In less than 30 years, Amazon went from selling books to selling everything you can imagine.
Opening up grocery stores, offering a selection of movies and TV shows, and one day, plans to launch
a satellite internet service. The company's growth has been nothing short of stunning.
In 1995 - the year the site went live - it made half a million dollars in sales. In 2020 - that soared
to $386 billion. So how did Amazon get so big? By following one simple rule over and over again.
Customer obsession is the key to the success of Amazon - or amazon.com - as it was known at the start.
That focus on the customer led Jeff Bezos to start off by selling books. He believed that would appeal
to people the most as he explained during the company's early days. There are more items in the
book category than there are items in any other category by far. A web store would not be limited
by the physical constraints of a bookstore so customers could quickly and easily get their
hands on whatever they wanted like this title about computer modeling - the first book the company
ever sold. In those early days, Bezos and a small team packaged and mailed off the orders themselves.
Other online bookstores existed at the time so Amazon had to find a way to set itself apart
by adding user-generated reviews. Again, the company thought about what would be best for the customer
though not necessarily the publishing house. Bezos once recalled receiving an unhappy letter from a
publisher about the feature. One wrote to me and said, "You don't understand your business.
you make money when you sell things. Why do you allow these negative customer reviews?"
And when I read that letter, I thought, we don't make money when we sell things. We make money when
we help customers make purchase decisions. In other words, Amazon stuck to its core principle: build the
best customer experience possible which extended to more features. In 1999, the company patented the
1-Click button which lets you skip the shopping cart by purchasing any item quickly and easily as the
website remembers your previously entered payment and address information. The patent lasted all the
way until 2017. When Barnes & Noble implemented a similar feature, Amazon sued - forcing the bookseller
to add an extra step at checkout. Some argue that patents during the tech boom of the 90s were
too broad and too powerful. 1-Click was a huge asset for the company. It needed any advantage it
could get when the dot-com bubble burst, causing Amazon to lose over 90 per cent of its valuation.
It went from a split adjusted initial public offering of a $1.50 a share in 1997
to $106.69 cents a share in December 1999 before falling all the way back down to $5.97 a share
in September 2001. Unlike many other tech firms, Amazon managed to survive by raising a ton of
money just before the market crashed. During those turbulent years, Bezos made moves that
would define his company - chief among them: lowering prices. In the early 2000s, Amazon decided to cut
the price of some items by 30 or 40 per cent in some cases. Its thinking went something like this:
low prices attract more customers which increases sales which attracts more third-party sellers
who pay a commission and store their goods at Amazon's warehouses for faster delivery.
Since more items are now going through these fulfillment centers which have fixed fees like
the lease, this lowers the per unit cost which saves the company more money - enabling it to lower
prices even further. And the cycle repeats. There was just one hurdle to overcome. Amazon had started
to diversify beyond books but was having trouble convincing customers to purchase items in multiple
categories so it needed to offer an incentive. Amazon realized that one of the biggest barriers
to shopping online was the expensive shipping so it introduced Free Super Saver Shipping in 2002
for those who spent over $99, then it kept lowering the minimum purchase threshold, first to $49
then $25. Customers started to fill their virtual baskets with more products
from different categories - setting the stage in 2005 for Amazon Prime, forever changing the way we
shop. Prime members could receive unlimited two-day shipping on all orders for a flat annual fee of
$79. The math didn't make much sense. Amazon would in fact lose money. But Bezos bet the membership would
prompt customers to buy more and that's exactly what happened. Customers signed up like crazy -
further expanding Amazon's market share. As Brad Stone details in his book about the company,
an Amazon executive likened signing up for Prime as "...going from a dial up to a broadband internet
connection." Two-day shipping eventually led to one day and same-day shipping and now, Amazon is
developing a drone service that aims to deliver packages in just 30 minutes. Ironically, after
creating a global retail giant online, the company is now opening brick and mortar stores with a
twist. You never have to wait in line. At amazon Go convenience stores, shoppers walk in, swipe
their phone like a boarding pass at the airport, while AI-powered sensors track their purchase and
automatically charge their credit card via the Amazon app. There's no need to go to a cashier
or a self-check kiosk. However, such rapid and continual growth doesn't come without criticism.
There have been allegations in the past that workers in the warehouses were so exhausted
they had panic attacks or fell asleep on their feet. The firm is also accused of acting like a
monopoly. When launching the Kindle in 2007, Amazon decided to price electronic books at just $9.99,
hoping to tilt the book business toward e-reading by offering customers a steal. Publishers suspected
the low price would hurt them as Amazon could use its market power to then demand cheaper wholesale
prices. In a famous dispute over pricing, Amazon temporarily took away the buy button on titles
from the publisher Macmillan, only offering them through outside vendors. Despite accusations of
brutal bullying tactics, the goal of Amazon has always been to pass on more savings to customers
and customers are responding. Amazon delivered a record performance in 2020 with net sales
increasing 38 per cent compared to the year before as the pandemic led people to buy more online.
The secret sauce of Amazon, where there are several principles at Amazon, but the number
one thing that has made us successful by far is obsessive-compulsive focus on the customer as
opposed to obsession over the competitor. There's a great interview on CuriosityStream that gives
an inside look into Jeff Bezos' mindset and what made his company a stunning success. You can watch
thousands of documentaries on CuriosityStream. I have a whole list to get through on a variety
of topics including space, science, tech, and history. If you head to curiositystream.com/newsthink
it's just $15 for the entire year - not month - but year. The link is in my description
and be sure to use my promo code: NEWSTHINK. Thanks so much for watching. For Newsthink, I'm Cindy Pom.