There has been a lot written over the past month on Jeff Bezos’ plans for Amazon. As Bezos explained to Business Week when he first unveiled his plan, he wants to transform Amazon the on line store into Amazon the engine of the entrepreneurial economy.
Bezos wants Amazon to run your business, at least the messy technical and logistical parts of it, using those same technologies and operations that power his $10 billion online store. In the process, Bezos aims to transform Amazon into a kind of 21st century digital utility. It’s as if Wal-Mart Stores Inc. had decided to turn itself inside out, offering its industry-leading supply chain and logistics systems to any and all outsiders, even rival retailers. Except Amazon is starting to rent out just about everything it uses to run its own business, from rack space in its 10 million square feet of warehouses worldwide to spare computing capacity on its thousands of servers, data storage on its disk drives, and even some of the millions of lines of software code it has written to coordinate all that.
Here is how the Bezos plan was described in USA Today:
That’s the future Amazon.com CEO Jeff Bezos hopes to set in motion with the company’s new direction. If you tease out Bezos’ plan, you get to a point where a high school cheerleader sitting at home with a laptop could theoretically harness computing power, design capabilities, manufacturing and distribution from around the world, and make and market a cute little pink hot rod that would compete against General Motors.
Now that the ink has dried on Bezos’ plan, I’d like to offer my take on it. His assumptions show that he never learned one of the most important lessons of the dot.com disaster. He does not seem to understand that markets really matter. For example as Pets.com illustrated, just because you can sell dog food through the Internet it does not mean that there is a market for such a service.
Starting a successful business has two critical pieces. First you need a viable product or service that you can deliver. That is the part that Bezos is focusing on.
But second, you need a large enough market willing to spend enough to cover your costs and leave you a profit. The dot.com kids only worried about the first part and never paid much attention to generating sales and profits. Just because we can enable a “high school cheerleader sitting at home with a laptop could theoretically harness computing power, design capabilities, manufacturing and distribution from around the world, and make and market a cute little pink hot rod that would compete against General Motors” does not mean there are customers for her product.
I hope we are not setting people up for even bigger failures by making part of the process so much easier. My fear is that it will encourage more people to ignore the customer part of the equation and start businesses that are doomed to fail.
When setting up CME in 2004, we did a similar thing in overlooking our market. We all had the skills necessary to produce and design Cds. It came naturally for us, because we were all doing jobs that we enjoyed doing. We had all of the resources we needed, the cost was low, and the process was relatively easy.
However, because it was so easy for us to get our business going, we just assumed that it would be successful. We didn’t consider the fact that who we were banking on as our target market (college age musicians) was not much of a market. They could find friends to do the jobs for free, that we were charging money to do. And “free” speaks loudly to college students. Because we didn’t give our market enough thought, our business had a short run. You are very correct that it takes both pieces to make a business successful.
It sounds like vanity publishing to me. The market for the Cute Pink Hotrod isn’t General Motors’ customers: it’s the cheerleader and maybe a couple of her friends. Bezos charges them $xxxx for using his facilities, they get Cute Pink Cars, and then he’ll move on to the next sucker.
He doesn’t need any product to succeed because there is an infinite supply of suckers who’ll fall for his get rich quick scheme. I’m sure he’d have a huge potential market in failed eBay sellers.
Hey, we have the vanity press for people who want to write whether or not someone want to read their stuff, so this is infrastructure for vanity business. Bezos doesn’t need to worry if there is a market for the stuff these businesses churn out, as long as there is a steady supply of dreamers and wannabes with some money to spend. And some of them will probably be successful, at least temporarily, so if the cost is low enough it will increase the number of entrepreneurs.