Strategy: The Tech Scalability Test
When asked “Should X do Y, Yes or No?” most candidates tie themselves up in knots trying to say, Yes. But most big bets fail. This article on Amazon’s efforts to open brick and mortar stores despite having dominated e-commerce is a reminder why during an interview question, saying no isn’t a bad idea. You have so many examples you can use that show going outside one’s core strength isn’t a great idea.
Core Trade Offs
Now, I am not advocating saying no to every idea. There is so much we wouldn’t have in this world if people didn’t try the seemingly impossible and crazy. But when interviewing, focusing on some core trade offs can help you be very strategic.
The following excerpts from Ben Thompson’s Amazon Earnings, Amazon’s Costs, Amazon Closes Stores on May 3, 2022 Talk about some key learnings about what it means to scale and why certain business models don’t work.
In this case, Amazon’s popup, frequently purchased items stories look like a terrible, unscalable idea post pandemic. They might have worked for a few more years if the pandemic didn’t push everything online overnight, but they never would have scaled.
And Amazon’s realization that the best model for Amazon Go stories was selling the technology seems obvious in retrospect, but they probably needed to give it a try to learn what would and wouldn’t work in real life.
No Scale Advantages
While I think the brick & mortar stores for top items was doomed to fail. To quote Ben “non-differentiated pricing, and no scale advantages to leverage.”
On the other hand, despite this observation “retail stores, unlike every other successful part of Amazon’s business, don’t scale. Moreover, because they don’t scale, there is no first-best customer to drive technological development.”
Closing Thoughts
I am thankful that Amazon was willing to invest in store fronts to learn how to make better checkout tech, as they likely couldn’t have innovated as quickly as they did without them. But that is for another discussion/debate.
Keep these lessons in mind as your struggle to answer your next strategy question for the likes of Google and other product companies. Remember, always ask yourself, does this scale from a technological development perspective?
Directly from Ben’s Article:
Amazon Closes Stores
“Amazon Retail was, in retrospect, a magnet for mistakes, first and foremost on the part of Amazon, but also on the part of me as an analyst. Think about Amazon’s successful strategies:
Retail was predicated on the fact that the Internet made it possible to have better selection and better prices (the latter increasingly replaced with superior convenience).
AWS was predicated on the fact that the Internet made it possible for one company to consolidate the back-end operations of many companies, gaining massive economies of scale and making it possible to offer operational flexibility in exchange for capital IT budget redirection.
Fulfillment by Amazon and its expansion into logistics was predicated on Amazon retail being the first-best customer, delivering scale and performance and customer access that no one else could match.
Retail stores had none of these advantages. Yes, Amazon talked about using data, and there was certainly a novelty factor associated with the brand, but there was limited selection, non-differentiated pricing, and no scale advantages to leverage.”
[H]ere is the real problem: retail stores, unlike every other successful part of Amazon’s business, don’t scale. Moreover, because they don’t scale, there is no first-best customer to drive technological development. In other words, the correct mea culpa would have been for me to say that “Actually, retail doesn’t make any sense, and my analysis missed the forest of scale for the trees of tactics.”
“[T]he only businesses Amazon should be investing in are ones that scale across the entire addressable market.”
