Thursday, June 12, 2014

Book review: "The Everything Store" by Brad Stone

This isn't a real book review because I stopped reading after 100 pages. What put me off is that The Everything Store only describes what happened inside Amazon, with little description of its competitors or the broader industry dynamics. It would have been much more interesting to read a book that tracks Amazon and several similar companies together during the 90s and describes how Amazon was different from (and similar to) its less successful competitors. As it is, the book doesn't give much context for Amazon's meteoric rise.

Nonetheless, here are a few tentative conclusions from what I read.

Amazon's early success seems to have been a result of a few big decisions by Bezos. He realized that having a first-mover advantage was essential and was willing to lose lots of money to grow quickly. Then, in late 1999, he realized that financing conditions were getting worse and raised money in a convertible-bond offering before the market imploded. Amazon's early foray into auctions was a failure, but he refused to shut it down and eventually auctions morphed into Amazon Marketplace.

Barnes and Noble's effort to create an online bookstore fell prey to the innovator's dilemma. B&N's distribution system was designed to handle large orders by bookstores, not small orders by individual customers, so it wasn't optimal for e-commerce. B&N also didn't want to commit tons of resources to something that would undermine its profitable brick-and-mortar stores.

Bezos made his share of bad decisions early on, like investing in Kozmo and eToys. Many of Amazon's expansion efforts failed. The book goes against the widespread perception that Amazon is an unstoppable business predator.

My opinion: Amazon's strategy of losing money to gain market share was very successful in its earliest product categories, and this has trained people to ignore the company's continuing losses and see them as farsighted investments in future market share. But I'd wager that this strategy works much better for some product categories than others and that Amazon has already picked the low-hanging fruit. I don't expect Amazon to totally dominate e-commerce.

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