Sellers familiar with Amazon have heard of the flywheel theory. Simply put, it is to bring traffic by improving user experience and continuously promote the growth of the platform. In the process of platform growth, more low-priced products are brought in through low costs, and better consumer experience brings more traffic and conversions, which will attract more sellers to settle in. It can be said that Amazon has successfully established a platform-based business model through its flywheel theory.
Amazon’s flywheel theory began in 2000, when Bezos invited management consultant Jim Collins to help the company through the Internet bubble. By discussing the key factors and underlying logic of Amazon’s past success, they jointly formulated the goal of “creating more value for customers” and transformed this goal into a recurring Amazon flywheel.
For e-commerce, consumers are most concerned about price and delivery. As long as Amazon solves the problems of price and delivery, the user experience will be greatly improved. After attracting more third-party sellers, Amazon can share fixed costs such as logistics and servers to ensure that it obtains more profits. At the same time, higher efficiency enables it to further reduce prices and repeat.
In addition to traditional retail business, Amazon, with the support of AWS, is more like an IT company. For AWS business, Amazon also has its flywheel model: by adding a large number of developer tools, more third-party devices are attracted to AWS, and more people start to use AWS. At this time, the scale effect appears and the cost is rapidly reduced, so Amazon can provide more developer tools at a lower cost, which ultimately leads to the expansion of scale and profit growth.
In 2007, Amazon began to provide FBA outsourcing logistics services to third-party sellers; in the same year, it released Kindle e-books, taking advantage of its long-term advantages in operating book categories and quickly occupying the e-book market through software subsidies for hardware. In 2014, Amazon launched the smart speaker Echo equipped with virtual personal assistant Alex, which greatly enhanced Amazon’s offline presence and became the key to its collection of consumer data and purchasing decisions.
From 2007 to 2017, Amazon successively acquired a number of companies, including Zappos, which accounts for more than a quarter of the total value of the US shoe network market of US$3 billion, Quidsi, the largest online diaper and baby products retailer in the United States, and Whole Foods, the largest natural and organic food retailer in the United States. While eliminating potential competitors, Amazon has also formed a comprehensive layout in technology and market.
During this process, Amazon tried and explored new opportunities in the market to a limited extent, but it focused more on improving its e-commerce platform. In 2017, Amazon’s stock price also achieved a historic growth, and Bezos once became the richest man. According to a survey report in 2018, Amazon ranked first among the top 10 most popular websites in the United States, which also proved that Amazon successfully completed the flywheel and created its own brand effect.