Saturday, June 27, 2009

Disruption vs. Shareholder Maximization - Part II

[With our Global Strategy course this semester, I'm going to highlight a bunch of interesting business models and strategies]

"What's very dangerous, is not to evolve.", Jeff Bezos. In a recent interview with Fast Company, Bezos once again talks about how Amazon is using aspects of their core business to disrupt an existing business model (publishing). This time their Kindle eReader is threatening to reinvent the publishing business.

But Amazon is an online store, a reseller of other company's stuff. Why is it trying to compete in the consumer electronics business with a device? Without a massive quantity sold, how can they possibly achieve the same level of margins that the online business does?

Once again, letting NPV's dictate the business can be dangerous to a company's long-term health. Kindle is an enabler. It enables Amazon to make buying books (from Amazon) easier than ever before. It enables Amazon to potentially disrupt the publishing value-chain. It enables Amazon to accelerate the pace at which costs associated with supply-chain for physical reading materials are reduced or eliminated. And it ultimately enables the on-going evolution of Amazon's strategy to be a critical player in the digital economy.

The Kindle may or may not ultimately be the dominant eReading device. It may fail to pass any litmus tests for success (long-term positive NPV; etc.) but the paradigm it has enabled will position Amazon to be a significant influencer in the digital life of consumers for the next decade. That's a position than shareholders of many other companies would highly desire.
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