Amazon Founder – Ruthless Capitalist

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On 60 Minutes December 1 show Amazon founder, Jeff Bezos, was interviewed by Charlie Rose. For those of us who don’t watch this program, the major news outlets made a big deal out of Bezos unveiling future plans to make deliveries by unmanned drones. He was probably glad they made that the big deal instead of the idea that Amazon is “ruthless”.

Now if CBS had interviewed one of the Koch brothers or the CEO of Chick-fil-A or Hobby Lobby, then portraying them as “ruthless” is appropriate. The left has this idea that rich Republican capitalists are only rich because they are unscrupulous and horded and stole other people’s money. At the end of the 19th century they started calling them robber barons. They also talk about “unfettered capitalism” which has never existed. Politicians have always “fettered” capitalism to a certain degree. Big successful companies appreciate the fettering politicians do as long as the hardship is greater on their smaller competitors than it is on them.

The left never complains about ruthless governments. They will excuse any hardship from government interference because the government has such good intentions and has so much caring. Ugh.

As you read the transcript of a portion of the interview, imagine if Jeff Bezos had chosen selling health insurance policies instead of selling books. The private sector market has the savvy to do what the federal government can never do. They can make a profit while driving down the costs to their customers.

CBS transcript

Jeff Bezos is the founder and CEO of Amazon, with an estimated worth of at least $25 billion. He sold his first book on Amazon in another era, back in 1995.

Charlie Rose: Part of what Amazon customers expect—we want it now. What’s happening at the fulfillment centers that have made that possible?

Jeff Bezos: The secret is we’re on, like, our seventh generation of fulfillment centers. And we have gotten better every time.

Amazon vice president Dave Clark showed us how the process begins. After the products arrive into the building, they are immediately scanned. The products are then placed by stackers in what seems to outsiders as a haphazard way…a book on Buddhism and Zen resting next to Mrs. Potato Head…

Charlie Rose: Here’s what I want to know. This is a Swiffer.

Dave Clark: It is a Swiffer.

Charlie Rose: It’s sitting next to the Encyclopedia of World History.

Dave Clark: Of course.

Charlie Rose: That doesn’t make any sense to me. Does it make sense to you?

Dave Clark: It, it does.

Charlie Rose: What?!

Dave Clark: Can those two things, you look at how these items fit in the bin.

Charlie Rose: Yeah, oh!

Dave Clark They’re optimized for utilizing the available space.

Charlie Rose: Oh I see.

Dave Clark: And we have computers and algorithmic work that tells people the areas of the building that have the most space to put product in that’s coming in at that time.

Amazon has become so efficient with its stacking, it can now store twice as many goods in its centers as it did five years ago.

Charlie Rose: Tell me what is Amazon today?

Jeff Bezos: I would define Amazon by our big ideas, which are customer centricity, putting the customer at the center of everything we do, invention. We like to pioneer, we like to explore, we like to go down dark alleys and see what’s on the other side.

Bezos believes low costs ensure customer loyalty to Amazon, even if it’s at the expense of profits. Amazon is one of the rare companies that on a quarterly basis shows little profit and yet is beloved by investors.

Jeff Bezos: In the long run, if you take care of customers, that is taking care of shareholders. We do price elasticity studies. And every time the math tells us to raise prices.

Charlie Rose: But why don’t you do it?

Jeff Bezos: Because doing so would erode trust. And that erosion of trust would cost us much more in the long term.

That long view, Bezos believes, gives Amazon a distinct edge.

Jeff Bezos: The long term approach is rare enough that it means you’re not competing against very many companies. ‘Cause most companies wanna see a return on investment in, you know, one, two, three years.

I’m willing for it to be five, six, seven years. So just that change in timeline can be a very big competitive advantage.

For example, Amazon’s profits are redirected to building more distribution centers, like this one in New Jersey. The more centers it constructs, the closer the customer and the faster the delivery. And every time a new one goes up, publishers and traditional retailers shudder…

Charlie Rose: A lotta small book publishers and other smaller companies worry that the power of Amazon gives them no chance.

Jeff Bezos: You gotta earn your keep in this world. When you invent something new, if customers come to the party, it’s disruptive to the old way.

Charlie Rose: Yeah, but I mean, there are areas where your power’s so great and your margin, you’re prepared to make it so thin that you can drive people out of business and, and you have that kind of strength. And people worry: Is Amazon ruthless in their pursuit of market share?

Jeff Bezos: The Internet is disrupting every media industry, Charlie, you know, people can complain about that, but complaining is not a strategy. And Amazon is not happening to book selling, the future is happening to book selling.

Now that you have read this portion of the interview compare the principles Jeff Bezos articulates to the accomplishments of some of those “robber barons” in the late 19th early 20th century. The principles are not changed. The only change is advances in technology to implement the principles.

Charles Schwab’s biggest move at Bethlehem Steel was his challenge to U.S. Steel in the making of structural steel. Here he focused on an innovation in making the steel beams that went into bridges and skyscrapers. Schwab had been listening to Edward Grey, who had the idea of making steel beams directly from an ingot, as a single section, instead of riveting smaller beams together. Grey claimed that his invention provided “the greatest possible strength with the least dead weight and at the lowest cost.”

The other steelmakers rejected Grey’s theory; but Schwab was eager to try it even though it would cost $5 million to design the plant, build the mill, and pay Grey’s royalties. The experiment worked. This cheaper and more durable beam quickly became Schwab’s greatest innovation and he captured a large share of the structural steel market from U.S. Steel.

Schwab had transformed Bethlehem Steel. Even before World War I his company had become the second largest steelmaker in America. The New York Times praised Bethlehem Steel as “possibly the most efficient, profitable self-contained steel plant in the country.”

John D. Rockefeller was attracted to the substantial—and then stable—profits of the refining industry, in contrast to the production industry, which alternated between incredible booms and busts.He was not, however, impressed with the efficiency with which refiners ran their operations. He believed he could do better.

Rockefeller, from a young age, exhibited an obsessive, laser-like concentration on whatever he chose as his purpose. Applied to the task of minimizing costs and maximizing revenues in his refining operation, Rockefeller’s focus brought Standard Oil phenomenal success.

While other refiners took any given business cost for granted—including the cost of barrels and the cost of crude—Rockefeller put himself and those who worked for him to the task of discovering ways to lower every cost while continuously seeking additional sources of revenue.

Henry Ford’s success in making the automobile a basic necessity turned out to be but a prelude to a more widespread revolution. The development of mass-production techniques, which enabled the company eventually to turn out a Model T every 24 seconds; the frequent reductions in the price of the car made possible by economies of scale; and the payment of a living wage that raised workers above subsistence and made them potential customers for, among other things, automobiles—these innovations changed the very structure of society.

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