Is Amazon Breaking the First Rule of Strategy?

Anyone who has taken a business course in their life knows the first rule about strategy: the company that tries to be everything to everyone will end up being nothing to no one. The idea is that no one company has the ability to dominate every market in which they compete in. Simply speaking, each one of these industries is incredibly complex and the scale needed to become a market leader is just too much for anyone company to hope to succeed.

The problem is that someone forgot to tell Jeff Bezos.

Amazon has evolved into much more than the online retailer that acts as your one stop shop for all of your purchases. It seems the company’s goal is to get a slice of all of the action in every purchasing point of your life. Amazon is breaking all of the rules of business strategy, and might actually be succeeding.

Here is a quick run down of the major segments Amazon operates in:

  • Online purchasing hub (Amazon.com)
  • On Demand Cloud Computing (Amazon Web Services)
  • Digital Content Streaming (Amazon Prime)
  • Brick and Mortar Retail

It’s no surprise that the company’s total revenue just keeps going up - even doubling since 2010.

The company started as an online bookstore that later expanded into everyday electronics (CDs, DVDs, MP3s) in hopes of cutting out the need for retail locations. They figured that people didn’t need to see the product in person to be willing to purchase it. For a lot of these products they were right - leading to explosive growth.

If the company was founded to be an online retailer that would become your go to online market place, how does brick and mortar retail fit in? Is the company straying from its core mission?

But that’s not the point in the mind of CEO Jeff Bezos. Amazon has grown so large by fighting back against the entrenched ideals of business. Their growth was accelerated by the willingness to take risks on the insights of their management team. Amazon wisely knew that they money they would make if successful greatly outweighed the money they would lose if they failed. Take enough risks at something is point to stick - just like Amazon Prime and Amazone Web Services.

Nothing illustrates this point better than the Amazon Fire Phone. The company invested heavily in creating a smart phone that could compete with Apple and Samsung, but was unable to get a product to market that users wanted. So, the company scarpped it and moved on. The management team knew the return of dominating the smart phone market would greatly outweigh the up front cost if it failed.

Maybe the more accurate mission for the company would be one in which they push the norms for business by taking wise and caculated risks in new markets.

This brings us back to the company today. With significant investments in Amazon Prime, brick and mortar retailers, and the NFL, Jeff Bezos is not resting on his laurels. If he wants the company to continue to grow at the pace it is now, the company will have to continue to take smart risks. Amazon is fortunate to have an incredible management team, a strong balance sheet and the culture to make this happen.

If we think once again about the first rule of strategy it becomes clear that Amazon isn’t breaking it. They’re trying out new markets, seeing what works and what doesn’t. Successes are folded into the company’s operations and become the focus. Since they’re willing to cut their losses when things don’t work, they are not trying to be everything to everyone - they’re just listening to what customers want.