đ Week 19: Amazon vs. church
Hello friends,
In my last email (“What’s next for America?”) I used the mottos of American presidential candidates as examples of how we can choose to root ourselves in the fear of the unknown or use our energy to hope for a better future, even though it’s the more difficult and scary choice.
At the end of the email I asked:
What have you been hoping for recently?
Nidhi and I spent December 31st walking through a redwood forest, exchanging answer for answer to this question. I’m hopeful for a lot this year â but most of all that we’ll be able to be close to one another again, completely free of worry.
In case you forgot: Iâm Justin, and this is my newsletter exploring the intersection of technology and spiritual faith. Iâm able to publish this email thanks to the support of my Bonsai Partners. You can read through the archives or unsubscribe at any time via link in the footer.
Should Amazon exist?
One of the main storylines of 2020 in America has been that of the rich getting richer and the poor getting poorer. While many Americans lost their jobs, Tech companies thrived: AirBnB, DoorDash, and Zoom (to name just a few) went public while Facebook, Google, and Amazon grew their own profits by close to 30%, 60%, and 200% respectively.
The startup I work at (Applied Intuition) was no exception, either â despite the pandemic we were able to raise $125M in funding on a $1.25B valuation, and I was fortunate enough to also receive an annual pay raise.
But no one â and I mean absolutely no one â did as well in this pandemic as Amazon CEO Jeff Bezos. Bezos saw his personal net worth swell 80% since March, making him worth nearly $200 billion today.
The sheer magnitude of Bezosâ wealth is impossible to grok, but you should absolutely scroll through this visualization to help put it into perspective (youâll need to view it on your computer):
Wealth, shown to scale
Wealth inequality in the United States is out of control. Here we visualize the issue in a unique way.
This tremendous growth for Amazon and Bezos (and other big players in Tech) defied the intensified scrutiny around these companies and the capital-W Wealthy white men behind them. In July 2020 the US Congress held a tech antitrust hearing (the first of its kind since a similar hearing in the late 1990âs for Microsoft) where Jeff Bezos, Tim Cook, Mark Zuckerburg, and Sundar Pichai each did their best to argue why their company is not a monopoly.
(Side note: antitrust issues came into focus at Google towards the end of my time there as an employee, though at the time it was still only coming from Europe. Googleâs defense has essentially been: âcompetition is a click awayâ â read Ben Stratecheryâs analysis and opinion on the domestic case if youâre interested in learning more.)
At the hearing, Bezos delivered a 4,500 word treatise as his response to the two existential questions raised by the American government and public:
- Should companies the size of Amazon exist?
- Should a Bezos-ian level of wealth exist?
Spoiler alert: Bezos believes the answer to both of these questions should be a resounding Yes.
The rationale of his defense lies within two key concepts:
- The Perilous Journey to Success
- The Unique Benefits of Scale
The Perilous Journey to Success
Bezos and his speech writers began his testimony by reminding Americans that nothing about Amazonâs success was ever guaranteed or obvious, starting with the idea itself:
> âThe concept for Amazon came to me in 1994. The idea of building an online bookstore with millions of titlesâsomething that simply couldnât exist in the physical worldâwas exciting to me…it took more than 50 meetings for me to raise $1 million from investors, and over the course of all those meetings, the most common question was, âWhatâs the internet?â
Amazonâs origin story so perfectly aligns with the American Dream and, more specifically, Americaâs favorite archetype of the âGeniusâ (the incomparably gifted, individual mind whose single idea rockets them to greatness, versus the Eastern archetype of the âHard Workerâ), that Bezos was compelled to point out that Amazon did not succeed simply because of his prescient notion and perseverance to secure funding:
> âAmazonâs success was anything but preordained…from our founding through the end of 2001, our business had cumulative losses of nearly $3 billion, and we did not have a profitable quarter until the fourth quarter of that yearâŚ.at the pinnacle of the internet bubble our stock price peaked at $116, and then after the bubble burst our stock went down to $6. Experts and pundits thought we were going out of business. It took a lot of smart people with a willingness to take a risk with me, and a willingness to stick to our convictions, for Amazon to survive and ultimately to succeed.â
âSucceed,â indeed.
Twenty years after being asked âwhatâs the internet?â Bezos has essentially built the answer to the question itself: Amazon Web Services serves 40% of all web traffic (when we watch Netflix, weâre making Amazon money) and was responsible for over half of Amazonâs operational income in Q3 of this year. Amazon is trading at ~$3,300 after generating $96 billion in Q3 of 2020 alone.
As Bezos says:
> âOutsized returns come from betting against conventional wisdom, but conventional wisdom is usually right.â
In other words, Bezos sees his wealth and the size of Amazon as the result of a highly improbable, twenty-seven year long domino topple of gritty imagination, shrewd execution, and lucky breaks.
To these points I largely agree. I joined Applied just over two years ago as the 14th employee while it was still in its Series A stage, so Iâve had a front row seat to the alchemy of transforming business survival into business success.
While I canât yet share specific examples of the right decisions weâve made or our lucky breaks (though some day!), I can personally attest to how thin the tightrope to success is and how much hands-on work it takes to shape new realities. I know that just because weâve been able to raise a Series A, B, and C, it doesnât mean weâll be able to raise a D or E.
Running a successful business requires you to make the right decisions â on hiring, organizational changes, product and feature prioritization, strategy shifts â an inordinately high percentage of the time, at the right time.
But even if you were somehow able to make the right decision 100% of the time at the right time, it still wouldnât be enough to guarantee you success.
Any number of external factors can end an otherwise healthy company: changes in market conditions, competitors, consumer behavior, a pandemicâŚEven Tesla was apparently one month away from bankruptcy before escaping to become the worldâs most valuable auto manufacturer earlier this year.
All of this to say there is probably only one timeline in which Amazon is as successful as it is today. We just happen to be living in it.
The Unique Benefits of Scale
A couple of years ago I found myself sitting next to one of Jeff Bezosâ reports at dinner (in a quintessential Silicon Valley experience Iâve also walked a block behind Tim Cook) who shared with me one of my all-time favorite âinsiderâ anecdotes:
In order to be able to deliver items within 2 days, Amazonâs algorithms pre-emptively ship items to distribution centers that are closer to customers who are deemed likely to buy these items based on signals like search terms and items viewed. If a bunch of people in Pennsylvania are viewing school supplies, Amazon is already sending packs of Bic pens to the East Coast. Like any effective system at scale, this approach works 99.9% of the time.
But not every time.
One of Amazonâs sellers was listing a very heavy, $3,000 polar bear lawn statue for sale. Because it was the only item of its kind and was rarely viewed, Amazonâs algorithm registered any single view as a very powerful signal that the customer was likely to buy it.
As a result, Amazon was flying this very heavy, $3,000 polar bear lawn statue all around America any time anyone clicked on the link (until this abnormality was detected).
Being able to order almost anything you can imagine and have it appear at your doorsteps two days later is only possible at scale â itâs the reason Iâve been a Prime member for almost 10 years.
Amazonâs scale also enables it to increase the total addressable market of small businesses, subsidize career growth opportunities, provide jobs across America, etc. etc.:
> âI love garage entrepreneursâI was one. But, just like the world needs small companies, it also needs large ones. There are things small companies simply canât do. I donât care how good an entrepreneur you are, youâre not going to build an all-fiber Boeing 787 in your garage. Our scale allows us to make a meaningful impact on important societal issues…â
But thereâs an ugly side to Amazonâs scale that carries far more harmful ramifications than a polar bear flying first class around the country:
- Amazon Met With Startups About Investing, Then Launched Competing Products â Wall Street Journal
- Leaked: Confidential Amazon memo reveals new software to track unions â Forbes
- âI’m not a robotâ: Amazon workers condemn unsafe, grueling conditions at warehouse â The Guardian
- âYouâre Just Disposableâ: New Accounts from Former Amazon Employees Raise Questions About Working Conditions â PBS
- âAmazonâs Enforcement Failures Leave Open a Back Door to Banned GoodsâSome Sold and Shipped by Amazon Itselfâ â The Markup
Bezos closes his speech before Congress with an invitation:
> âI believe Amazon should be scrutinized. We should scrutinize all large institutions, whether theyâre companies, government agencies, or non-profits. Our responsibility is to make sure we pass such scrutiny with flying colors.â
Given the examples above, I think itâs fair to say that Amazon has not passed scrutiny with flying colors.
Although these issues are in many ways inherently linked to operating at scale and â at least in the case of ensuring the safety of what Amazon sells on its platform â very complex to solve, these realities donât absolve Bezos of the responsibility of taking tangible steps to implement solutions and be held accountable by measurable results (just as he is for Amazonâs revenue).
Why does this matter?
Here we are 1,500 words in and all Iâve done is say âbusiness is hard!â and âscale is big!â (but you also got a fun polar bear anecdote, so I wonât apologize). Let’s return to the two questions that began this email:
- Should companies the size of Amazon exist?
- Should a Bezos-ian level of wealth exist?
Whether or not our societies should have economic systems that make billionaires a possibility or if Amazon and its fellow tech behemoths are monopolies, I hope that you and I would agree â even if weâre not experts on how to accomplish it â that the wealth gap should not be gaping as it is today and that it probably will not close without those at the top changing the way things work for people at the bottom.
Of course I have opinions on how Iâd answer these two questions myself, but Iâm not an economist (the extent of my economic studies was a voluntary two week session my senior year of high school that for some reason involved a powerpoint template with a sunset background), ultra rich CEO, or US government official.
What fascinates me about these questions of business and wealth is that, at the most basic level, we have an objective way of measuring the success and value of a company: the money it can make.
As such, profitability is the north star of every company â the pursuit of which drives every core decision the company makes, whether sacrificial in the short term or strategic for the long term.
So when I read Bezosâ statement in the midst of the pandemic I wasnât thinking about businesses â experienced Valleyist readers know whatâs coming next â I was thinking about church.
Specifically in the context of this Bezos statement:
>âJust like the world needs small companies, it also needs large ones.â
Like tech companies, the American church is another institution under increased scrutiny because of COVID-19.
As I wrote back in April, the pandemic is also causing the American church to face an existential question:
>âwhat is church if it canât be a large, in-person gathering?â
Although there are ways to measure the âsuccessâ of a church (which Iâll dive into in the next issue), I donât think theyâre as clear as financial earnings.
Gaining customers is universally a good thing for Amazon: more customers means more money, more money means more success. But the same is not true for church: more people joining does not automatically equate to a more successful church, nor is it a direct indication of the church offering a âgood productâ or the best âcustomer experience.â
So what are the âUnique Benefits of Scaleâ of Amazon-sized churches, especially in a post-COVID world?
Should Amazon-sized churches exist at all?
Fellow Valleyists
I end each newsletter with a question thatâs been placed on my heart after writing. If the question resonates, please reply with your reflections! Anonymized excerpts appear at the top of the next email.
Todayâs question:
Do you find yourself drawn to small or large institutions/communities?
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