Why Amazon Always Wins — a visual essay

This is the text corresponding to an upcoming video essay, the first of a series on business issues. It was originally published on Medium.

Amazon launched in 1994. That same year, cult movie ‘Clerks’ was released. Fast forward 2 decades and coincidentally the rather rude clercks featured in the movie may have anticipated Amazon Go’s “just walk out” technology (whereby removing clerks altogether).

In 1994 it would have been easy to miss the Amazon launch. The most exciting tech launches that year were called Sony Playstation and Netscape.

tech in 1994: one shade of grey

Jeff Bezos’s idea to sell books online was always meant as a first step. Books were chosen not for the love of books but because there were more items in the book category than in any other category of products. This idea and subsequent expansion of Amazon product range to its current was going to make him the richest man in the world in 2017, 23 years after quitting his job at a hedge fund to launch his startup.

Brick and Mortar vs Online, or Amazon vs Retail?

The state of retail

Retail has has evolved and replicated — with each innovation having a profound impact on the industry. Markets (3000AD), shops with a storefront (18th century) still exist today. Departments stores (19th century), then malls and supermarkets (20th century) were the great disruptors of their times.

In fact the impact of supermarket on grocery shopping, gaining market share from 3% in the thirties to over 50% in the sixties makes e-commerce look slow and meek in comparison (currently standing at 17% of total 20 years after its birth).

The difference between e-commerce and the previous disruptions in terms of competitive landscape is that one company, Amazon, dominates and has achieved global reach like no supermarket ever could.

  • 1st in customer satisfaction
  • 44% of US e-commerce in 2017
  • 50% of global e-commerce growth in 2017 (ex-China)

Why is the stockmarket loving Amazon?

While Amazon is clearly the MVP of e-commerce, it looks like just another player in the broader retail field. It’s worth comparing it to the world’s largest retailer: Walmart.

2017 was Amazon’s best year and a very poor one for Walmart yet if you compare the figures for Walmart and Amazon in 2017 the size difference is clear:

  • Walmart’s turnover is 2.8 larger than Amazon’s
  • Walmart’s profits are 4.5 higher than Amazon’s
  • Yet Amazon’s stockmarket ($780 bn) value at the end of 2017 is 3 times that of Walmart ($260bn).

By contrast, the stockmarket ride is even starker when taking a long view. Here is the change in share price of major retailer in the decade spanning from 2006 to 2016

2006–2016: change in share price, major US retailers

The traditional opposition of “brick & mortar vs. online” is fading away in the age of omnichannel and as the ecommerce adoption rate nears 100%. That chart makes it look like “Amazon vs. the rest of retail” is a more valide one.

This stratospheric market valuation give Amazon an unfair advantage over all its rivals: it has access to super cheap capital.

Amazon and profits

Although things began to change in 2017 when Amazon reported a $3bn net profit, its history shows a patchy and lacklustre track record in that area.

That’s annoying to some people.

Coming from a traditional point of view, Ben Graham’s Intelligent Investor(1949) is still my only referencefor personal finance. I couldn’t figure out myself until I read The Four (2017) by Scott Galloway. It is now clear that Amazon tries very hard to spend all the money it makes :

  • It is the biggest spender on Research and Development : $22bn in 2017
  • Buying expensive warehouses close to city centers to reduce delivery to one day or a few hours: a few billions?
  • Customer service: from personal experience if you buy anything on Amazon it’s so easy to get a refund that you really wonder how much money they are ready to lose.
  • If you were a business that delivers you’d probably want to charge a but more than what delivery costs you. Amazon loses $7 bn on delivery.

Why do they do that?

In the retail Game of Thrones, Amazon is getting dragons, Valyrian steel weapons, and a wall. They are making it really hard for anyone to catch up.

Amazon’s delivery and customer service is ready for

How can they do that?

The real super power is the one that allows Amazon to get all the others, and one that Game of Thrones also excel at: storytelling.

“The best storyteller of our age sans may be Steven Spielberg -Jeff Bezos.”

Scott Galloway, The Four

The core of that story is about being the most customer-centric company in the world. What is startling about Amazon is that when you look at the company this fees real in everything the y do. It goes much further than listening to customers.

Finally the story is only credible because it is brought to life by the growth and written in numbers. The chart of Amazon quarterly revenue is impressive by its steepness but also its regularity.

The only irregularity to be spotted is in Q2 2017 which accelerates unusually.

Net revenue of Amazon from 1st quarter 2007 to 4th quarter 2017 (in billion U.S. dollars)

Bold bets on innovation

With so much cheap capital, Amazon can take risks and innovate. Kindle, Prime and now Alexa have gone mainstream. Innovation like Prime Air may be more PR than substance. And it’s not sure if the“Flying warehouse” that Amazon has patented will ever fly.

The biggest innovation by far however is AWS Amazon Web Service (the world leader in cloud services) — on that is actually bringing in more money than the company’s retail business.

Finally there is a sort of innovation that Amazon doesn’t like too speak too much about: AI and Robots.

There is something uncomfortable about these little guys living in the Amazon fulfilment center and you wonder how many jobs they replace.

3) It can make people pay to shop

In addition to innovation and cheap capital Amazon has another huge advantage: Prime.

If you had never heard of it you would be forgiven for thinking it’s crazy to subscribe then pay for shopping. But just check out the guy in the Amzon ad who is using Prime when he runs out of toothpaste.

He is not alone, in fact he represents the majority of US households 52% are subscribed to Prime (52%). Obviously they don’t join just for shopping there are a lot of perks, but Prime customers are also by far the most active so shopping is ultimately what it is about.

What next? Is it Day 2 yet?

It’s been an exciting run for Amazon.

It’s a fascinating and yet, mysterious organisation.

Can it continue to post minimal profits while being one of the most valuable companies? It’s the 10th biggest employer, but what is its impact on jobs and society?

As it has become the leader and the target for everyone can it compete against all of them?

  • Supermarkets like Walmart are introducing technology through the shopping process.
  • Others are teaming up with tech companies like Google and Carrefour to take on Alexa
  • Politicians are getting involved

One question though has a clear answer:

What does day 2 look like?

Despite all the incredible technological and commercial achievements what I am most impressed about is how the vision and culture remains so clear for a company of that size.


One thing is sure for Amazon it is just the beginning because it looks like it will still be Day 1 for a while.