"It built the largest private satellite communications network, enabling unprecedented coordination at enormous scale."

"Computerized point of sale systems, a massive trucking fleet to enable best-in-class logistics, innovations in EDI, the Sam’s Club format. The list goes on. But all of these innovations were really just developed in order to optimize what was a very simple formula: that is, the selection, pricing, and inventory of SKUs in, say, a 30,000-200,000 square foot store."

"But, fundamentally, Walmart’s business was mostly about the first two things that Mr. Walton always mentioned: “a wide assortment of good quality merchandise” at “the lowest possible prices.”"

"The buyer’s job was to identify high-quality merchandise that the customer might want, and then negotiate the best possible price."

"Stocking a Walmart store with inventory that the customer did not want was a compounding error: not only did it provide zero value to the customer, it also robbed the customer of the opportunity to buy something that they did need."

"Sam Walton drilled the idea of “thinking small” and focusing on the customer into Walmart’s culture:"

"Rather, Sam Walton was the ‘intelligent designer’ behind the Walmart algorithm: that is, a) “a wide assortment of good quality merchandise”, b) offered “at the lowest possible prices,” c) backed by “guaranteed satisfaction” and “friendly, knowledgeable service,” d) available during “convenient hours” with “free parking” and “a pleasant shopping experience,” e) all within the largest, most convenient possible store size and location permitted by local economics."

"In other words, the size, layout, format, product mix, and the selection/training of the associates in that Supercenter were the result of the algorithm that Sam Walton had designed."

"Walmart can be thought of as a bounded search for the optimal selection, inventory, and pricing of SKUs that a local market could support."

"The advent of the internet – of online shopping – meant that an online retailer had infinite shelf space."

"Whereas a traditional retailer had to weigh tradeoffs within finite shelf space, an online retailer could display page after page of items with near-zero marginal cost for more items."

"In this world of infinite shelf space, it wasn’t the quality of the selection that mattered – it was pure quantity."

"And so, back in 1994, Amazon kicked off its unbound search for the optimal selection of SKUs."

"Amazon added as many vendors as it could feasibly add, far outpacing other retailers because of a bar that was far lower."

"Amazon had bumped up against its first constraint: the speed at which it could add new vendors to its catalog and associated inventory to its warehouses."

"Amazon correctly hypothesized that because vendor selection was not important in the world of infinite shelf space, Amazon itself – or, more accurately, its vendor onboarding process – would be the bottleneck to growth."

"what if, instead of the painfully slow process of onboarding and negotiating with vendors, Amazon could instead open its website to third party sellers?"

"Amazon Marketplace solved a whole host of problems all at once. By allowing sellers to bypass the gatekeepers altogether, Amazon could rapidly fill its infinite shelf space with a vast selection of SKUs not available from other retailers."

"And, perhaps most importantly, it solved the problem of how to negotiate pricing with a rapidly-expanding SKU base."

"but Amazon would collect a 12-15% commission, and gain a data point that its nascent vendor team could use in price negotiation. And, of course, ‘losing’ the sale to a third party seller still meant that Amazon would keep the customer."

"All of these small changes started to add up, and Amazon became the fastest way for a company to start selling online."

"With every seller that signed up for Amazon Marketplace, Walmart’s prized vendor selection machine became more and more of a liability."

"Walmart had solved problems of vendor management, product management, and bureaucracy at an almost unfathomable scale. It engineered intricate systems, aligned incentives, and built a culture of thinking small to stamp out inefficiencies wherever it could find them."

"And Walmart, at its heart, is a company of merchants; it is a human-powered company, and its advantage in the marketplace is that it merchandises better than any other company on the planet."

"After removing the vendor bottleneck, Amazon had discovered the next constraint to filling its theoretically-infinite shelf space: computing power and data storage. To his horror, Bezos had discovered that Amazon’s software engineers were waiting weeks for technical resources like servers and storage to be provisioned."

"Instead of being limited by how fast they could write code, they were limited by how fast they could deploy that code to Amazon’s infrastructure, and so, alongside an effort to dramatically simplify and improve its codebase – which had evolved into a mess of ‘spaghetti code’ in the ten years that Amazon had been in business – Amazon began to build a platform that would allow its software engineers to provision on-demand resources immediately."

"In a radical move, the platform – Amazon’s own technological infrastructure – would be made available to external developers, too. It would be called Amazon Web Services."

"In other words, Amazon could not possibly develop features on its website fast enough to take advantage of all the merchandising opportunities that its products had brought."

"In other words, Amazon was not limited by demand (traffic) or supply (SKU selection) – it was limited by the conversion rate and average order value it could achieve with its current catalog functionality."

"In a similarly radical move, Bezos decided to expose Amazon’s entire product catalog via an application programming interface – an API – so that any software developer, internal or external, could programmatically access Amazon’s catalog and use the SKU data, within reason, in any way the developer saw fit."

"1) Amazon had encountered a bottleneck to growth, 2) it had determined that some internal process or resource was the bottleneck, 3) it had realized that it could not possibly develop and deploy enough resources internally to remove that bottleneck, so 4) it instead removed the bottleneck by building an interface to allow the broader market to solve it en masse."

"Platforms spring up as a necessity borne from unbound searches running at internet scale."

"A company like Walmart, despite being positively massive in terms of revenue, can operate as a monolith – that is, a tightly-coupled collection of internally-facing resources – because it is dealing with a constrained problem space."

"There is a notable exception here: the scale of Walmart’s purchase order volume was so large that it could not feasibly continue to manage the purchasing process on its own. To solve this, Walmart built Retail link – perhaps Walmart’s first platform – to expose its purchasing ‘resources’ externally."

"Walmart began sharing its inventory data with key suppliers, too. The problem of coordinating Walmart’s inventory had grown too large for Walmart to solve on its own."

"It is worth noting that there is one key difference between Walmart’s Retail Link platform and the platforms that Amazon was beginning to develop in the early 2000s: forced competition."

"the supplier is a ‘captive customer’ of the Retail Link service."

"The problem with having captive customers is that, lacking external competitive pressure, a service inevitably begins to degrade over time."

"The service provider is removed from the feedback loop, since, 1) given sufficient market power, suppliers can’t feasibly stop using the service, and 2) the service provider itself doesn’t experience the pain of using its own service."

"With AWS, the risk was that Amazon would become a captive customer to its own technology services group."

"Amazon had already established a strong culture of customer obsession; in any customer-facing product, AWS was virtually guaranteed to show continuous improvement and innovation."

"In other words, Amazon would become just one of many AWS customers – solving its own technological bottleneck once and for all – without creating the typical trap caused by vertical integration."

"in the world of infinite shelf space – and platforms to fill them – the limiting reagent for Amazon’s growth would not be its website traffic, or its ability to fulfill orders, or the number of SKUs available to sell; it would be its own bureaucracy."

"Jeff Bezos issued an edict: 1) All teams will henceforth expose their data and functionality through interfaces, 2) teams must communicate with each other through these interfaces, 3) all interfaces, without exception, must be designed from the ground up to be exposed to developers in the outside world, and 4) anyone who doesn’t do this will be fired."

"Platforms, platforms, platforms"

"His first stroke of genius was in making it unbound; his second – the masterstroke – was devising a solution to the bureaucratic complexity that would have otherwise caused it to implode."

"It found that Marketplace sellers were not particularly adept at shipping directly to Amazon’s customers, causing a poor experience for customers and a frustrating experience for the sellers themselves."

"Platforms became Amazon’s answer to every growth obstacle it encountered."

"Ads"

"From infinite shelf space comes a problem: how do customers discover new products?"

"Instead, Amazon relies on a ranking algorithm that heavily weights product reviews and sales velocity."

"This creates a big problem for Amazon’s customers, who want the latest and greatest products, and for its sellers, who want to develop and sell exciting new items."

"Amazon answered this problem in typical fashion: with a platform. Amazon Advertising allowed sellers to feature ‘Sponsored Products’ – paid ads that appear at the top of search results."

"The problem with Sponsored Products is that sponsored listings are not actually good for customers – they are good for sellers; more specifically, they are good for sellers who are good at advertising, and bad for everyone else."

"The issue is compounded by the fact that the average customer is unable to tell the difference between an “organic” search result and a sponsored product."

"And since the sponsored listings favor high-margin products pushed by savvy digital marketers, it is highly unlikely that Amazon’s customer is buying the optimal product that the market could provide."

"Another way of framing the issue: as an Amazon customer, what benefit do sponsored listings bring you? The only answer I can think of is ‘new product discovery,’ but there are far better ways of solving that problem; one part of the solution would be a lifespan for product reviews."

"This serves a dual purpose: 1) it ensures that product reviews apply to the most current state of the product – solving the problem of an increase or decrease in manufacturing quality over time, while 2) evening the playing field for newcomers."

"Instead of solving the root cause of the discovery problem, Amazon layered a solution on top: ads."

"In building Marketplace and removing itself as the constraint for vendor onboarding, Amazon has opened itself up to inevitable ‘gaming’ by sellers."

"as soon as a system’s rules are understood, it will be gamed according to the rules that have been created."

"With its marketplace platform, Amazon has created a Wild West for sellers – with all of the tremendous benefits, and pitfalls, that come with it. It continues to accumulate marketplace sellers at an incredible pace."

"Amazon’s herculean challenge will be retaining its crown as “earth’s most customer-centric company” given the marketplace dynamics that it has created."

"The point is that two years ago, it was hard to think of even theoretical ways that Amazon could have been caught; today, there is an opening – a real one, of meaningful size."

"The question on my mind is whether Amazon has grown so large that, hidden beneath a golden goose laying $8 billion eggs and tens of thousands of new marketplace sellers every year, the missteps in its retail business – the loss of customer focus – might go unnoticed."

"With multiple headquarters distributed across multiples cities and outside access provisioned for all of its key products and services, Amazon seems more likely to break itself up – along its own preferred lines – than it is to be forcibly disassembled by regulators."

"If every meaningful Amazon product or service is exposed to outside developers via an interface, what does it matter whether Amazon is one single company or many?"

"It started as an unbound Walmart, an algorithm for running an unbound search for global optima in the world of physical products. It became a platform for adapting that algorithm to any opportunity for customer-centric value creation that it encountered."