When Amazon.com anointed itself “the world’s biggest bookstore,” with 1 million titles as it launched in 1995, Jeff Bezos, the company’s now-iconic founder, was already thinking about other markets to attack. Bezos never considered sticking solely to books. He wanted to rule e-commerce, which in the mid-’90s amounted to a rounding error on the balance sheets of major retailers. Which explains why three years later a troupe of Amazon publicists visited the forbes.com offices where I worked to offer me a personal demonstration of Amazon’s new music store. Unlike today, Amazon.com actually courted press coverage back then, just like every other dot com.
At the time there were a number of sites peddling compact discs, most notably CDNow and Music Boulevard, with the tongue-twisty domain name musicblvd.com. Each wanted to be, as Music Blvd. chief Larry Rosen once put it, “the Amazon.com of record sales.”
After seeing the elegant user interface and how straightforward and quick it was to order, say, a John Coltrane CD–and how much cheaper it was on Amazon than at the other sites–I told a friend at Music Boulevard, perhaps a bit inelegantly, that she’d better start sending out resumes. Soon after Amazon became the Amazon.com of record sales, changing its tag line to “Books, Music and More” and ultimately wiping CDNow and Music Boulevard off the map.
Naturally this doesn’t qualify as a pivot since it was part of Bezos’ grand plan from the get go. As he wrote in a 1997 letter to shareholders: “Our goal is to move quickly to solidify and extend our current position while we begin to pursue the online commerce opportunities in other areas. We see substantial opportunity in the large markets we are targeting.” To explain his thinking, Bezos has in the past turned to historical analogies, comparing the disruption the Internet brings to business to the Cambrian period approximately (550 million years ago for those keeping count at home), which was when the first multicellular creatures trickled from the primordial ooze. This, he explains, is when Earth experienced an evolutionary big bang, which engendered both the greatest rate of speciation the world has ever known and its greatest rate of extinction. “What’s very dangerous,” Bezos says, “is not to evolve.”
And Amazon sure does evolve. Its latest tag line: “Online Shopping for Electronics, Apparel, Computers, Books, DVDs & More” doesn’t do it justice. It has become one vast cybermall that offers millions of products, everything from air purifiers to ebooks to prostate massagers to uranium ore (hmm, only $49.95) and coyote urine, in addition to books, ebooks, Kindles, toys and virtually anything else people buy. If it exists, it’s probably available on Amazon. Along the way, Bezos’ brainchild incorporated one-click purchasing, unvarnished user feedback into product pages (much to the chagrin of many authors, musicians and product manufacturers), a “look inside” function so that readers can sample books, and Marketplace, which allows third-party sellers to list new and used products next to Amazon’s. As I write this Amazon’s market cap is close to $100 billion.
Along the way, though, Bezos has made mistakes. Remember Amazon Auctions? How about A9, its homebrew search engine that wafted into the ether? But perhaps Bezos’ greatest mistake was not getting into digital music soon enough. Late to the game, he ended up ceding that market to Apple iTunes. Outflanked by Steve Jobs, Bezos learned his lesson, and I think this experience is at the root of Amazon’s big pivot.
I’m talking about Bezos’ move into hardware. Until the Kindle was introduced in November 2007, Amazon sold stuff. It didn’t make anything. But Bezos knew that ebooks wouldn’t take off without a sweet device on which to read them and an online store to make purchasing them easy. First-mover status does not necessarily guarantee that a company will lock up an entire category, but it worked for Steve Jobs, and Bezos was confident it would work for Amazon. It was a risky but it’s paid off handsomely for Amazon, which at one point controlled about 90% of the market. It’s declined somewhat since then, after a bevy of other players joined the fray, including Barnes & Noble’s Nook, Kobo, and, of course, Apple’s iPad and iBookstore. Still, Amazon maintains an estimated 60% of ebook sales and its first-mover status has helped it prevent Apple from dominating this market like it did MP3s. And 60% of $3.2 billion–2011 sales of ebooks, which are projected to rise to $10 billion by 2016–is better than 90% of tens of million of dollars (chump change for Amazon), which is the tally for 2008.
This pivot into hardware, while surprising at the time, also helped usher in Amazon’s whole cloud computing initiative, because like Apple, Bezos wants to lock in customers into his ecosystem. Purchase ebooks, music and now movies from Amazon, store them in Amazon’s cloud, play them on Amazon’s device and, with a nod to Microsoft’s Windows strategy, if you don’t want to buy a Kindle you can use Amazon’s Kindle app on your iPad. Bezos doesn’t really care as long as you buy the content from him. It’s the opposite approach to Apple’s. Amazon sells the hardware at slim margins (maybe at a loss) so it can profit handsomely from the content; Apple sells content at slim margins so it can maintain ridiculous margins on hardware. They both win.