Amazon is the most exciting company in the world. You encounter it regularly — be it those Prime boxes lying around peoples’ rooms, the Same-Day Delivery trucks you see zipping across the road, or simply the vast number of websites you visit that are using its technology. It’s ubiquitous, but not obnoxiously so.

So how did the company get this large and omnipresent so smoothly? How did a mere online bookstore that made no profits for the first 20 years of its existence, become a company with its fingers in virtually every pie?

Amazon’s strategy has three major components to it. While I usually look for a single focused hedgehog concept, the company, and Jeff Bezos’ vision has grown to a point where there seem to be three unique ones, and each fundamental to the way the business operates.

Cheap, Fast, and Convenient

The first concept ties into its delivery service. Amazon aims to be the cheapest, fastest and most convenient retailer in the world. A majority of its actions are focused on accomplishing this primary goal. Let’s start with how the company is structured physically. Most of Amazon’s physical presence is in the form of its fulfillment centers.

These fortress sized storage warehouses are where the delivery magic happens. They are a testament to how Amazon is the unparalleled king of the logistics game. Allow me to take a slight detour to demonstrate just how brilliantly your packages are handled.

A system called ‘Chaotic Storage’ is used. Even behind the apparent disarray, though, Chaotic Storage is the most optimal method of handling packages. The trick lies in how it organizes packages in the flow itself.

  1. Employees take packages and place them wherever they can find space and use it effectively — they record which package is in which space.
  2. When the package needs to be shipped, it’s picked up from the space, and scanned out. Pretty straightforward, eh?
  3. Bring in the robots — a huge chunk of this is automated and as a result you have these robots zooming around the place. They’re picking up and dropping off packages, having a hot cup of grease on their break, and generally mingling with the other occupants of the center.

This doesn’t seem like a very well thought out organization strategy, until you factor in the ability to be flexible in times of mass demand, time saving so that you can actually handle bulk as opposed to spending all your time sorting, and minimum requirements with regards to conditions of weather, humidity and so on.

Then you zoom out, and realize that Amazon even organizes what products go where… before they’ve even been ordered. Complex predictive algorithms are used to anticipate consumer demand, and Amazon uses their inventory at each warehouse accordingly. Every aspect of the process is optimized to make the service quick and easy for the consumer. Hell, that’s how these guys fixed the grocery store.

Horizontal Integration

The second tenet of the Amazon rulebook is that of horizontal integration, and it goes as follows —

In times of doubt (and surplus capital), horizontally integrate into industries to raise the bottom line, and focus on low-cost and high utility.

This one is how you explain Amazon’s seemingly random presence in the web storage, streaming, and the ‘owning a bunch of completely unrelated companies’ market.

All the markets listed above have slightly different driving forces — with web storage, the idea was to raise the bottom line, and Bezos was careful not to make what he called the ‘Steve Jobs’ mistake. Basically, don’t price high and make a market so enticing that every Tom, Dick and Harry is trying to compete. With AWS, Bezos set a standard for low cost and high utility that was almost fiscally irresponsible. This sacrifice of short term profitability for long term market dominance and success, was a tradeoff Bezos felt was necessary.

Streaming had a different motivation entirely — be it music streaming or television and film, the whole idea behind having a service for people to access content and producing their own content, was to incentivize more people to buy Amazon Prime. Another add-on to make people buy Amazon’s big money-maker. It’s definitely working out, though — Amazon just became the first streaming service with an Oscar nomination for Manchester by the Sea, and buying out former Top Gear hosts for the exclusive Grand Tour was another master stroke in convincing foreign markets to buy in to Amazon Prime.

The ‘owning a bunch of unrelated companies’ is another trick simply used to raise the bottom line. Well, that and help monopolize various industries. Think about all the companies Amazon owns — Audible, AbeBooks, Goodreads, IMDb, and Zappos. Amazon has basically singlehandedly cornered the market for audiobooks, used books, book reviews and ratings, film reviews and ratings, and human interaction (As Zappos CEO Tony Hsieh says, Zappos doesn’t sell shoes — it sells customer service). These probably don’t make Amazon a huge chunk of money, but they definitely raise its valuation, bottom line, and market ownership. Not a bad way to spend a few bucks.

Invest Everything

Amazon’s master stroke at the end of all this is to just blow money wherever it can. Literally. When I say that Amazon wasn’t profitable for its first 20 years, I don’t mean it wasn’t making money. It was making plenty of dough — enough to make it more profitable than most. But instead, Bezos decided that he wanted his profits to be spent on long term growth. And so began the long cycle of investing in everything from pioneering technology to new markets.

The pioneering technology bit is done somewhat haphazardly. Whether there is a visible utility or not, Amazon will put its money into whatever is hot. With drones, the utility is evident, although the payoff has not yet been. With artificial intelligence too, Alexa and the Echo, the investment has already proven itself. But Amazon is no stranger to failure — Bezos famously said that he’s wasted billions of dollars of Amazon’s money. Here’s the catch, though — the successes dwarf the failures so immensely, that you can just take a few billion dollars, a cell phone here and there, and Pets.com, and casually brush it off your shoulder.

Markets are another one of Bezos’ largest targets — whenever he sees a market coming up, or competition beginning to establish market share, he swoops in, and with the mighty fist of economies of scale, logistics know how, and penetrative pricing, crushes them out of existence. This happened in India, where the moment Flipkart was rising to dominance, Amazon aggressively expanded and established itself as the head honcho. And India won’t be the last place Amazon aggressively establishes its domain in. It’s a monopoly that’s so good for consumers, nobody is complaining, and every market is just waiting for Amazon to open the floodgates.

The Takeaway

Unlike a regular company, Amazon runs off of three hedgehog concepts, which are —

  1. Be cheap, fast, and convenient.
  2. Integrate horizontally.
  3. Invest in everything.

These are the main reasons Amazon has held its reign in consumer retail for so long, while also creeping into various other domains, and its the same reason that Big Brother is probably not the Orwellian society you need to fear, but more likely the free helicopter accompaniment Amazon is going to give you for free when you subscribe to Prime.