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Business

Understanding Bezonomics, and the Amazon Flywheel

Brian Dumaine just spent two years deep inside Amazon, in reporting his just-released book Bezonomics. He gained extensive insights into a service many of us use almost daily and gained deep understanding of both its culture and its relentless and determined CEO Jeff Bezos, the world’s richest man. Techonomy recently hosted Dumaine for a virtual roundtable.

What is Bezonomics, exactly, I asked him. His reply is worth hearing in full:

“To understand it I have to take you back in time. We’re in a crisis in 2001. The dotcom bubble had burst. Amazon’s stock price had gone from $107 in a year down to $6 a share. Barron’s had written a cover story entitled Amazon.Bomb. Wall Street analysts were saying Amazon was going to run out of cash by the end of the year. Then 9/11 hit. It put the economy into a tailspin and things…looked dire for Amazon. But about that time in the fall of 2001, Bezos called a management consultant to visit him in Seattle­–Jim Collins, who was just publishing what was going to turn out to be one of the most successful business books of all time–Good to Great. When Jim went to Seattle to meet with Bezos and his board, he said, ‘In times like this you want to respond not by reacting to bad news, but by building a flywheel.’ And he went on to explain his concept of a flywheel…Bezos immediately began sketching his idea of how Amazon’s flywheel would work. And it was that flywheel that drove Amazon out of near bankruptcy to the success it is today…

“It started with the customer. His idea was you do everything for the customer. Forget the competition…Forget internal politics. Everything begins and ends with the customers. As a matter of fact, when I was doing interviews in Seattle with Amazon executives, every one of them at some point in the conversation would say, ‘Everything starts with the customer.’ It’s almost as if Amazon’s scientists had installed a microchip in their brain…

“The idea is if you do everything for the customer, you’re going to start to attract more customers. If you attract more customers, you’re going to attract more sellers on the Amazon platform. If you attract more sales… you’re going to grow your revenues. You’ll gain economies of scale, which is going to allow you to lower prices for your customer and give them more great services, whether it’s Prime, Prime Video, Amazon Streaming Music, two-day delivery, then one day delivery. And if you do that, you’re going to attract more customers, and then you’re going to attract more sellers. You’re going to get more economies of scale. And that’s going to allow you to do more for your customers. And the flywheel starts turning and turning faster and faster…And that’s still what’s driving the company today.”

He continued: “Other companies could copy it, but it’s not easy…Bezos is responsible for creating the culture he has at Amazon, and he’s been very consistent about it. He consistently talks about customer obsession, extreme innovation and long-term vision. And the customer obsession part causes him to drive for the truth, which I think makes it unusual in terms of corporate culture. I mean, he hates corporate politics. He hates inward-looking executives who are protecting their turf. He hates corporate communications…Bezos is confrontational…

“He tries to seek the truth…Everybody’s heard of his famous six-pagers,…those memos you have to write before you pitch an idea. That’s a way of ferreting out the truth…It’s hard to hide behind….politics or vague ideas. If you have to read and defend a six-page memo in every meeting where there’s a new idea, and then constantly follow up as that project or service is being developed to make sure it still adheres to the original vision of the six page memo…

“Some of the executives at Amazon have signs in their office saying ‘In God We Trust, all others bring data’…It’s a hard, confrontational culture based on the data. And a lot of people don’t make it…It’s up or out…Bezos has his famous nutters. If he doesn’t agree with what you’re saying…he’ll scream at you and say something like…’Have I taken my stupid pills today?’ He’s a very tough, confrontational manager…

A few more tidbits from our interview, which you’ve got to watch in full to appreciate (or even better, read the book):

“A survey [found] that among millennials and Gen Z’ers, 77% said they’d rather go without alcohol for a year than give up their prime account, and 44% said they’d rather give up sex for a year than give up…prime.”

We asked our audience members about their own Amazon habits.

Amazon is “the most respected institution [in the country], among Democrats hand down…Among Republicans, only the military and the local police are more respected as an institution than Amazon. And that puts Amazon ahead of the courts, university systems and organized religion… There’s a huge admiration for Amazon. If you’re a competitor, there’s a huge fear and hatred of Amazon.”

“I went into the book with an open mind and I found a lot of good things about Amazon. I found a lot of scary things about Amazon too. But for the most part, it’s really hard to answer the question, ‘Are they good? Are they bad?’… If you’re a customer, they’re great. You get fast delivery, low prices. You get free video, you get cheap streaming music, you get great cloud services. But if you’re a competitor or a worker, you know, it can be a different story.”

Oddly, Dumaine says he came away convinced that for all his successes there, Amazon isn’t even Bezos’ top priority: “I think he’s much more obsessed with colonizing outer space than he is with Amazon. And although the pandemic has brought him back in temporarily, I mean, he used to spend one day a week at Blue Origin, his space company, and four days a week at Amazon. Now I believe he’s back all five days at Amazon. But…there’s an argument that the reason he started Amazon was not to make money, per se, but…to have the wherewithal to colonize Mars.”

There’s way more where that came from. Click on the video to watch the full session.

For more of our audience member’s opinions and predictions, see below:

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