3 Reasons Amazon Is The World's Best Business

Chief Executive Officer of Amazon, Jeff Bezos, tours the facility at the grand opening of the Amazon Spheres, in Seattle, Washington on January 29, 2018.   / AFP PHOTO / JASON REDMOND (Photo credit should read JASON REDMOND/AFP/Getty Images)

Why do some smaller companies grow faster than big ones? After all, big companies have more capital, talent, and customers. The big companies ought to be able to use those resources to maintain their lead.

But with the notable exception of Amazon -- whose stock hit an all-time high after it announced its earnings on February 1 -- many big companies -- especially ones with famous names like GE and IBM -- struggle to keep growing.

Before getting into why Amazon is different, let's look at its phenomenal results. Amazon -- which for years has been growing at over 20% a year -- is not slowing down. Instead its growth rate is accelerating.

Its fourth quarter revenue surged 38% to $60.5 billion which beat analysts’ expectations of $59.83 billion. Amazon's profit more than doubled to $1.9 billion -- a figure that included a $789 million tax benefit, according to the Wall Street Journal.

Amazon expects to keep growing in the current quarter -- forecasting  first-quarter sales between $47.75 billion and $50.75 billion -- which would be up between 34% and 42%, respectively.

Amazon projects first quarter operating income between $300 million and $1 billion. In 2017's first quarter it reported $1 billion in operating income according to the Journal.

Here are the three reasons I think Amazon is the world's best business.

1. It has a sustainable competitive advantage

Competitive advantage is measured by market share leadership which flows from three sources.

1. Giving customers more bang for the buck

When people buy things, they compare different suppliers on a ranked set of factors. For Amazon customers those factors -- which I call customer purchase criteria (CPC) -- include price, fast delivery, and reliable service. Consumers choose Amazon because it does better than its competition on these CPC.

2. Harnessing capabilities to win at scale 

Winning and keeping customers -- especially when a company has millions of them -- depends on doing certain things well. For Amazon such capabilities include offering a wide selection of products and services, operating an efficient supply chain to fulfill orders; and providing excellent customer service.

3. Sustaining competitive superiority

While many large companies can do the first two things in one industry -- think Apple in smart phones -- very few can stay ahead as competitors try to copy their strategies and make successful bets on new growth opportunities.

Amazon did this first in online bookselling and has continued to lead -- it controls about 40% of the U.S. e-commerce market; its Echo devices have about 75% of the smart-speaker market; it runs a major Hollywood studio; and its Amazon Web Services (AWS) unit leads with over 40% of the cloud computing market, according to the Journal.

2. Jeff Bezos is the world's best founder/public company CEO

Competitive advantage does not simply happen -- CEOs must create it. And as I highlight in my book, Disciplined Growth Strategies, our system of capitalism does a superb job of rewarding CEOs who excel at it.

Specifically, the CEOs with the highest net worth tend to be founders of the largest, fastest-growing companies -- people like Amazon's Jeff Bezos -- whose net worth now tops the world at $120 billion, Facebook's Mark Zuckerberg, and Alphabet's Sergei Brin and Larry Page.

">

Chief Executive Officer of Amazon, Jeff Bezos, tours the facility at the grand opening of the Amazon Spheres, in Seattle, Washington on January 29, 2018.   / AFP PHOTO / JASON REDMOND (Photo credit should read JASON REDMOND/AFP/Getty Images)

Why do some smaller companies grow faster than big ones? After all, big companies have more capital, talent, and customers. The big companies ought to be able to use those resources to maintain their lead.

But with the notable exception of Amazon -- whose stock hit an all-time high after it announced its earnings on February 1 -- many big companies -- especially ones with famous names like GE and IBM -- struggle to keep growing.

Before getting into why Amazon is different, let's look at its phenomenal results. Amazon -- which for years has been growing at over 20% a year -- is not slowing down. Instead its growth rate is accelerating.

Its fourth quarter revenue surged 38% to $60.5 billion which beat analysts’ expectations of $59.83 billion. Amazon's profit more than doubled to $1.9 billion -- a figure that included a $789 million tax benefit, according to the Wall Street Journal.

Amazon expects to keep growing in the current quarter -- forecasting  first-quarter sales between $47.75 billion and $50.75 billion -- which would be up between 34% and 42%, respectively.

Amazon projects first quarter operating income between $300 million and $1 billion. In 2017's first quarter it reported $1 billion in operating income according to the Journal.

Here are the three reasons I think Amazon is the world's best business.

1. It has a sustainable competitive advantage

Competitive advantage is measured by market share leadership which flows from three sources.

1. Giving customers more bang for the buck

When people buy things, they compare different suppliers on a ranked set of factors. For Amazon customers those factors -- which I call customer purchase criteria (CPC) -- include price, fast delivery, and reliable service. Consumers choose Amazon because it does better than its competition on these CPC.

2. Harnessing capabilities to win at scale 

Winning and keeping customers -- especially when a company has millions of them -- depends on doing certain things well. For Amazon such capabilities include offering a wide selection of products and services, operating an efficient supply chain to fulfill orders; and providing excellent customer service.

3. Sustaining competitive superiority

While many large companies can do the first two things in one industry -- think Apple in smart phones -- very few can stay ahead as competitors try to copy their strategies and make successful bets on new growth opportunities.

Amazon did this first in online bookselling and has continued to lead -- it controls about 40% of the U.S. e-commerce market; its Echo devices have about 75% of the smart-speaker market; it runs a major Hollywood studio; and its Amazon Web Services (AWS) unit leads with over 40% of the cloud computing market, according to the Journal.

2. Jeff Bezos is the world's best founder/public company CEO

Competitive advantage does not simply happen -- CEOs must create it. And as I highlight in my book, Disciplined Growth Strategies, our system of capitalism does a superb job of rewarding CEOs who excel at it.

Specifically, the CEOs with the highest net worth tend to be founders of the largest, fastest-growing companies -- people like Amazon's Jeff Bezos -- whose net worth now tops the world at $120 billion, Facebook's Mark Zuckerberg, and Alphabet's Sergei Brin and Larry Page.

Let's block ads!(Why?)

Read again 3 Reasons Amazon Is The World's Best Business : http://ift.tt/2GCNNMe

Let's block ads! (Why?)

Bagikan Berita Ini