I used to write about Amazon (AMZN) often. What's not to like - a prototypical fast growing entrepreneurial concern that created new markets and beat up the incumbents. Nowadays, I just can't seem figure the company out. I looked to Amazon as a big box category killer, but its investments in new businesses and out of scope areas leaves me scratching my head a bit. What really is Amazon's strategy?
I thought their ultimate desire was to take on Walmart (WMT). And they were successful at it. They surprised many by successfully building out efficient distribution capabilities. While traditional retailers were good with logistics, they were slow to adapt to e-commerce. Amazon has both. In addition, online competitors were no match for Amazon's low pricing and world-class customer service experience. They simply outperformed online and brick and mortar competitors while taking share from both. All of this success was compounded by the 15% overall annual growth in the e-commerce industry. Carving out a greater piece of the pie in a growing market is a great recipe for success. So why is Amazon changing its course?
Traditional e-commerce is now on the backburner. Apple (AAPL), Netflix (NFLX) and other projects seem to be on Bezos' mind. I realize that digital products may pay off over time given their better margins, but isn't it a distraction from their core business? Amazon Web Services (AWS) is a great growth story, but what does it have to do with diaper sales? From buying companies that build distribution robots to its recent decision to open an online bank, they seem to invest time and money into anything and everything.
Business Schools tell you to pick a strategy and focus on building strengths and a sustainable advantage around it. Trying to to do too much could leave a firm "stuck in the middle." Apparently Jeff Bezos never got the message. Does Amazon have the management discipline and capability to run a seemingly disparate set of businesses? These are not separate portfolio companies that run independently - they all seem to tie in somehow to Amazon's special sauce. I just can't figure out how.
Unseating Walmart is a full-time job and retailers are catching up (Walmart's online and site to store capability is really good). Amazon's sales tax advantage is gone. Online competitors are better funded and managed now. My anecdotal experience on Amazon's site shows prices creeping up and the service experience dropping. The sky is not falling, but Amazon does seem to be putting its core business at risk by delving into other endeavors.
One thing I can say is that it is hard to bet against Amazon. Their recent operating loss for the first time since 2003 has spooked many investors, but makes no difference in the long run. Amazon has consistently defied the odds for so many years that quarterly results and business school textbooks may not apply in the end. With its execution so good in core retail, I thought that Amazon's Seattle Headquarters should point at Bentonville not Cupertino. Perhaps Bezos' quest for worldwide domination leaves room for both - its just hard to see a clear path to it from here.