Amazon. Infrastructure that is hard to catch up with

Amazon began selling books online in 1995 and went public in 1997. In his first letter to shareholders Jeff Bezos wrote that the company would choose long-term value over good-looking quarterly results. In 1997 revenue was $147.8 million, and the company was still losing money.

Investors expected profit, while the company kept putting money into warehouses, logistics and technology. Each such investment looked like an expense in the reports.

In retail, where prices are easy to compare, the advantage comes from a system: speed of delivery, range, convenience. Such a system takes years to build, and its value does not show in current profit.

The company consistently invested in infrastructure and opened it to others. In November 2000 third-party sellers were allowed onto the marketplace. In February 2005 the Prime subscription with fast delivery appeared. In 2006 the company began selling its warehousing services and computing capacity to others: that is how Fulfillment by Amazon and Amazon Web Services came about.

Each new business used what had already been built: the warehouses worked for third-party sellers, the servers for outside customers, and Prime increased how often people bought. Internal processes were written down and standardized so they could be repeated and sold as a service.

Infrastructure built for the company's own retail became separate businesses. Amazon Web Services grew into one of the world's largest cloud providers. Amazon's advantage came from systems that competitors find hard to copy quickly.

Scale gives an advantage when, together with volume, the company builds a repeatable system. Sometimes an internal system can be turned into a separate product.

• Which system investments are you postponing because of this year's profit?
• Do you have written principles for decisions, or is everything decided case by case?
• What in your business already works as a platform, and what still depends on individual projects?

We would start by describing which company processes repeat without the owner's involvement, and assessing which of them can be scaled or offered to outside customers.

• Amazon.com. *1997 Letter to Shareholders*, reprinted in the 1997 annual report.
• Amazon.com. Annual reports (Form 10-K) for 2000–2006, section "Business."

Next case analysis: Target in Canada. Entering with 124 stores at once →