the mother of all flywheels!
As the story goes, Jeff Bezos sketched Amazon's flywheel, the "virtuous cycle," on a napkin.
It's essential to understand the frame in which this framework developed. Indeed, we're in the year 2001, right after the dot-com bubble burst.
Amazon was one of the companies best positioned for the Internet revolution. When Jeff Bezos started Amazon in 1994, he went all-in.
Amazon had been growing at an explosive rate, going beyond books and into other categories.
At the same time, to achieve as quickly as possible Bezos' unbounded vision of transforming Amazon into "the everything store," he placed wild bets on other Internet players.
As the dot-com bubble burst, some of these bets became massive failures (companies like Pets.com and Kozmo went bankrupt).
Amazon was still a great company, yet many analysts thought the company would not survive the dot-com bubble.
This was partly because Amazon was an e-commerce company with very tight margins, and whether it would be able to scale was still an open question.
In this scenario, the paradigm shift happened. Amazon started its transition from e-commerce to the platform.
From a company primarily selling its own products to enabling its marketplace to host as many third-party stores as possible.
This strategy took about a decade to fully roll out. By 2017-18, most of the products sold on Amazon came from third-party stores.
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages customer experience to convert Amazon from an e-commerce to a platform business model!
Indeed, this is an iterative loop that has run for two decades, enabling Amazon to improve its selection of goods and cost structure, thus further decreasing prices, which spins the flywheel even more!
Let’s see how!
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