Check out this piece written by Category Design Advisors partner Mike Damphousse about the power of the Amazon flywheel. This walk-through of Amazon's major category moves over the last 20 years, from the origin of online retail to the acquisition of Whole Foods, highlights the relentless drive of one of the world's most powerful category kings. Read on
Amazon's Flywheel Momentum Continues to Dominate Categories
Category Design Advisors
Amazon has had quite the history as it pertains to Category Design. First they announce the acquisition of Whole Foods, then the news that they filed a patent on Prepared Food Kits (which clearly targets Blue Apron), and then they announce that Prepared Food Kits are available! Combine the three announcements, and the Flywheel concept proposed by the book Play Bigger takes hold and Jeff Bezos holds his position as one of the top category designers in history.
Amazon has a pattern of innovating and expanding their dominance into other categories. As Play Bigger explains, doing this over and over again, keeping the "flywheel" momentum going, there is very little additional force to needed for expansion.
Let's look at some of Amazon's history and flywheel plays:
eCommerce - 1995 - Amazon went live, selling books, and established themselves as the leader - eventually influencing the demise of the brick and mortar book store. Early on, sensing a successful presence in eCommerce with books, Bezos created a list of 20 products that could be marketed online. The commerce and logistics systems were in place, and those products started hitting the online store. They kept the flywheel spinning to the point where they now dominate online shopping, offering everything from AA batteries to ZzzQuil nighttime sleep aid.
Amazon Web Services - 2006 - Having built the incredible infrastructure behind Amazon, and the computing speed, and storage needed to support the last two weeks before Christmas, they realized that a public API to allow them to sell the excess computing power and leverage existing IP was a completely new offering. The web services category was turned on it's head and the flywheel ran over IBM, Microsoft, Oracle and Cisco - who in 2017 shut down their web services offering after investing $1B.
Kindle - 2007 - Amongst struggling tablets and the iPad still two years away, Amazon built the ecosystem of eBooks by introducing a hardware product, the Kindle. By then introducing Kindle software that runs on everything from an iPad to any smartphone, eBook category is simply associated with the Kindle brand. Today, Amazon is category harvesting the benefits of the Kindle brand with 40% of the Kindle sales coming from upgrades which Play Bigger describes as a harvesting strategy.
Audible - 2008 - Then there was the flywheel acquisition of Audible. If someone is looking for a book, and presenting the option for an Audiobook is as simple as a new link on the page. The flywheel keeps on turning. The $3.5B audio book category is saturated with other solutions, but Audible is still the brand to chase.
Then we get to the acquisition of Whole Foods. Many analysts point to this flywheel move as a way to put food warehousing, distribution, and channel on the ground in their most successful markets - buyers that are willing to spend a premium for quality, healthy foods.
Now, Amazon revs up the flywheel again and files a patent for prepackaged food kits and announces Food Kits, weeks after Blue Apron's IPO. Blue Apron's market cap has lost a third of it's value since the IPO, and Amazon sets the stage for a category battle that Whole Foods will surely contribute to.
Category Design Advisors partner, Play Bigger co-author and Newsweek columnist, Kevin Maney, proposes a higher order twist on Amazon's flywheel strategy in a recent Newsweek article -- that is that Amazon is the retailer of the AI era, stating that everything Amazon does is designed to bring in data so its AI can learn how to better target and serve every individual customer.
According to Maney's article, the company now has 300 million users, and about 20 percent of them buy from Amazon at least once a week. While Walmart knows more about stores than any other retailer, Amazon knows more about people, and that wins. Even as Amazon, ironically, opens bookstores, it's using what its AI learns about the people who live near each bookstore to decide what books to carry.
"Amazon's plans for Whole Foods will most likely have something to do with AI learning about individual customers," states Maney. "Either Whole Foods will help Amazon learn about a kale-munching customer sector it doesn't yet own or Amazon's AI will help it make each Whole Foods store irresistible to everyone in its neighborhood. Or both."
There seems to be no slowing down of the Amazon flywheel. What will Bezos' next play be?
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