet was the future. While retail was limited to shelf space, the internet had no bounds, and no marginal costs of additional ‘shelfing’. The internet shifted the focus from quality to quantity through an unbound search of selection. The lack of quantity restrictions drastically lowered the bar for vendor selection that Walmart so heavily relied on. The Amazon bottleneck was the literal process of determining pricing and volume for the millions of vendors capable of selling online. 
Enter Amazon marketplace, a perfectly competitive online market under the watchful eye of Amazon, scouting for any potential leads and product trends. Amazon focused on creating a seamless onboarding process for new sellers, removing the friction of creating an online brand and a ‘store’ with existing customers and prospects. As Kanter states:
Walmart had solved problems of vendor management, product management, and bureaucracy at an almost unfathomable scale. It engineered intricate systems, aligned incentives, and built a culture of thinking small to stamp out inefficiencies wherever it could find them. Walmart solved problems that were almost impossible to solve at Walmart’s scale, creating a wonder of the modern world, perhaps the pinnacle of what is possible with complex coordination. And Walmart, at its heart, is a company of merchants; it is a human-powered company, and its advantage in the marketplace is that it merchandises better than any other company on the planet. Walmart understands its customers extraordinarily well, and its merchants play a hand in every product that shows up in its aisles.
Amazon, by contrast, is an illustration of what happens when a massive global market is freed by the internet from the geographical constraints that previously kept it manageable; it is an illustration of what happens when you enter a problem space so large that you have to bypass the human element altogether. What was just barely solvable with carefully-built systems at Walmart’s scale of shelf space would have been impossible to solve with shelf space that stretched on to infinity. Amazon had to find a way of abdicating responsibility for solving these problems altogether; with Marketplace, Amazon had begun to grasp at a solution that would do exactly that.
In a matter of a few years, the beautifully orchestrated merchandising algorithm perfected by Walmart had been shattered. Amazon discovered its opportunity and immediately began working to not just optimize the infinite shelf marketplace, but all dependent resources that could hinder its growth and flexibility: A server infrastructure for storage and computing as well as an interface for developers to access order metrics and the product catalog. While Amazon’s product was still the marketplace, Bezos realized the opportunity to turn that platform into a platform of platforms, giving developers the ability to use the data and the resources through an accessible interface.
This is not entirely uncommon for many digital applications - once the technology is developed, the functionality and data is opened up to the public to build around and on top of, further increasing the value of the ‘primitive platform.’ Internal resources are opened up to the external audience, and the speed at which problems can be solved is now at the hands of the company and its loyal community, building alongside with them. The more that a resource is opened to the public, the greater the pressure to maintain and develop from the inside out. Think venture firms and hedge funds - the mix of external money as well as internal funds create a sort of added need for returns, both for the company and the clients they serve. At the unbounded scale at which the internet operated, Amazon removed itself from the bounding constraint. Each obstacle they encountered was effectively transformed into a platform with an interface to interact with.
While most aspects of the business are bolstered by an platform approach, problems arise when it is applied to unaligned elements like Advertising. Unlike Walmart, who stocked shelves based on demand and sales, Amazon had to determine an algorithm to fit and properly rank the millions of products in its market into one web page, dynamically sorted for each user. Amazon relies on a complex algorithm to rank the items, primarily based around relevancy and conversion, as well as other parameters and data points. Can learn more about the algorithm here.
Similar to all other problems faced, Amazon turned their advertising model into a platform, allowing for sellers to promote their goods through sponsored ads. Though already a common tactic among most content serving companies (Google’s sponsored results in search, FB’s sponsored marketplace placements), it often does not solve the root problem of bettering the wellbeing and improving the customer experience. Kanter notes: 
 This isn’t “just” search results; search results are the entire driver of Amazon’s retail engine. Remember that in the world of infinite shelf space, the ranking algorithm is practically the entire merchandising strategy.
The problem has only recently begun to plague Amazon, yet has critically undermined the core service of other social platforms. The strengths and weaknesses of platform economy lie in its flexibility and adaptability. Facebook saw their site evolve into a platform of bad actors and misinformation. Uber underwent scandals and passenger abuse. And Amazon may soon realize the stacked risks of opening up their entire ecosystem as a platform for the public to play on.
Amazon is well known for their customer-centric approach to all product development, and interviewees are grilled on all of the 14 Leadership Principles. Yet as a platform of platforms, the risk of the misuse and unseen consequences can quickly take hold, and Amazon may lose some of the control and authority once established. 
Round 35!

What I'm Watching
The Haunting of Bly Manor. I watched (and loved) the Haunting of Hill House a few years back and director Mike Flanagan came back with another iteration to the chilling series.
The Haunting of Bly Manor | Official Trailer | Netflix
Law That's Interested Me
Miller’s Law. I’m currently reading the Sacred Seven, a product management book that dives into case studies revealing various aspects of the product development lifecycle. I’m currently on the ‘User Interface’ section, and the law is applied as a general metric of only adding 5-9 pieces of content on any one page at a time.
The law states that the human brain can only hold, on average, seven +- two items in our working memory at a time. Encourage you to read through the rest of the laws listed here as well. Lots of familiar applications in everyday apps.
Miller’s Law | Laws of UX
What I'm Drinking
Burnt Orange Whiskey Sour, Bourbon Slush, something called the Zombie??
Narwhal’s in Saint Louis if you ever visit!
Thank you all for reading! Until next week.
-SB
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