Amazon (cloud computing and an example of disruptive technology)

Started in 1994, when few people had the Internet in homes and the idea of making money selling books online seemed laughable. Since then the company has disrupted the world of shopping. It hss the largest Internet-based retail and worldwide sales and market capitalisation (Wikipedia 2016); even though it continues to make losses, eg in the 3 months to September 2016, its retail operations made a US$ 286m. loss.

On the other hand, its Amazon Web Services (AWS starting in 2003) and its cloud computing division has become a success story, ie making $US 861m. profit on sales of just US 3.2 b. in the 3 months to the end of September 2016. AWS has been estimated to be worth around US$ 150b. , ie more than half Amazon's total market value.

It allows companies, like NetFlix, BBC's iPlayer, Airbnb, etc to rent vast amounts of computer power on Amazon's own infrastructure.

AWS started as a way to handle the constant IT battles to keep Amazon's website running, ie websites crashing amid an influx of demand. Thus it developed colossal computing powers that it could rent out to smaller firms over the Internet. It provided huge savings for the smaller firms who could hire Internet services and/or crunch large amounts of data without needing to buy and operate their own physical computer servers and associated running costs. It was like being able to plug into the electricity grid instead of buying your own generators (see Po).This concept helped develop "cloud computing" (the practice of using a network of remote servers hosted on the Internet to store, manage and process data rather than a local server or a person computer). Thus firms like Amazon, Microsoft, etc who had developed massive computer infrastructure that they could hire out to other firms. Suddenly almost infinite computing and storage power became accessible to anyone on demand and the companies only pay for what they used. For example, start-ups such as Dropbox, Pinterest, Spotify, etc were able to deal with surges in demand instead of collapsing. Also, there were considerable cost savings as they did not have to buy and run their own expensive computer servers, set them up and hire staff to deal with them

This provided almost infinite commuting and storage power that became accessible on demand was paid for only when used.

Potential competitors like HP, Cisco, IBM, Microsoft, etc were slow to realise its potential. Microsoft's Azure started in 2010 and is now number 2 in the marketplace.

More and more organisations are using cloud and thus disbanding their own infrastructure. It is in its early stages of adoption, ie annual revenue of around US$ 13 b. (2016). It is expected that in the future most company will use cloud rather than their own data centres.

In 2016 they are adding new features to AWS like giving customers access to Amazon artificial intelligence algorithms for recognising images and converting speech to text. Also its clientele is changing from start-ups to blue-chip companies like McDonalds (global fast food restaurant chain) and government organisations like FINRA (the body that regulates US stock exchanges).

Amazon's technology architecture handles millions of back-end operations every day plus queries from more than 0.5 m. third-party sellers. They record data on customer buying behaviours which enables them to offer or recommend specific items, or bundles of items, based upon preferences demonstrated through previous purchasing decisions.

Amazon employs a multilevel e-commerce strategy, ie

- initially focused on Business to Customer (B2C) relationship between itself and its customer

- then explored Business to Business (B2B) relationships between itself and its suppliers

- now incorporates Customer to Business (C2B) transactions based on the value of customer reviews as part of the product descriptions

- more recently its strategy has includedCustomer to Customer (C2C) with the provision of the Amazon marketplace which acts as an intermediary to facilitate consumer to consumer transactions (James Titcomb, 2016)

"...the company lets almost anyone sell almost anything using its platform. In addition to an affiliate program that lets anybody post Amazon......earn a commission on click-through sales, there is now a program that lets these affiliate built entire websites based on Amazon's platform..."

- Microsoft buying Nokia to protect its traditional platforms like Windows

. These "successful" organisations become maintainers rather than innovators

. Creative destruction -old are replaced with new, eg technologies, expertise, firms, etc.; winners & losers

. An indication that a product or organisation is near the peak of the S-curve is when they start making cosmetic changes rather than technological, eg change the colour of a product, etc

Furthermore,

"...Just because a company stumbles - or get smacked......by an unexpected event or challenge - does not mean that it must continue to decline. Companies do not fall primarily because of what the world does to them or because how the world changes around them; they fall first and foremost because of what they do to themselves..."

Jim Collins, 2008

Some organisations become a victim of their own success and size. As their success grows, so does the size of the organisation, and the thinking evolves from innovation to protecting the successful product, services, etc. The organisations become, at best, maintainers rather than innovators.This is more obvious in industries with rapidly changing technology. Some examples include the watch industry in Switzerland not taking up the digital technology, IBM and Dell in computers, Yahoo as a search engine, smart phones with Nokia, Zynga in mobile games, etc. Are Microsoft, Apple, Facebook & Google next?

For exmple, Dell initially disrupted the PC industry when it introduced build-to-order and direct online sales; over the years it became the industry leader. But the industry landscape changed, eg mobile phones becoming minicomputers, etc and they remained stuck within a commoditised PC market.

One firm that has used digital technolgy to change the way it does business is Disney, ie its clients are no longer BBC or RTZ but iTunes, Google, PlayStation and Microsoft. There was a proliferation of channels/platforms/devices, etc wanting to deliver Disney's content and this put Disney in a position of power. The new technologies opened up commercial opportunities and new revenue streams, eg

"...you could look at the way in which programs were sold; they could be sold to one person for one platform for one experience and later to somebody else for a different experience......Disney was the first company to put long form episodes on the iPod......technology defines how content is created, how it is distributed and how it is consumed...... if you have a platform that can't respond to the sort of digital expectations of the consumer, you are in trouble..."
Catherine Powell as quoted by Joanne Gray, 2016a

It is about connecting all the lines of Disney's business that go under the one brand like stage shows, retail and licensing products, release of films, programming and distributing TV channels, theme parks, etc

NB

"...The essence of innovation is also obsolescence..."

Allan Gray as quoted by Vesna Poljak, 2013

In addition to becoming maintainers rather than innovators, other indicators of being victims of their own success and size are increase focus on

- incremental improvement of current products rather than creative destruction or disruption, eg making cosmetic changes like colour/size of product, rather than technological

- bureaucracy, ie less flexible with more hierarchical, process-focussed, rules & regulations orientated, etc

- silo performance, ie organisation becomes more specialised, segmented, departmentalised, etc with focus on groups rather than whole organisation's performance

- abuse of market power to protect the status quo, eg monopolistic activities, anti-trust charges, etc, Some examples include

i) Microsoft has paid US $3.4 b. in fines to European courts over a decade

ii) Intel is appealing its anti-trust case that started around 2000

iii) Google is fighting the EU anti-trust regulator's claim it has illegally abused its market dominance (2015)

- buying competitor or products/services/staff, etc from other innovative, successful organisations for market share, revenue, etc rather than innovating themselves like Apple's iTune buying Beats to keep its position in music industry and Microsoft buying Nokia to get into the mobile phone business, etc

Remember:

"...Even something that has had a long term success, it's only a knife edge away from failure..."

Steven Lowry as quoted by Jemima Whyte, 2015

 

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