Great ResignationDiversity and InclusionCompensationCEO DailyCFO DailyModern Board

This is What Amazon’s Jeff Bezos Understands and Walmart Doesn’t

February 2, 2017, 4:10 PM UTC

The latest evidence of Jeff Bezos’s strategic genius arrives in a new report revealing Amazon’s utter dominance of e-commerce. It’s worth every business leader’s study. This is the world’s fifth-most-valuable publicly traded company, worth $395 billion—more than AT&T and Verizon combined, for example. How did it get there?

A blog post from Slice Intelligence, which compiled the report, makes a point that is too often ignored because it seems so mundane (and a point I’ve been harping on for some time): “Amazon maintains an obsessive focus on removing every pain point from the buying process.” To put it another way, Amazon is the world champion at taking out friction. This is the company that invented and patented one-click buying. This obsession may seem boring, but it’s hugely valuable. How valuable? Slice calculates that of all the growth in U.S. e-commerce last year, Amazon alone captured 53%. Thousands of others had to fight over the rest.

My favorite example of friction reduction is what Amazon calls dash buttons. They’re lozenge-shaped plastic devices about three inches long with adhesive backing. On the front is the name of a product—say, Tide laundry detergent—and a button. Assuming you’re an Amazon Prime member, you set up a default order quantity and a payment method. Then you stick the dash button to your laundry room’s wall (or wherever you want). When you run low on detergent, you just hit the button. Bam—two days later a box of Tide is on your doorstep.

Dash buttons were ridiculed when introduced; imagine, a device that does one thing and one thing only. But Amazon now offers hundreds of them for an endless array of products—dog food, soap, crackers, batteries, computer paper. Apparently someone over there got to thinking, “You know that one-click ordering? It’s just too hard.”

Another friction-reducer emphasized in the Slice report is Amazon’s shipping advantage. Even as other retailers have reduced their average shipping time over the past two years, Amazon has remained faster by two to three days. It will apparently do anything to maintain that advantage. Thus its pioneering work on drone delivery, its recently unearthed patent application for a blimp-based warehouse, and this week’s announcement that it will build its own air cargo hub in northern Kentucky, having previously begun assembling its own delivery network with cargo planes and trucks.

Even Walmart, with about quadruple Amazon’s revenue, struggles to fight back. This week it dropped its fee-based free shipping offer, an attempt to compete with Prime, and replaced it with a simple offer of free two-day shipping for orders over $35. Trouble is, this offer isn’t nearly as sticky as Prime; it can be undercut by any competitor that offers a lower minimum order. But Prime members don’t worry about minimum order size – there isn’t any. They just order whatever they want, knowing it will arrive in two days for free. Simple. No friction. And they get much more for their $99 annual membership, including free streaming music and videos, occasional free Kindle books, and other benefits. It’s hard to give all that up.

The digital revolution is creating a radically more friction-free economy. Amazon understands the implications better than any other company, and catching it is getting harder for its competitors by the day.

Sign up for daily insights, updates, and opinion on leadership and leaders in the news at the Power Sheet.