April 29, 2016

So you want to be a serious Amazon idea


So, you’ve got this idea. This crazy idea that, you think, is pretty cool. Well, do yourself a favor, kid: before presenting it to the boss-man, Jeff Bezos, have a look at this memo the CEO circulated to shareholders in 2007, which details four tests that said idea must pass in order for it to be seriously considered.

Here’s a numbered breakdown of the document, courtesy of Yahoo! Finance’s Eugene Kim:

1. We must convince ourselves that the new opportunity can generate the returns on capital our investors expected when they invested in Amazon
2. And we must convince ourselves that the new business can grow to a scale where it can be significant in the context of our overall company.
3. Furthermore, we must believe that the opportunity is currently underserved
4. …and that we have the capabilities needed to bring strong customer-facing differentiation to the marketplace

Points one and two make enough sense. Ideas should be good for investors, and ideas should be significant enough to make sense in the context of the Amazon brand, i.e. potentially giant, bad for small businesses—and tremor-inducing besides.

But in light of Amazon’s recent venture into physical bookselling, points three and four—assuming the idea for the physical store did indeed pass the points, as Bezos tells his shareholders is required—are, well, doubly insulting.

Because the decision to veer into brick-and-mortar stores insinuates that bookstores “underserve” their communities, and that the Amazon Bookstore can disrupt the industry into shape. The reality, of course, is that if bookstores do indeed “underserve” customers, it is pretty much all Amazon’s fault. This is well documented here, there, and everywhere.

But maybe that’s not what Bezos is playing at. Let’s return to the letter, which, as Kim points out, specifically calls out the idea of opening (or not opening) physical bookstores (remember this memo is from 2007). Bezos writes:

I often get asked, “When are you going to open physical stores?” That’s an expansion opportunity we’ve resisted. It fails all but one of the tests outlined above. The potential size of a network of physical stores is exciting. However: we don’t know how to do it with low capital and high returns; physical-world retailing is a cagey and ancient business that’s already well served; and we don’t have any ideas for how to build a physical world store experience that’s meaningfully differentiated for customers.
So the question, then, remains: Did Bezos determine that his bookstores can now, in fact, pass the four tests? And if so, what changed in the “well-served,” “cagey and ancient” business of bookselling in non-Amazon bookstores? Or did Bezos—the man famously quoted in the New Yorker as saying, “Proceed as if your goal is to put everyone selling physical books out of a job”—decide that some rules are made to be broken?

Chad Felix is the Director of Library and Academic Marketing at Melville House, and a former bookseller.