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Showing posts with label Amazon. Show all posts
Showing posts with label Amazon. Show all posts

Tuesday, September 30, 2014

Focus On Your Customers And Not Competitors


A lorry is a symbol of Indian logistics and the person who is posing against it is about to rethink infrastructure and logistics in India. Jeff Bezos is enjoying his trip to India charting Amazon’s growth plan where competitors like Flipkart have been aggressively growing and have satisfied customer base. This is not the first time Bezos has been to India and he seems to understand Indian market far better than many CEOs of American companies. His interview with a leading Indian publication didn’t get much attention in the US where he discusses Amazon’s growth strategy in India.

When asked whether he is in panic mode:
For 19 years we have succeeded by staying heads down, focused on our customers. For better or for worse, we spend very little time looking at our competitors. It is better to stay focused on customers as they are the ones paying for your services. Competitors are never going to give you any money.
I always believe in focusing on customers, especially on their latent unmet needs. Many confuse not focusing on competitors as not competing. That’s not true at all. Compete hard in the market but define your own rules and focus on your customers. Making noise about your competitors and fixating on their strategies won’t take you anywhere.
But there's also some opportunity to build infrastructure from scratch. When you think of facilitation commerce between small shops and the end-consumer there would be things you would build - I don't know what they are, we will have to invent some of these things - that you might not build in other geographies where infrastructure grew for different purposes.
All emerging economies are different and India is a very different market. Bezos does seem to comprehend that. Things that you take for granted and things that you would invest into in the western countries are vastly different in India. Amazon has a great opportunity to rethink logistics and infrastructure.
The three things that I know for sure the Indian customer will still want 10 years from now: vast selection, fair, competitive prices and faster, reliable delivery. All the effort we put into adding energy into our delivery systems, reducing defects and making the customer experience better, I know those things will be appreciated 10 years from now. We could build a business strategy around that.
Innovating doesn’t mean reinventing strategy, the "what." What holds true in the US is likely hold true in India as well. It’s the execution—the “how”—will be different.

Speaking of Amazon as a growth company:
I like a quote from Warren Buffet who famously said: You can hold a ballet and that's okay and you can hold a rock concert and that's okay. Just don't hold a ballet and advertise it as a rock concert. Are we holding a ballet or are we holding a rock concert? Then, investors get to select. They know we have a long-term viewpoint. They know that we take cash flow that gets generated from our successful businesses and invest in new opportunities. India is a great example of that happening.
Even though Amazon has been in business for a long time with soaring revenue in mature categories the street sees it as a high growth company and tolerates near zero margin and surprises that Jeff Bezos brings in every quarter. Bezos has managed to convince the street that Amazon is still in heavy growth mode and hasn't yet arrived. In short term you won’t see Amazon slowing down. They will continue to invest their profit in their future to build even bigger businesses instead of paying it out to investors.

When asked whether Google is Amazon’s biggest rival:
I resist getting in to that kind of conversation because it is not how I think about our business. There are companies who in their annual planning process literally start with: Who are our three biggest competitors? And they'll write them down. This is competitor number one, two and three. Then they'll develop strategies for each of them. That's not how our annual planning is done. We do have an annual planning process and actually we are right in the middle of it now. We start with,`What'll we deliver to our customers? What are the big ideas, themes?'
Amazon has innovated by focusing on what customers really care about and not what the competitors do. This approach has paid off and I can see why Bezos is keen to do the same in the Indian market.

I really liked what he said when asked about being gifted and being kind:
I believe that humans would achieve anything that we are determined to achieve, if we work hard. So, celebrate your gifts but you can only be proud of your choices. And, cleverness is gift. You cannot become Einstein no matter how much you work. You have to really decide on how you're going to make choices in your life. You get to decide to be a good husband and a good father.
I strongly believe in why making right choices is more important than being gifted. I share this with as many people as I can and I also tell them, “you control your effort and not the outcome.”

Photo courtesy: Times of India

Monday, March 31, 2014

Amazon's Cloud Price Reduction, A Desire To Compete Hard And Move Up The Value Chain

Recently Google slashed price for their cloud offering. Amazon, as expected, also announced their 42nd price reduction on their cloud offerings since its inception. Today, Microsoft also announced price reduction for their Azure offerings.

Unlike many other people I don't necessarily see the price reduction by Amazon as waging a price war against the competition.

Infrastructure as true commodity: IaaS is a very well understood category and Amazon, as a vendor, has strong desires to move up in the value chain. This can only happen if storage and computing become true commodity and customers value vendors based on what they can do on top of this commodity storage and computing. They become means to an end and not an end itself.

Amazon is introducing many PaaS like services on top of EC2. For example, RedShift is the fastest growing service on EC2. These services create stickiness for customers to come back and try out and perhaps buy other services. These services also create a bigger demand for the underlying cloud platform. Retaining existing customers and acquiring new customers with as little barrier as possible are key components of this strategy.

Reducing hardware cost: The hardware cost associated with computing and storage have gradually gone down. Speaking purely from financial perspective existing assets depreciate before they are taken out from service. Also, new hardware is going be cheaper than the old hardware (at the original cost). If you do pass on the cost advantage to your customers it should help you reduce price and compete at the same or a little less margin. However, hardware cost is a fraction of overall operations cost. In the short term, Amazon being a growth company will actually spend a lot more on CapEx and not just OpEx to invest and secure the future.

Economies of scale: The cost to serve two computing units is not the sum of cost to serve two one computing units. There are many economies of scales in play such as increasing data-center utilization, investment in automation, and better instance management software. Confidence in predicting minimum base volume and reducing fluctuations also gives Amazon better predictability to manage elasticity. As the overall volume goes up the elasticity or the fluctuations as percentage of overall volume go down. On top of that offerings such as Reserved Instances also are a good predictor of future demand. Amazon views Reserved Instances as how banks view CDs but many customers are looking for a "re-finance" feature for these Reserved Instances when price drops. These economic and pricing implications are great to watch.

To offer competitive pricing to win against  incumbents and make it almost impossible for new entrants to compete on the same terms is absolutely important but it would be foolish to assume it is the sole intent behind the price reduction.

Photo courtesy: Flickr

Thursday, February 23, 2012

Simple Workflow Service - Amazon Adding One Enterprise Brick At Time



Yesterday, Amazon announced a new orchestration service called Simple Workflow Service. I would encourage you to read the announcement on  where he explains the need, rationale, and architecture. The people I spoke to had mixed reactions. One set of people described this as a great idea and were excited that the developers can now focus on writing domain-specific code as opposed to writing plumbing code to orchestrate their actual code. The other set of people felt that this service creates a new cloud lock-in making it difficult for the developers to switch from one cloud to another as well as being able to interoperate at the orchestration level.

I believe this is a brilliant idea for a variety of reasons. Orchestration has always been painful. Ask the developers who have been involved in managing task execution across a cluster that required them to code for load balancing, handling exceptions, restarting hung processes, tracking progress etc. This is not a core competency the most developers have but they do end up writing such code due to lack of better alternative. The frameworks such as WS-BPEL were not designed to run in cloud-like environments and there has been no single standard REST orchestration framework out there that people could use.

From a vendor's perspective, I admire Amazon's ability to keep innovating via such services that differentiate them as a leading cloud vendor. As computing becomes more and more commodity, competing based on price alone isn't a good idea. If you're a cloud vendor you need to go above and beyond the traditional IaaS attributes even though you excel in all of them. I also see PaaS eventually bleeding into IaaS as IaaS continues to become a commodity. As far as PaaS goes, federated or otherwise, we're barely scratching the surface.

I don't see this service as a cloud lock-in but it certainly makes EC2 more attractive and sticky. I would be concerned if Amazon were to force the developers to use their SWS for orchestration. This is their version of how they think orchestration should be done and the developers can opt in if they want. And kudos to them to think beyond their cloud. The folks who worry about cloud lock-ins also talk about Amazon not following the standards. I believe that we should not create standards for the sake of creating standards. I am a believer in first showing that something works and later, if there's enough interest, figure out a way to standardize it. All these talks about standard-first even before you write that first line of code doesn't make any sense.

It's yet to be seen how this service turns out, but this is a huge step forward for getting more enterprise software customers onboard. Orchestration is one of the most chronic problems of enterprise software and with the challenges of a hybrid landscape to be able to orchestrate across on-premise and cloud-based solutions, this service is certainly a step in the right direction. Right Scale has been using a Ruby workflow
Ruote for their workflow needs and now they orchestrate these workflows using SWS  to achieve fault tolerance and concurrency. As you can see, Amazon has opened up a gold mine for start-ups. The back-end execution has always been challenging. Now, there is an opportunity to write your own enterprise grade workflow engine or scheduler that runs in the cloud.

Friday, April 10, 2009

Amazon's Re-designed Review System Generates More Revenue But Has Plenty Of Untapped Potential

Amazon's design tweaks to its review system has resulted into $2.7 billion of new revenue argues Jared Spool. Other people have also picked up this story with their analysis. I am wary of absolute revenue numbers tied to a feature to derive lost opportunity cost since a variety of other things could have driven the sale. It is wrong to assume that people would not have bought the products had the feature not existed. However I do believe it is a great step in the direction of making the review system more useful and drive more clickthroughs and conversions. Simply the presence of the reviews, magic number 20 in this case, motivates consumers to drill down into the details of a product and its reviews.

Amazon has made significant progress in collaborative filtering through their review system and it is an exemplary of a long tail business model. It has helped consumers to gain transparency and has also helped expose issues with the products. This is not enough. As an e-commerce market leader I would want Amazon to continue innovating around their review system. This is what I specifically would like to see in Amazon's review system:

Mining social media channels: Amazon.com is not the only place where consumers talk about the products. Consumers discuss product features and frustrations on Facebook, Twitter, and other social media outlets. Amazon has an opportunity to provide unified product review experience, a tool similar to ConvoTrack, by tapping into these social media channels for all the product conversations.

Tag cloud as a visual filter: One of the ways to make sense out of large number of reviews is to generate a tag cloud from the raw text of the reviews. A tag cloud acts as a great visual filter to narrow down the reviews that the consumers are looking for e.g looking only at rebooting issues and not anything else while buying a router.

Provide diverse search options: I want to search for the routers that have 4 or 5 stars ratings in the last 6 months. I cannot do that today. This search criteria makes sense. Manufacturers fix defects via firmware updates and models tend to improve as they mature. If the item had many negative reviews early on there is no way to find out without reading the other positive reviews whether the issues have been fixed or not. Higher recent ratings tend to correlate with mature product and satisfied customers.

Re-think one-size-fits-all format: All the products sold on Amazon ranging from a book to a TV has the exact same review format. It does not have to be that way. The book reviews tend to be more subjective and philosophical where the gadget reviews are generally more fact-based e.g watch out this monitor does not come with a DVI cable. Re-thinking the format for the types of products being sold make sense e.g pros and cons section for the gadgets, similar books to the one that I am reviewing etc.

Incentivise people to write reviews: Few days after consumers receive a product ask them whether they are satisfied with their purchase or not. Incentivize them to write reviews on the product; not only this helps generating more reviews per product but it also brings people back to Amazon to make more purchases. Make promotional email personal and relevant e.g.

How are you liking the "Tipping Point"? Malcom Gladwell has authored his latest book called "Outliers" and we are positive you will enjoy that as well. Would you mind writing a brief review of "Tipping Point" and we will discount the Outliers for you by 5%.


Closed-loop feedback channel: The current comments structure does not allow the manufacturers, authors, and the publishers to identify themselves and clarify the features, issues, and respond to consumers' concerns. The reviews are a great platform and a closed-loop feedback channel for the vendors to converse with the consumers. Amazon could certainly extend the review system to help create a dialogue between the consumers and the manufacturers.
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