In a recent Economist article, “Taking the Long View,” arguments are made that perhaps the non-stop pursuit of short term shareholder value, rather than long term results might, in essence, be self defeating.
As a prime example it points out that in nearly eighteen years of existence, Amazon has never found it hard to attract investors; despite the way it continues to plough its profits into long-term plans for world domination.
For myself, I have never been sparing in my admiration for the way Amazon and its CEO; has disregarded the conventional in building the largest on-line retailer in the known universe. Well, to be honest, that’s not quite true.
For the first few years that Amazon was in business, I was scathing of the fact that in common with all the other much hyped Internet companies claiming they were going to radically change retailing, it never made a penny in profit.
Then the dot com bubble burst and Amazon was one of the few survivors. Within a year of the general collapse, Amazon declared its first profitable quarter.
But much to the puzzlement of Wall Street, Bezos said this was a mistake, as he hadn’t intended to make a profit for another couple of years. This was the first indication that unlike many so-called dot com entrepreneurs he wasn’t looking for a speedy cash-out, but was in fact, working against a much longer time-line.
Amazon was also a pioneer in delivering unmatched customer service, which back in the early days of Internet commerce was “iffy” to say the least. Bezos changed all that. For example, five years ago I bought one of the first Kindles, after enjoying it for a week; I dropped it on the floor and stood on it. Don’t ask why.
I called Amazon and explained what had happened. They said they would ship me a new Kindle that day and I should return the old one in their pre-paid package. I asked how much this would cost. Nothing, they said. Voila, I became a customer for life, not to mention an enthusiastic promoter of all things Amazon.
But perhaps the thing that impresses me most about Amazon’s unconventionality is its ability to structure its business model in unexpected ways. Because of the massive volume of product it sells 24/7/365, Amazon maintains 80 enormous warehousing and fulfillment centres scattered around the known universe.
These multi-football arena sized premises take care of sourcing, organising, packing and shipping millions of orders a day… And surprisingly, they do it with a vast number of workers who use simple barcode scanners to find, and expedite on its way, any item in the warehouse.…
There isn’t a single robot in the place. Compare this with something I recently wrote about a San Francisco startup, Momentum Machines which aims to revolutionise the fast food industry with an automated burger making machine. They say they don’t have to hire cooks because they plan to start the world’s first “smart restaurant” chain where all the cooking will be done entirely by robots.
Besides the fact that this will eliminate most of the minimum wage jobs in America, I would still prefer my burger to be produced by a human being, who unlike a robot, will be capable of recognising that the cockroach crawling across the meat patty is something other than an additional protein source.
The seemingly counter-productive thing about Amazon’s warehousing system is that it relies on something described as “Chaotic Storage” where products are shelved at random, and because items are stored randomly rather than categorically there’s a more efficient use of shelf space.
If there are changes in product ranges, Amazon needn’t plan for extra room for incoming merchandise if it’s being stored at random. This ensures a consistent flow of merchandise. By relying on humans, rather than robots, Amazon can be more efficient, responsive, and yes, profitable, just one more example of Bezos’s unconventional approach to business.
Perhaps the poor unfortunate cooks about to be displaced by the robots of Momentum Machines should begin investigating a career in online retailing. I am sure that Jeff Bezos will continue to enjoy a very successful career in that particular endeavour.
George Parker has spent 40 years on Madison Avenue. He’s won Lions, CLIOs, EFFIES, and the David Ogilvy Award. His blog is adscam.typepad.com, which is required reading for those looking for a gnarly view of the world’s second oldest profession.” His latest book, “Confessions of a Mad Man,” makes the TV show “Mad Men” look like “Sesame Street.”