The Grand Theory of Amazon

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This video is sponsored by Dollar Shave Club. Use the link in the description for a special
$5 starter set. On February 28th, 2017, you might’ve thought
the internet was down. 4 hours without Netflix, Spotify, Buzzfeed,
Reddit, Dropbox, Pinterest, Imgur, League, Tinder, and thousands of others, Even the site that reports outages. That’s embarrassing. If the world was more productive that day,
now we know why. r/Outside become, just, ya know, outside. A shark hadn’t bitten an underwater cable,
nor was it five/nine, Just an Amazon engineer’s typo. Probably a stressful afternoon in Seattle,
but also an impressive demonstration of the company’s size and power: Amazon Web Services hosts so much of the internet
that for many people, myself included, it basically is the internet. We know Amazon as an online store, Companies
store their products in its warehouses, which handle the marketing, and shipping, and returns. For us, this means total convenience – one
click away from $125, 27-pound gummy bear pythons, or 5, crisp, 2 dollar bills for $20. Wait, that’s not how money works… A hundred thousand companies make over a hundred
thousand dollars a year this way. But for Amazon, it’s only a fraction of
their business. There’s also Twitch, Whole Foods, Kindle,
Alexa sensibly named Echo, Echo Plus, Echo Dot, Echo Dot Kids, Amazon Tap, Echo Connect,
Echo Spot, Echo Show, and Echo Look, also a completely different Alexa, Fire Tablets
and TV, Prime Music, Video, Pantry, Ring Doorbell, Zappos, IMDb, Fresh, GoodReads, and over 70
consumer brands you’d never know they owned. whew. Hardly a month goes by where they don’t
enter and dominate a new industry, Just trademarking the slogan “We do the
prep. You be the chef.” was enough to drop Blue
Apron’s stock 12%. They’re even investigating pharmaceuticals,
education, and finance. Amazon defines its competitors as “publishers,
producers, and distributors of physical, digital, and interactive media of all types and all
distribution channels”, among others. That’s, like, everyone. Which raises the question: is Amazon… scatter-brained? Many of these products have nothing in common. Yesterday they wanted to conquer streaming
video. Today, sell organic grapes in grocery stores. Tomorrow, who knows? And their ideas, increasingly let’s say,
creative: 2-day delivery? How about 2-hour delivery, a 3D smartphone,
a grocery store without employees, a front door that unlocks for delivery drivers, A
flying warehouse complete with detachable drones. For all its success as an online store, more
and more, it also seems distracted. At least, that’s how it looks. The only way to make sense of their actions
and mistakes, and anticipate their future, is to see the world as they do. And there are three pillars to Amazon’s
plan for world domination: To really understand Amazon you have to understand Jeff Bezos Like Steve Jobs or Elon Musk, the philosophy
of the man is that of the company. Apple was founded by people in love with technology
and its design. No matter how big the company gets, this will
always be reflected in its decisions, priorities, even mistakes. Amazon began as a bookstore, but that was
never its heart and soul. or spine Bezos chose books because no one bookstore
could hold all of them, warehouses visited on the internet could. But make no mistake: They aren’t a book
company, a website, a delivery network, or even a retailer. Amazon is a scale company. Bezos understood that when you take something
and multiply it a hundred, thousand, million times, you can do things all the small businesses
in the world never could. A tree is a tree. But put 400 billion together and you have
the Amazon rainforest, a force so powerful it controls the world’s climate. From any other company, this sounds like generic
business-speak. But Amazon really means it. We say a company is focused if it specializes
in beverages, or cars, or bad website design, and puts all its XP into that ability. Amazon is rare in that its specialty isn’t
the product itself but its scale. That’s the focus. When considering a new product, the flowchart
is pretty simple: “Would this benefit from being a thousand times quicker, bigger, easier?” If so, you can bet Amazon either sells it,
or soon will. It’s easy to stop there, Sit back and enjoy
the profit. But Amazon asks “Okay, now what can we do?” And this is why it’s unstoppable: the snowball
effect. First, get as many users as possible. Give out $50 tablets, free shipping, license
Echo to every company willing. More users bring more data, which helps improve
the product. And the better product attracts even more
users. They aren’t just making it easy to live
off Amazon, they’re making it hard not to. That’s the power of data in the hands of
someone operating at this scale. It’s why there’s now a movement to limit
this, why companies like Digi.me, who I’ve previously
mistaken for a data collection company, actually let users manage and safeguard their information. And the results are things like Prime: It
may lose money on the heaviest shoppers, but with a hundred million of them, they’re
winning a lot more than they’re losing. So why purchase competitors like Whole Foods? Exactly because it’s not what they’re
good at: Books never expire, well, some do. But groceries, not so much. You have to go back repeatedly, putting Amazon
in your routine. And with so much shipping, Spending $11 billion fulfilling 300 million
packages in 2015, they can do something almost no-one else can: Compete with UPS and FedEx. They already lease 32 Boeing 767 cargo jets,
and plan a massive cargo hub in Kentucky, But that’s just the beginning. After announcing a new $79 Kindle, Bezos wrote “There are two types of companies: those
that work hard to charge customers more, and those that work hard to charge customers less. Both approaches can work. We are firmly in the second camp.” And he’s really not kidding… The parts alone cost $78.59, plus $5.66 for
assembly. That’s a loss of $5.25 for every Kindle
sold, not including things like marketing, licensing, and support. And sure, there are ads, but only as an option, Companies like Facebook and YouTube are fundamentally
advertising companies. No matter how well-intentioned YouTube employees
are, unless something drastic changes, the company will always prioritize advertisers
over creators. That’s the business model. And then there are customer companies – where
You and I decide what gets demonetized. Apple is comfortable charging more for †he
very best experience, And for Amazon, helping the customer means
making us pay as little as possible. Both are loved in a way that’s impossible
for an advertising company. You might say – “They only care about the
customer to make more money” And maybe you’re right, there’s no way
to know, but the effects are the same, When Apple refused to unlock the San Bernardino
iPhone, When Amazon takes a loss for the sake of our
wallets, and offers some of the best customer support
I’ve ever had, It may only be a calculated business decision,
But it’s great for us. Of course, when the customer comes first,
everyone else comes second. Employees can be easily be forgotten in this
never-ending quest to satisfy us. Here’s how Bezos describes it: “One thing I love about customers is that
they’re divinely discontent. Their expectations are never static. It’s human nature. We didn’t ascend from our hunter-gatherer
days by being satisfied.” This is the hedonic treadmill – no matter
how much our lives improve, our expectations simply adjust. Almost any other company would resent this
– constantly having to improve their products, even the rate at which they improve. But Amazon embraces it – they’re just as
discontent as we are. Except, if there are billions to be made by
concentrating on scale and customers, why can’t anybody else do the same? How can a tiny online bookstore do something
exponentially better than Walmart, the world’s largest company by revenue? It’s easy to think of the CEO as the supreme leader of a company but “Even Bono Has A Boss”. In this case, shareholders. The longer a company loses money, the greater
its risk, and the more anxious get investors. But for Amazon – lack of profit isn’t just
tolerated, it’s celebrated – They could stop and make a dollar, they’d
rather wait and make five, Using profit from things like AWS to fund projects like Kindle
and Echo. Because Bezos is so open about this, shareholders
sign off, and they can think far into the future. Those cargo planes? Not so cheap. But that doesn’t stop Amazon. Supermarkets operate at a 1% profit margin
– but Amazon can buy Whole Foods, and actually lower prices. It also gives them freedom to experiment. The Fire Phone was never ready for, ahem Prime
time, but that’s a small price to pay for this strategy. MoviePass, Snapchat, Uber, Spotify, Blue Apron,
all starving companies following in Amazon’s footsteps, crossing their fingers money will
come later. Ex-Google CEO Eric Schmidt says Amazon is
already Google’s biggest competitor. AWS competes with Google Cloud, Echo with
Google Home, Prime and Express, YouTube and Twitch Even search. A company this diversified will face plenty
of challenges, A lot will change in 10 years, but we’ll
always want low prices, fast delivery, and easy shopping. As Amazon conquers one industry after another, they may only have one real competitor: the
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100 COMMENTS

  1. Come chat on our updated Discord: http://discord.me/polymatter
    Also: some things had to be cut for time, so I’ve posted my notes to Patreon

  2. So does this mean that Amazon is making it even more difficult for new entrepreneurs simply because of how far reaching their services are?

  3. I wish you talked more about how the only thing to give them 'competition' is or will soon be just the government. That seems kind of important regarding the brief mention of world domination.

  4. Amazon needs to die.. its a cancer to this world. A company that doesn't make money, holds the the market hostage, eliminating and destroying healthy competition. While staying afloat only because they dont make a profit.

    Capitalism has become an investors frenzy, where seemingly good ideas get flooded with money, only to realize decades later that the business model was unsustainable. While at the same time denying any alternatives to rise, due to its undermining nature. So whenever the company finally fails. The harm is done, and the competitors have already been destroyed.

    People clap their hands at amazon for selling cheap products while not realizing the harmful footprint amazon leaves behind.
    In a sense amazon operates like a communistic government taking over every business, making it state ownership. "if jeff was the president" But as long you get cheap shit you are happy right.

    Oh and then they get huge tax cuts, because they dont have any profits.
    I thought the model for how to sustain a country economics, was to have those who made the most money help contribute to its survival. But that is not the case when you actually dont have profits.

    Amazon gets all the benefits of the tax laws, while not paying back as intended, because well "we didnt make any money this year.. again" Instead the bill goes to the smaller businesses and regular people. "clap clap" praise be amazon.
    So those cheap products you thought you got from amazon, – well I hope by now you realized that you are paying a premium for through your taxes. Even if you dont shop at amazon. Youre paying for their existence. "capitalism? ehm no. america is more red than china by now. Congrats.

  5. I love the whitisism and depth of knowledge! Great vid! Also the segway into the advertising at the end of every video is genuinely relevant & entertaining! This is the future of education, keep it up 😉

  6. So just when is Amazon going to turn a profit? Shareholders eventually want to see not just capital gains but also dividends. Staff want to be paid a living wage and not have to rely on food stamps to make ends meet. Governments eventually need all businesses to pay their fair share in taxes to pay for and do the things that private businesses can't or won't do.

  7. Bs with Apple. They lost that love of tech when they started trending twoards strong looking products with engineered internal issues like structural bonding adhesives over heatsinks and or the long screw design on most ip versions

  8. Amazon literally refers to their business plan for the year as taking over the world. Staff meetings were always really creepy

  9. Well it seems Amazon has a really long term vision and plan for the future. Wouldn't surprise they become the most powerful company in the entire world in coming years

  10. Amazon is slowly abusing its power. Basically a modern monopoly, except it owns part of the market in almost everything.

  11. Amazon on a Sunday: Books
    Amazon on a Monday: Website
    Amazon on a Tuesday: Shipping company
    Amazon on a Wednesday: Streaming service
    Amazon on a Thursday: Grocery Store
    Amazon on a Friday: In-home assistant
    Amazon on a Saturday: Controlling the internet

    Amazon in 5 years: Human production

  12. Comment Section Percentages:
    90% talking about the smooth transition to the ad
    8% talking about how awesome PolyMatter is
    2% saying the percentages of the comment section

  13. When Amazon's business models stop benefitting the customers, they will be forced to break as a monopoly to ensure competition

  14. still fucking hate amazon since the bookstore days. also i'm not sure people outside the US are so satisfied with them – i mean they can't even hide products that don't ship to my address in central europe.. xD

  15. I truly and utterly hate companies like google and amazon. They invade privacy, and profit off of incorporating their products into everything we do. Google is much worse than amazon in privacy invasion, but I digress. I just wish for a future in which we can have all of our information private and safe.

  16. They make products cheaper to gain market share. They sell the kindle for cheap, because they gain so much profit from the sales that follow.

  17. Amazon kills stores in the downtown, underpays it's employees… They are not paying any taxes everywhere. Nowhere. These tactics need be scrutinize more than to be celebrated. But everyone wants "more comfort".

  18. heres a new one. The way you slipped in the ad was so cool it actually shaved time off… i not as good as you. but im buying shave club and im only 13

  19. Amazon is going to own your house and your car tell you what doctor to go to what Dennis to go do what phone do you use Amazon will control everyone's lives

  20. When Amazon CEO don't need to do shaving and still selling razors. Ironic combination of video and ad in that case of coincidence.

  21. Monopolies though can't possibly ever benefit demand in the long run…

    Even If you can save a few bucks buying from Amazon right now, in a couple of years, Amazon is just going to raise prices up by an order of magnitude (as it has already done in the past, when the competition went bankrupt).

  22. Is it just me or does life feel so dull when you get a package from a beautiful country or something, like that water bottle you just bought from morocco has seen more than you will ever

  23. My girlfriend now works for ATS (amazon transportation services) at Amazon, which is basically a new sales team/division trying to basically undercut Fed ex & UPS & USPS. My gf thinks she’s good at sales bc all she has to do is sell someone a price slashed service. Any time you can offer the same or similar service for half the price it’s unfair. This is Amazon’s game though, price cutting while being non profitable. Mind you she was working in a division called Amazon Restaurants at first which just recently got shut down bc amazon couldn’t compete with doordash and Uber eats, just saying.

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