Amazon: A Brave or Barmy Strategy?

Amazon reported major losses for the third quarter of 2014 again, sparking further fears in the markets about the strength of the company’s finances. Amazon has continued to plough huge amounts of money into R&D and innovation initiatives rather than register profits, but a number of recent high profile failures have led to some commentators questioning Jeff Bezos’ strategy.  His diverse and varied portfolio is becoming stretched at the seams, and it has to be questioned whether Amazon is losing it’s focus.

Jeff Bezos is facing some tough questions about the future of the company. Credits: 365thrive.com
Jeff Bezos is facing some tough questions about the future of the company. Credits: 365thrive.com

Bezos has always seen Amazon as a collection of start-ups; a company with the market capitalisation to be able to test out new ideas, and to be able to survive through a ‘hit-and-miss’ strategy where the successes cover the failures considerably. This can easily be compared to a major film producer; sure, a few films will flop, but as long as a handful of titles are blockbusters, then the company’s finances will stay sweet.

Troubling Times

However, in recent times Amazon’s ambitions have continued to grow and it is now taking on bigger bets than ever before. For example, the Amazon Fire phone was a large investment to try and break into the smartphone industry – one which is clearly heavily populated, and thus requires huge investment to make a dent in. But the phone has largely been seen as a flop, with sales so disappointing that the price was dropped from its usual £399 on the 28th January 2015 to just £99 (for one day only).

CEO Jeff Bezos proudly presents the new Fire phone. Credits: androidcentral.com
CEO Jeff Bezos proudly presents the new Fire phone. Credits: androidcentral.com

Another current focus of Amazon is the use of Drones in delivery. Whilst the technology is clearly coming-of-age in this area, a number of road blocks lie in the way. The US aviation authorities are yet to set out regulation for the commercial use of drones in the country, and this could prove a serious stumbling block with worries about surveillance in a country that holds its freedom so dearly. There is also a worry about whether there is real widespread demand for this service; in fact, for supermarkets like Walmart, we are seeing the opposite trend of more people choosing click-and-collect and moving away from home delivery so that they can choose when to collect their shopping.

Meanwhile, Amazon’s core business is also experiencing new challenges. The books business has taken a hit over the legal proceedings with Hachette, both driving customers away and losing control over pricing. Amazon’s Web Service (AWS) attracts billions in revenue, but Google and Microsoft are making significant progress at closing the gap in this service area.

Both are huge revenue generators, and any threat to these areas has to be taken extremely seriously. With the experimentation getting ever more expensive, and the core business weakening, it is not looking like the rosiest of pictures for Amazon and Jeff Bezos – currently, it is the strength of his vision that is the glue holding the organisation together. They need a blockbuster – and fast.

So, what next?

Currently, Amazon is driven too much by the desire to be at the cutting edge of consumer technology. What have they previously had real success at? Aggregating the Long Tail (see Anderson’s excellent article: http://archive.wired.com/wired/archive/12.10/tail.html) is a fundamental that Amazon should return to: the ability to offer unlimited variety to customers by creating platform with thousands of sellers under one roof. Ever since its inception, Amazon has been built on this concept of the Long Tail. But in recent times, it seems to have lost sight of this a little. By looking again at this competency and trying to reapply it to another field, Amazon can get the blockbuster they need to get back on track.

References

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