The Secret to Amazon’s Success
Amazon.com (Nasdaq: AMZN, Rated “C+”) has invested $270 billion in the United States and employs nearly 1 million Americans.
And still the company is under attack in Washington?
What’s happening to the company is unfair and unjust.
I recommend reading Jeff Bezos’ opening statement to the U.S. House Judiciary Committee. It tells the story of an entrepreneur who, against all odds, built a big business customers love.
It’s an American success story lawmakers want to tear asunder for cheap political points.
The practice is dangerous, and dumb. And it will not work.
Bezos’ story is the kind of American dream story Hollywood producers make up. He was born to a 17-year-old single mother in Albuquerque, N.M., who later married Miguel Bezos, a Cuban immigrant who landed in the United States alone as 16-year-old refugee under Operation Pedro Pan.
When Jeff Bezos started Amazon.com in 1994 after graduating from Princeton and a short career on Wall Street, his parents lent most of the startup money. They didn’t know anything about the internet or the mechanics of online bookstores.
They were investing in their son, even though he told them there was an 70% chance of the project would fail.
For a long time, failure seemed assured. The company lost $3 billion before turning its first operational profit in 2001. Barrons, the popular investing newspaper, back then called the online bookstore “Amazon.bomb.” But Bezos and Amazon.com managers persevered. They continued to take big chances, looking for new businesses.
Some of these bets yielded spectacular successes: The company started Amazon Web Services (AWS) to sell on-demand, pay-as-you-go cloud computer processing and data storage.
In his statement, Bezos points out that nobody asked for this service. Most of the enterprise world in 2005 was happy with their stacks of Dell servers and EMC data storage contracts. AWS was a revelation. It changed the game.
To move the needle, companies need to innovate. To stay on stop, they need to make experimentation a part of their culture.
Amazon.com does this in spades, to the direct benefit of customers.
Trying to stay one step ahead forces company managers to add new features, benefits and products before customers ask for them.
Amazon Prime, a subscription service that gives members faster shipping, free video and music streaming services, and access to special sales ahead of everyone else, is a great example of this constant innovation.
The customer relationship is a big deal at Amazon.com. Keeping them happy makes everything work. So, Bezos obsesses over customer satisfaction. Even when they don’t know what they want, he says, they always want something better.
This was the driving force behind Amazon Prime. Through December 2019, Amazon.com had 112 million Prime members in the United States, up from 95 million a year earlier. That equates to 59% of American households, according to research from Digital Commerce 360.
The best part is Prime members are continuously paying customers. In addition to the $12.99 monthly fee, these members spend an average of $1,600 on purchases, about 2.5 times what non-Prime members dole out.
More important, they love Amazon.com.
The company has consistently scored above 80% on the American Consumer Satisfaction index. In terms of trust to do the right thing, only family doctors and the military score higher. And the good grades cut across the partisan divide.
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Among Republicans, Amazon.com scores just below the military and police. For Democrats, the company tops everything, including government, universities and the press.
That’s why the House Judiciary teleconference was so depressing. Amazon.com is a great American business built the right way from the ground up. It’s successful because its customers like the products and services it offers.
It’s easy for politicians to vilify big businesses and rich CEOs like Bezos. They’re looking for a scapegoat for their failures.
A record 69% of Americans think the country is on the wrong track. But I’ll go out on a limb, that is not because they’re miffed with their Prime accounts.
Despite the government harassment, Amazon will continue to thrive and investors should consider buying on any significant pullback.
Jon D. Markman