On September 4th 2018 Amazon became a one trillion dollar company. That's twice what it was a year ago. And only a month after Apple first broke the record. Now if your name rhymes with the real digraphs bison you might point out that one trillion is a pretty arbitrary milestone.
That New Year's is fake. Leap Day is a lie and the phrase Time Flies is scientifically inaccurate but it's still a good excuse to stop and ask why. Why is Amazon valued higher than Wal-Mart. Samsung Netflix and Disney put together first. Jeff Bezos thinks only in the long term and because investors understand this the company can act in ways that only makes sense. 3 5 10 years in the future. Second they focused more on customers than the competition. The goal is building loyalty even if it means sacrificing profit today. And finally with remarkable scale comes remarkable efficiency when you ship billions of packages a year you can buy your own airplanes start your own shipping company and lower your prices. But there's another reason Amazon has such an advantage. Data no other Web site even comes close to the number of sales made with Amazon not eBay not Apple not even Wal-Mart. The battle seems already won. Unlike a Costco or staples companies can't really choose whether to sell on Amazon only whether they make the profit. Say you're shopping for a pair of tennis shoes. Most people would click buy receive it in the mail and never question Who it came from it says Nike. The pictures are real. It even has the logo but often it's actually a reseller who buys in bulk adds a margin and sells on the same official looking product page. Sometimes it's not even the real product knockoffs are everywhere in part because Amazon isn't really incentivized to police them to you and me it doesn't matter who the seller is.
If the price is right. But for Nike it's everything brands can either refuse to sell on Amazon and watch other people do it for them or they can embrace it and yes give them a cut of the profit. But at least see some of it. So you can guess which one they choose. Either way Amazon wins. In theory a company the size of Nike doesn't need them. They have a recognizable brand and they can easily sew on their own website. But even they submit to Amazon who at this point isn't so much a player as the game itself. There's a whole industry around making sure your product shows up when someone searches for it and you get picked as the seller. When someone clicks buy it's called Winning the Buy Box. In fact here's a whole book about it which you can purchase. You guessed it on Amazon. Now controlling 49 percent of online sales is impressive. But here's the catch. Online is only one tenth of retail. It's a big slice of a relatively small pie to really prove its trillion dollar valuation. Amazon needs to beat Wal-Mart at its game and that's harder than it looks. This is Amazon's revenue from retail. This is Costco's and this is Walmart's 90 percent of Americans live within 15 miles of its doors.
You could drive 2600 miles through Canada and take a ferry to the remote Kodiak Island but you still haven't escaped the land of low prices and poor fashion choices. Not even if your Pitbull Whole Foods gives Amazon a 500 store Headstart but nothing compared to Walmart's eleven thousand. And yet I'd still bet on Amazon. Here's why the average grocery store has a profit margin of about 1 percent. The slightest change in efficiency can be the difference between failing and thriving. They need to know what customers are buying how much they're willing to spend and when they're vulnerable to advertising. This is why stores are so eager to sign you up for their rewards program. Are you sure you want to pass up on this 5 percent cashback opportunity of a lifetime. Because all of a sudden you're the perfect customer voluntarily identifying yourself at the cash register allowing them to link your purchases together and slowly build a profile. No individual receipt is all that valuable but together they can start to see trends and even make predictions. A few years ago Target made the news for doing exactly this. A man from Minnesota drove to the store demanding to see a manager. His teenage daughter receiving coupon after coupon for baby clothes and diapers and strollers. What were they trying to encourage.
So Target called him a few days later to apologize. But by then he had his own apologizing to do. His daughter was pregnant. And Target knew before he did. You might say they hit the Bull's-Eye The other benefit of all this data is predictive stocking not the creepy kind. Well depending on who you ask it's being able to order and ship products in anticipation of their demand. Wal-Mart began doing this back in 2004 guessing which items it should order in preparation for Hurricane Frances. The answer was strawberry pop tarts of course today this isn't just handy information. It's an essential part of the business model. Customers expect faster delivery and wider availability as free shipping becomes today shipping becomes two hours shipping. The dynamics of retail change dramatically. There isn't enough time to ship your bananas from Colombia. They have to be waiting in a local warehouse before you decide to buy but without wasting valuable space and that means predicting which items will be ordered and when. Here Amazon has the advantage. It doesn't just know what products you buy or what device you use what you search for how long you spend looking all that and a whole lot more and much bigger scale than someone like Wal-Mart. It doesn't have to guess how shoppers behave. It knows of course there's also a downside. Amazon has always been the magic way to make stuff show up at your door.
Wal-Mart while controversial criticism of Wal-Mart isn't exactly the shortest Wikipedia page. Part of which is just distance. Wal-Mart is visible with Amazon you see only the results. But public perception may start to change. More stores more warehouses more people concerned about their privacy. The seeds are already planted. There's even talk of regulating Amazon as a monopoly but it has a built in defense against those arguments. Low prices. It may control huge portions of many huge industries but it uses that scale to save money for customers. It even competes with its own sellers. Amazon can find which products are selling well but whose brands people don't care about things like batteries and knives analyze their return and review data and manufacture a cheaper version without the normal marketing expenses. It's their version of generic brands with the power of data. Their most successful is Amazon Basics which if you search for something like iPhone charger is practically all you see here here here here here and here. Many of its brands you wouldn't even know were Amazon's like Ribbit and presto. It knows how to rank first on its own website which allows it to sell more products therefore manufacture them cheaper lower their prices which again sells more products. And the beauty of being in so many different industries online storage movie production music distribution print publishing organic groceries personal electronics and so on is more data and more uses for it.
That's why investors are so confident scale long term investment customer focus and data are all universal. They give Amazon an advantage in any business they enter. In other words if your business sells well anything to consumers there's a good chance you should be worried. Amazon isn't alone. The future of many industries is using algorithms to predict and analyze big sets of data with brilliant. You can learn those valuable computer science skills in a very approachable intuitive way. Say you have a list of customers and their purchases and you want to guess what one of them will buy next. One way to do that is called collaborative filtering. Noticing that many people who buy a backpack also look for school supplies. Some patterns are invisible to you and me. So we use a neural network for example retailers might want to automatically classify their shoppers in different categories so you train the network with data you already have which you can use to understand completely new information you give it.
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