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21 June 2021

Prime Day: the innovation that made Amazon an everything company

Prime membership has helped Amazon become McDonald’s, Wal-Mart, Facebook and Google all rolled into one.

By Will Dunn

This April, in his final letter to Amazon shareholders as the company’s CEO, Jeff Bezos quoted Richard Dawkins’ 1986 book, The Blind Watchmaker: “if living things didn’t work actively to prevent it, they would eventually merge into their surroundings, and cease to exist as autonomous beings. That is what happens when they die.”

The meaning of this passage, for Bezos, is that “differentiation is survival” – that only by concentrating on what makes us unique do we avoid regressing to the dusty mean, and becoming standard matter once more.

Which naturally provokes the question on this, the last Prime Day of the Jeff Bezos era, of whether there is a consumer experience less unique than buying something from the world’s most popular retail destination on its busiest day (which is now two days, so plenty of time to read this and snap up some cut-price Echo Buds). No other shop has come close to achieving Amazon’s level of ubiquity: the site now accounts for 40 per cent of all e-commerce in the US, and 30 per cent in the UK.  

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Bezos writes that companies can only achieve this kind of success by coming up with new, special ideas – “invention is the root of all real value creation” – and that it will flourish as long as “Amazonians” put energy into preserving this innovation, the life-force of the company. “The world will always try to make Amazon more typical,” he warns.

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But Amazon is an entirely typical company. It is built, like many others, on the central idea of the American consumer experience: franchising.

In the mid-1950s, when Ray Kroc went into business with the McDonald brothers, he had the insight that the real money wasn’t in selling hamburgers but in renting out restaurants for other people to sell burgers from. To this day, McDonald’s is primarily a real estate company, renting out nearly 40,000 properties (and the rights to its name and recipes) in which other people conduct the less lucrative business of frying beef.

Franchising works so well because it allows a company to concentrate on getting people in the front door through standardised marketing and products, but also through the back door by offering stable revenue to smaller, dependent businesses. Kroc was far from the first to develop the principle. Coca-Cola’s rapid growth from the end of the 19th century was partly down to it selling syrup and bottling rights, not the finished product. But the spread of McDonald’s proved the model’s validity, and other enormous chains soon spread across postwar America, then Europe, then the wider world, until a standardised version of food and shopping was available from Invercargill to Inverness. 

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[see also: “He leads by fear and pressure”: former Amazon employees on Andy Jassy, the company’s next CEO]

In 2004, Amazon had survived the dot-com crash, but it was in trouble: it couldn’t offer as many products as eBay, and it wasn’t as cheap as Wal-Mart. As Brad Stone, author of the bestselling 2013 book on Bezos and Amazon, The Everything Store, reports in his new book, Amazon Unbound, it was at this point that Bezos recognised the “virtuous cycle” that would allow Amazon to prosper: he would open the back door to other businesses, to help him offer more products than eBay, and he would bring the customers those businesses wanted through the front door by eliminating the pain points in online shopping that kept people buying things in person: namely the speed and cost of shipping. 

Amazon Prime, introduced in 2005, offered customers free, fast postage, and it reinforced that loyalty as a membership programme. It was a bald acknowledgement of what Amazon really sells – not just the thing shopped for but, more importantly, the infrastructure that gets it there. By this point many of the company’s third-party sellers kept their goods in Amazon’s warehouses, and in the years to come they (and many other businesses) would start using Amazon Web Services to run the digital side of their businesses. The outlets may have been digital, but Bezos owned the ground beneath the shops as surely as Kroc ever had.

[see also: Amazon’s profits have soared – but its tax bill hasn’t]

Prime Day, a yearly membership drive that began in 2015, was not an original idea either. It was an attempt to copy Alibaba’s success with “Singles’ Day”, a Chinese celebration of footloose freedom that had been turned into a mass act of e-commerce by the online giant. But Prime Day didn’t even have a pre-existing event to co-opt. It was held to celebrate the 20th anniversary of Amazon’s first sale, as if anyone but Jeff would remember or care, and the public’s initial reaction was one of derision. Stone reports that Bezos screamed at his executives to fix the perception of a meaningless PR event populated by “shitty deals”. 

Shortly after the first Prime Day, Chris Rupp, one of the two executives who had been responsible for it, left. The other, Meghan Wulff, went elsewhere in the company. She would later tell Stone how she came to realise that the gruelling project wasn’t part of some “admirable mission”, but an exercise in “convincing people to buy Instapots [a type of cooker] and join a loyalty programme geared at having them spend more time at Amazon”. 

On the metric that mattered to the company, however, consumerism’s most tedious party was a resounding success: 1.2 million people signed up for Prime accounts in 2015. The yearly deal-fest has since helped Prime grow to more than 200 million members. Of these, 147 million are in the US – 70 per cent of the country’s adult population.

Far from setting Amazon apart from other businesses, this vast membership has helped Amazon become McDonald’s, Wal-Mart, Facebook and Google all rolled into one. It commands an army of digital franchisees in the shape of its third-party sellers; it runs a retail empire; it has a network of users it can identify and analyse; and the space to run an advertising network that made almost $7bn in the last quarter. And it’s not just those companies – it’s a shipping line, a postal service, it is hundreds of thousands of vans, it is movies, TV, journalism, video games, and supermarkets.

Amazon’s big innovation is to sell its supply chain directly to its retail customers, buying loyalty with extreme convenience. What this allows it to do is not to innovate more than any other company, but to assume the characteristics of all the other businesses that are sucked into its event horizon. Prime has made Amazon not just the everything store, but the everything company.