Having read the compelling biography on Jeff Bezos, ‘The Everything Store: Jeff Bezos and the Age of Amazon” by Brad Stone, I came away believing that Amazon is a long-term short and the main reason pertains to the Amazon Brand. I must qualify that it would be a very long long-term short. In the meantime, Amazon is likely to be a great investment vehicle since they continue to pioneer and are consistently upsetting the apple cart (although not yet the Apple Cart). Investing is a matter of time (and timing) and I’m no wizard in this regard. Unlike most stock market aficionados and analysts, I am not focused on the Amazon business model* and its profitability (or current lack thereof) per se. I look at Amazon with my own rose-tinted glasses of a brand marketer. Is Amazon creating a sustainable brand?
Amazon – The Classic U.S. success story
In many ways, Amazon represents the best of what America has to offer. A founder and CEO who thinks BIG. A spirit of innovation. A can do attitude. A founder who, while exceedingly wealthy, remains hungry and is still deeply hands on. Bezos has a talent — apparently shared with Steve Jobs per the Isaacson biography — for reality distortion. He has vision. He has has made it his business to become the most customer centric organization on Earth. Behind his vision and 20% ownership, Bezos is all about the long-term which, in a stock market-run world, is an exceptional quality — dare I say, an asset. The issue is that the largest and most valuable part of Amazon lies in the form of the founder.
Amazon brand – the long term value
However, Amazon and the Amazon brand is being constructed in a manner that I believe is not built to last (one of Jeff Bezos’ favorite books). Even if Amazon is built to grow fast for the foreseeable future, the issue is that all good things come to an end, especially when it comes to publicly traded companies. The cycle of growth will inevitably come to end, especially as/when distributor margins are tightened (ignoring the current margin-less existence that Bezos is affording the company in order to invest in the future). The question is what are the durable and meaningful values of the Amazon brand that will help carry it into the future. There are the five prime reasons for my less-positive position on Amazon’s long-term value:
- No Successor. The issue of a successor is a shorter term issue. There is — worse, there can be — no viable successor to Jeff Bezos. Bezos will have to step down at one point, if it doesn’t happen by force — as highlighted by the recent health scare while holidays in the Galapagos, this new year’s, just ahead of his 50th birthday. Beyond his brilliant mind, his vision and his ability to steer the company through twenty glorious (if at times perilous) years of growth, Bezos is irreplaceable. His brash manner, his indomitable spirit and his boldness are signature characteristics of the founder. For someone to be able to pursue the same approach will just not be possible. Taking the brazen decisions that have defined Bezos’ reign takes not just a certain profile, but a type of ownership structure and decision-making system. Moreover, is Bezos able/keen to find and foster a legitimate heir? Apple is an interesting parallel. Only time will tell if Tim Cook will be able to take Apple to the next level. For now, the jury is out.
- No Higher Purpose. The internal slogan of Amazon is defined as “Work Hard. Have Fun. Make History.” When I talk about the Marketing of the 5E’s, I refer to the Essence of a brand. This relates to having a higher purpose. The question is to what extent “making history” will be doing “good.” What is it about “making history” that resonates with its employees and customers? Making history by being the BIGGEST distributor or being the one to grow FASTEST to $100B, are not durable or empowering traits. Jeff Bezos’ Amazon has inscribed a powerful customer-centric creed. The Amazon philosophy is broadly speaking built around the concept that any investment must be geared to bring the customer value. Meanwhile, Amazon does not strive to serve a higher mission for the people. Bezos has personally invested in fabulous projects or entities such as the Space Origin, the Clock of the Long Now and the Washington Post. However, these investments are personal. Bezos’ position is that philanthropy is not what the Amazon shareholder is seeking. I believe that shareholder value will come from having motivated and engaged employees who are prepared to go beyond. Without necessarily talking about philanthropy, Amazon needs a higher purpose beyond making money and becoming big. Having a higher purpose taps into ethics and emotions which deep down craft our beliefs and drive our motivation. It is my conviction that the employees’ desire to overachieve and give more than the average is one of the keys of creating long-term shareholder value.
- Employee Fulfillment. From reading the Bezos biography and anecdotal evidence, there seem to be a limited number of employees at Amazon that are genuinely “happy” and/or fulfilled based on an accepted culture of life/work imbalance. By constantly extracting the most out of its current employees, the likely consequence of employment at Amazon is burn-out or burn through. Such a ‘regime’ is not sustainable over the long term. What I would be interested in seeing is how more value can be inserted into the daily workflow for the employee. Fun is good, but in down years, fun has a nasty way of being squeezed out of the picture. I think that work/life balance is indeed difficult to reconcile with creating cutting edge shareholder value. However, there needs to be more life inserted into the course of day’s work.
- Value. The search for diminishing costs and EDLP (Every Day Low Price) will have its limits over time. Perhaps Bezos is creating the most efficient and effective distribution model existing. However, as a branding guy, the marketer’s role is to create value. Embedded in its EDLP strategy, Amazon seems to be all about subtracting value as much as possible, notwithstanding the exceptional and customized user experience.
- Product. In a market driven distributor model, margins are by definition thin. It’s all about volume. However, on its eCommerce site, Amazon is merely serving as an agent. Sure, there are good margins when Amazon serves as a marketplace. However, over time, having optimally negotiated and bilked its suppliers, Amazon will need its own products in order to extract higher margins. The Kindle is surely one of the answers. Certainly, in its arsenal, the AWS and Kindle are powerful arms. The question will be to what extent Amazon will be able to provide white label products and, along the way, substantiate its brand with hard core goods?
Certainly, to talk of Amazon’s demise might be completely inappropriate near term. Any “short” on Amazon is a long term issue. What will delay that decline? Two of the keys will be Automation (removing the human component) and Innovation – (AWS, 3D printing, drone delivery…). For now, Bezos is alive and kicking. Momentum is good and the market opportunity is vast. So, for the near term, the Amazon prospects remain good — Don’t rush out and short the stock just yet. However, the Board and brand team at Amazon should be plunging into the five strategic questions above with gusto.
*This article published in October 2013 by former Amazon employee, Eugene Wei, is rather insightful and a worthy read.