Amazon’s Strategy for 2022, as Seen in 2018

2024-03-31

Michiaki Tanaka’s book appeared in Korean in June 2018. It looks at what Amazon had done up to that point and asks what those choices might reveal about the future the company was preparing for.

Amazon’s retail presence has felt different in South Korea from the way it feels in the United States or Japan. The book’s examples, including cashierless stores and drone delivery, show how far the company was willing to move beyond its original business.

How Amazon reached South Korea

Even where Amazon is less visible as a retailer, its cloud division gives it a foothold. AWS became an important source of revenue and profit for the company.

Korean shoppers have also been able to buy Amazon products through a partnership with 11st. That route is different from shopping through a full local Amazon site such as Amazon Japan.

At The Hyundai Seoul in Yeouido, I wanted to try a cashierless shop similar in concept to Amazon Go. There was always a line when I visited. A shop designed to do without a cashier still needed someone to manage the crowd.

Amazon and Jeff Bezos

Jeff Bezos founded Amazon and made customer focus central to its identity. Accounts of its internal culture have also drawn attention to the demands it places on employees.

For one account from inside the company, Park Jung-joon wrote about his twelve years there in I Worked in the Future at Amazon.

Tanaka presents Bezos as a founder whose thinking can seem almost alien. It is difficult to tell where temperament ends and the habits required to build a company of that scale begin.

Reading Amazon’s corporate strategy

From a vantage point in 2018, Tanaka asks what Amazon’s past choices could tell him about the businesses it might be running by 2022.

One concept he draws on is segmentation: grouping customers by shared traits or behavior so their needs can be understood more clearly.

Tanaka extends the logic to the company itself. A large business can be divided into smaller units that have distinct jobs and can make some of their own decisions.

The two-pizza rule

The Innovator’s DNA, co-written by Jeff Dyer, Hal Gregersen, and Clayton Christensen, discusses this rule of thumb for team size.

A team should be small enough for two pizzas to feed it. The image suggests a handful of people who can keep track of what everyone else is doing.

The point is to give people room to make decisions and responsibility for the ideas they pursue.

Of course, the calculation probably assumes two large American pizzas.

Amazon through The Art of War

Tanaka’s distinctive move is to analyze Amazon through five considerations in Sun Tzu: the Way, Heaven, Earth, command, and method.

Here is the book’s outline of the comparison.

  1. The Way: strategic purpose
    1. Mission and vision: put the customer first
    2. Financial objective: maximize long-term free cash flow
  2. Heaven: timing and the value of time
    1. Build businesses around saving people time
    2. Long and short timescales
    3. The economics of speed
    4. Speeding up processes
    5. Using time more efficiently
    6. Synchronous and asynchronous work
    7. Making a business out of low-demand products
  3. Earth: territory and the value of space
    1. Build businesses around how space is used
    2. The physical and online worlds
    3. Amazon and Amazon Web Services
    4. Economies of scale and scope
    5. Scalability
    6. Cybersecurity
    7. Sharing
    8. From retail, logistics, and technology to Bezos’s separate venture in space
  4. Command: leadership
    1. Bezos’s leadership as a founder with a long-term vision
    2. Employees taking responsibility for decisions
    3. Amazon’s 14 leadership principles at the time
    4. Using data and conviction together
  5. Method: management
    1. Platforms and ecosystems
    2. A business model drawn on a napkin
    3. The Day 1 philosophy
    4. Operating with thin margins
    5. A long horizon and rapid cycles of planning, action, review, and adjustment

Five areas where time and space meet

  1. Amazon Echo as the device in the room
  2. Alexa skills as software and content
  3. Alexa as a platform for voice AI
  4. Purchases, voices, and images as sources of data
  5. The value of the user experience

Amazon’s flywheel

The book’s central image is Amazon’s flywheel, the model often described as having been sketched on a napkin.

More selection attracts visitors. A better customer experience brings more traffic, which makes the marketplace attractive to more sellers. Greater scale can reduce unit costs and support lower prices, drawing customers back into the cycle.

Each part gains momentum from the others.

Tanaka sees thin retail margins as part of this design. Low prices keep customers coming back, while a business that generates cash can afford to test ideas elsewhere.

AWS is a useful contrast. The cloud business provides computing infrastructure and has at times contributed a large share of Amazon’s operating profit.

From online retail to physical stores

Amazon began as an online bookseller. As more people came to the site, the company expanded the range of things it could sell them.

Tanaka reads Amazon’s move into stores as an effort to take what it had learned online into physical retail.

Bezos and Blue Origin

Bezos also founded Blue Origin, a company separate from Amazon. Tanaka considers the venture alongside SpaceX in a broader competition over access to space.

Seen together, those ventures help explain the book’s interest in platforms that become part of the way people and organizations do ordinary things.

Amazon and Alibaba

Tanaka compares Amazon with Alibaba, co-founded by Jack Ma. For a Korean reader, Coupang offers another point of comparison. All three combine an online marketplace with a system for getting goods to customers, though they do so in different ways.

At the time the book appeared, Alibaba and AliExpress drew much of the attention later directed at low-price marketplaces such as Temu. The comparison belongs to that earlier moment.

Tanaka uses the same framework from The Art of War to describe Alibaba.

  1. The Way: strategic purpose
    1. Mission: help consumers and small businesses by building infrastructure
    2. Vision: build an Alibaba economy comparable in scale to a major national economy
    3. Values: customer focus, teamwork, openness to change, integrity, passion, and commitment
    4. Infrastructure for selling
      1. Online shops, physical shops, media, entertainment, and other businesses
      2. Finance
      3. Logistics
      4. Marketing services and data management
      5. Cloud computing
  2. Heaven: timing and the value of time
    1. The economics of speed and the group’s emerging high-growth companies
    2. Synchronous and asynchronous operations
      1. Delivery lockers
      2. Rural Taobao hubs for shopping and delivery
      3. Cashierless convenience stores
      4. Hema fresh-food supermarkets
      5. Robotic warehouses
      6. Smart logistics networks
  3. Earth: territory and the value of space
    1. Using physical and digital space to build a business
      1. Connecting online and offline activity
      2. Expansion from China through Asia and into developed markets
      3. Building an Alibaba economy
      4. Zhongchuang kongjian, shared spaces for entrepreneurs and startups
      5. Building social infrastructure
      6. Cashless payment projects in Hong Kong
      7. Smart-city projects in Macao
  4. Command: leadership
    1. Jack Ma’s mission and leadership
    2. Leadership exercised by teams
      1. A clearly shared goal
      2. Clear responsibilities and access to the information needed to act
      3. Rules people can understand
  5. Method: management
    1. Coordinating a network of partners
    2. A variable interest entity structure
    3. A model that supports small businesses
    4. Blockchain in distribution
    5. Smart logistics networks
    6. The ambition to build an economy of global scale

Marketing 4.0: from the four Ps to the four Cs

In Marketing 4.0, Philip Kotler, Hermawan Kartajaya, and Iwan Setiawan argue that the digital economy changes the classic marketing mix.

The four Cs describe more ways for customers to take part.

The four Ps

  1. Product
  2. Price
  3. Promotion
  4. Place

The four Cs

  1. Co-creation
  2. Currency
  3. Communal activation
  4. Conversation

Companies can develop products with customers and make room for conversations among customers themselves.

The authors point to peer-to-peer connections as a defining feature of the sharing economy.

Looking back at Amazon’s Strategy for 2022

What still interests me about the book is the direction it saw in Amazon’s decisions, even where its forecasts are difficult to assess one by one.

Amazon’s online marketplace and AWS already offered two examples of turning an operation into a platform. The question was how far the company could extend the same thinking into physical spaces.

The plans for Blue Origin belong to a different company. They offer another example of how far Bezos was willing to look beyond a familiar market.

When I revisited the book in 2024, Temu was attracting attention with low prices in the U.S. Its emergence gave me another reason to watch how Amazon would defend the advantages built into its marketplace.

Tanaka writes from Japan, where Amazon’s retail business has long been more visible than it is in Korea. His account is worth reading if you are interested in how an online retailer turns the services around it into businesses of their own.

Book details

Amazon’s Strategy for 2022

Author
Michiaki Tanaka
Korean edition published
June 5, 2018
ISBN13
9791187980629
View the book on YES24

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