Apple has long defeated disruption by focusing on the user experience; Jeff Bezos and Amazon, though, show that user expectations for their experience are ever-changing.
in their efforts to provide better products than their competitors and earn higher prices and margins, suppliers often “overshoot” their market: They give customers more than they need or ultimately are willing to pay for. And more importantly, it means that disruptive technologies that may underperform today, relative to what users in the market demand, may be fully performance-competitive in that same market tomorrow.
This was the basis for insisting that the iPhone must have a low-price model: surely Apple would soon run out of new technology to justify the prices it charged for high-end iPhones, and consumers would start buying much cheaper Android phones instead!
In fact, as I discussed in after January’s earnings results, the company has gone in the other direction: more devices per customer, higher prices per device, and an increased focus on ongoing revenue from those same customers.
Apple seems to have mostly saturated the high end, slowly adding switchers even as existing iPhone users hold on to their phones longer; what is not happening, though, is what disruption predicts: Apple isn’t losing customers to low-cost competitors for having “overshot” and overpriced its phones. It seems my thesis was right: a superior experience can never be too good — or perhaps I didn’t go far enough.
Jeff Bezos has been writing an annual letter to shareholders since 1997, and he attaches that original letter to one he pens every year. It included this section entitled Obsess Over Customers:
From the beginning, our focus has been on offering our customers compelling value. We realized that the Web was, and still is, the World Wide Wait. Therefore, we set out to offer customers something they simply could not get any other way, and began serving them with books. We brought them much more selection than was possible in a physical store (our store would now occupy 6 football fields), and presented it in a useful, easy-to-search, and easy-to-browse format in a store open 365 days a year, 24 hours a day. We maintained a dogged focus on improving the shopping experience, and in 1997 substantially enhanced our store. We now offer customers gift certificates, 1-Click shopping, and vastly more reviews, content, browsing options, and recommendation features. We dramatically lowered prices, further increasing customer value. Word of mouth remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers have placed in us. Repeat purchases and word of mouth have combined to make Amazon.com the market leader in online bookselling.
This year, after highlighting just how much customers love Amazon (answer: a lot), Bezos wrote:
One thing I love about customers is that they are divinely discontent. Their expectations are never static — they go up. It’s human nature. We didn’t ascend from our hunter-gatherer days by being satisfied. People have a voracious appetite for a better way, and yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’. I see that cycle of improvement happening at a faster rate than ever before. It may be because customers have such easy access to more information than ever before — in only a few seconds and with a couple taps on their phones, customers can read reviews, compare prices from multiple retailers, see whether something’s in stock, find out how fast it will ship or be available for pick-up, and more. These examples are from retail, but I sense that the same customer empowerment phenomenon is happening broadly across everything we do at Amazon and most other industries as well. You cannot rest on your laurels in this world. Customers won’t have it.
when it comes to Internet-based services, this customer focus does not come at the expense of a focus on infrastructure or distribution or suppliers: while those were the means to customers in the analog world, in the online world controlling the customer relationship gives a company power over its suppliers, the capital to build out infrastructure, and control over distribution. Bezos is not so much choosing to prioritize customers insomuch as he has unlocked the key to controlling value chains in an era of aggregation.
consumer expectations are not static: they are, as Bezos’ memorably states, “divinely discontent”. What is amazing today is table stakes tomorrow, and, perhaps surprisingly, that makes for a tremendous business opportunity: if your company is predicated on delivering the best possible experience for consumers, then your company will never achieve its goal.
In the case of Amazon, that this unattainable and ever-changing objective is embedded in the company’s culture is, in conjunction with the company’s demonstrated ability to spin up new businesses on the profits of established ones, a sort of perpetual motion machine
Owning the customer relationship by means of delivering a superior experience is how these companies became dominant, and, when they fall, it will be because consumers deserted them, either because the companies lost control of the user experience (a danger for Facebook and Google), or because a paradigm shift made new experiences matter more (a danger for Google and Apple).