The Washington Post - which, it should be noted, is owned in a personal investment by Amazon founder Jeff Bezos - has an excellent piece this morning entitled "Amazon grew relentlessly. Now it’s getting lean." The subhead:
"After two decades of expansion, the company known for doing it all is trying to find focus."
The Post frames the story by pointing out that less than five years ago, Amazon "was in rapid expansion and experimental mode, building its delivery network to get packages to people in two days or less, reshaping the internet with its cloud services business and reinventing grocery in part through its acquisition of Whole Foods.
"But now the company is closing offices, cutting business lines and laying off 27,000 corporate workers, including those in core areas like cloud computing and advertising: all signs the era of uninhibited growth at the company famous for doing it all is at an end … In the three decades since it was founded, Amazon has grown from an online bookseller to a behemoth that not only sells everything, but also delivers it, and sometimes produces it. It has roughly 1.3 million employees, brought in over half a trillion dollars in annual revenue in 2022, and has bought or built businesses in grocery, transportation, finance and health care.
"Cracks started to appear last summer, however, when Amazon announced that it had over hired and overextended its logistics operation during the coronavirus pandemic and would be reducing head count and slowing growth."
From there, the Post looks at some of the areas in which Amazon is cutting back, changing its strategies and tactics, prioritizing margins, and flirting - in the minds of some - with changes in its core values, even as its leaders and spokespersons say that the company remains primarily focused on the customer experience.
Examples cited:
• "As consumer spending has dipped — particularly following the explosion of online shopping during the pandemic — customers have also returned to physical stores, and multiple observers have noted that the experience of shopping on Amazon’s website has steadily gotten worse.
"Rather than curate or recommend products to make the experience better for the customer, Amazon has turned most of its site over to advertising, said Juozas Kaziukėnas from e-commerce research site Marketplace Pulse. That’s been incredibly lucrative for Amazon — its advertising business is now growing faster than Amazon Web Services — but isn’t particularly appealing for customers."
• "Amazon Pharmacy, which grew out of Amazon’s acquisition of Pillpack, has struggled to gain traction, a former employee who spoke on the condition of anonymity said. Amazon has tried to increase interest by offering discounted subscriptions like RxPass.
"But the pharmacy team still hasn’t launched some of the features that made Pillpack popular, like prescriptions conveniently shipped in daily packets. The logistics of running a medical business have been tricky — for example, Amazon can’t ship drugs through its existing logistics network, a second former employee said. And integrating Pillpack’s technology into Amazon’s complex and clunky back end software was a long and arduous process, three former employees said. Overall, former employees said the company underestimated how complex running a health care business would be."
• "In the last year, Amazon has cut jobs in its Alexa smart speaker division, killed projects in its secretive incubator Grand Challenge, pulled back on self-driving robots and delivery drones, and closed its brick and mortar shops. But it's also pressing for profitability in its core business areas.
Elaine Kwon, a co-founder and managing partner at Kwontified who consults with brands that sell to Amazon wholesale, said Amazon has drastically reduced the size of its orders while simultaneously increasing the percentage of sales it takes as a fee.
"Amazon is 'trying to squeeze as much margin out of every source' that it can, said Kwon."
• "While Amazon’s appetite for new business has always been enormous, its cost saving mind-set set it apart from other tech companies — frugality has long been a core company principle. Where employers like Google and Facebook became known for cushy workplaces and generous salaries, Amazon is an infamously competitive and sometimes bruising workplace where employees were rewarded thriftiness.
"Sometimes, that corner cutting culture went too far, as in the expansion of its warehousing and logistics network, where speed has often taken precedence over safety, according to investigations by Reveal, ProPublica and BuzzFeed News."
- KC's View:
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First, it has to be stipulated that Amazon remains an enormous company and significant competitor. As the Post writes, "Amazon isn’t shrinking, and remains the second largest private employer in the United States."
But whether necessary or not, it is clear that the company has moved away from its origins, in which Bezos "famously had the idea that the company didn’t need to be profitable and could instead become enormously valuable by burning cash to grow quickly." Things have changed, though, and the Post writes that now "Amazon is a mature company under different leadership — and shareholders expect real profits. After soaring to a nearly $2 trillion market valuation during the pandemic, Amazon plummeted to below $900 billion in November."
Which explains current CEO Andy Jassy's statement that "the overriding tenet of our annual planning this year was to be leaner.” The question is whether "leaner" means less customer-focused, and whether ther company's approach has diminished its "today is day one" ethic.
To some degree, Amazon may not pay too big a price in the short term because it doesn't have a ton of competition. The biggest threat to its online dominance is Walmart, which reportedly has begun to make inroads with high net worth customers; I still think that a sizable percentage of Amazon's customers are not inclined to be Walmart shoppers, and value the various offerings that Prime membership makes available to them. But as we we often say here on MNB, there is no such thing as an unassailable business model.
It seems to me that in some ways, what Amazon lacks at the moment is balance - it has swung so far in the direction of getting lean that the customer experience is not what it used to be. That's dangerous. I'm a pretty big Amazon user, and have been for most of the company's existence, and I've noticed the change. It isn't so bad that I've changed my online shopping habits. Yet.
