Disruption and transformation get a lot of hype, and for good reason. Digital technologies have had a profound impact on the world, disrupting entire industries while also enabling companies such as Facebook and Amazon to achieve exponential growth.
Given the dramatic changes that digital has caused, you’ll need to sit back and reflect on the core essence of your business, examining three components: scope, business model, and ecosystem. When considering scope, you’ll need to ask yourself this fundamental question: “What business are we in?”
Think about Amazon. When Amazon first launched its website, in July 1995, founder Jeff Bezos’s goal was to use the internet to sell books at low prices. He created a virtual store with lower fixed costs and a larger inventory than those of most brick-and-mortar bookstores. The concept quickly became popular, and Bezos realized that consumers shopping for other types of goods might also appreciate this concept. So he began adding dozens of categories to Amazon’s online assortment, including music, DVDs, electronics, toys, software, home goods, and many more. Amazon’s low prices and large selection, and the convenience online retailing provided consumers, posed a significant threat to traditional retailers like Best Buy, Toys “R” Us, and Walmart.
Five years later Amazon opened its site to third-party sellers, who could post their products on Amazon’s site for a modest service fee. Adding third-party sellers transformed Amazon from an online retailer to an online platform, which required Amazon to develop new capabilities of acquiring, training, and managing sellers on its sites without losing control or damaging customer experience. And its competitive set expanded to include eBay, Craigslist, and others.
The introduction of iTunes, in 2001, dramatically changed consumers’ behavior as they started downloading digital music instead of buying CDs in a store. Recognizing this trend, Amazon launched its video-on-demand service, initially called Unbox and later renamed as Amazon Instant Video, almost a year before Netflix introduced video streaming. Once again Amazon followed its customers and shifted from selling CDs and DVDs to offering streaming services that required it to develop new capabilities and pitted it against a new set of competitors, such as Apple and Netflix.
In 2011, in partnership with Warner Bros., Amazon launched Amazon Studios to produce original motion-picture content. Suddenly it was competing against Hollywood studios. Why does it make sense for Amazon, which started as an online retailer, to move in this direction? Because video content helps Amazon convert viewers into shoppers. In a 2016 technology conference near Los Angeles, Jeff Bezos said, “When we win a Golden Globe, it helps us sell more shoes.”
But Amazon’s business scope did not end with retailing and content. In 2007, Amazon released the Kindle, almost three years ahead of the iPad. Now Amazon, which started as an online retailer, was in the hardware business.
As consumers started spending more and more time on their mobile devices, Amazon launched its own Fire phone in July 2014. It failed to gain traction, but was pursuing that market a mistake? Perhaps. However, the upside from a successful launch would have been enormous.
More recently, Amazon launched additional devices: Dash buttons, which let users order products from over a hundred brands when users’ supplies get low, and Echo, a voice-activated virtual assistant, which can be used to stream music, get information, and of course, order products from Amazon in an even more convenient fashion.
Amazon also started its own advertising network, which put the company squarely in competition with Google. This shift has allowed Amazon to generate almost $3.5 billion of ad revenue in 2017. But an even bigger goal for Amazon is to replace Google as a search engine for products, so that customers start their product search on Amazon rather than on Google. In October 2015, a survey of two thousand US consumers revealed that 44 percent go directly to Amazon for a product search, compared with 34 percent who use search engines such as Google or Yahoo. Eric Schmidt, Google’s executive chairman, acknowledged this shift. “People don’t think of Amazon as search,” said Schmidt, “but if you are looking for something to buy, you are more often than not looking for it on Amazon.”
Perhaps the most controversial choice was Bezos’s decision to enter the cloud-computing market with the launch of Amazon Web Services (AWS). Suddenly a completely new set of companies—for instance, IBM—became Amazon’s competitors.
Most companies define their business by either their products or their competitors—for example, you may consider yourself in the banking business or the automobile industry. But it is hard to define Amazon in this traditional fashion. Amazon expanded its scope around its customers.
Competition is no longer defined by traditional product or industry boundaries. The rapid development of technology is making data and software integral to almost all businesses, which is blurring industry boundaries faster than ever before.
In the digital age, competition usually comes laterally, from new players, and redefining the scope of your business is essential to ensuring future success. As the case of Amazon shows, this requires a careful balance of broadening the scope of your business while staying within your core competencies.
Reprinted by permission of Harvard Business Review Press. Excerpted from Driving Digital Strategy: A Guide to Reimagining Your Business. Copyright 2018 Sunil Gupta. All rights reserved.
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