Article

Amazon's Core Problem

If you don't understand and protect your core business, you can't possibly select the right growth...

By Chris Zook

Published on April 02, 2001
min read


Not long ago employees at the Amazon.com summer picnic were outfitted with shirts labeled "get big fast," symbolizing the grow-at-all-cost mentality of the era. True to its mission, Amazon created a jungle of product lines beyond books, ranging from consumer electronics to power tools to cosmetics. How quickly things change. Today the company has a product-reduction program that founder Jeff Bezos calls "get the crap out," and it is seeking partnerships with Best Buy and others to hand off some retailing categories. Mr. Bezos has stressed the need to refocus and "turbocharge" the core book business. Like so many of the businesses now experiencing troubles after the long boom, Amazon tried to diversify too far and too fast. Bain & Co. has studied the growth paths of more than 2,000 companies around the world in order to understand the odds and drivers of profitable growth. What we found was shocking. Only one in 10 companies achieved true sustained, profitable growth—defined as 5.5% average annual revenue and income growth (adjusted for inflation) and earning the cost of capital—over the past 10 years. We also found that Amazon's troubles with its core are hardly unique.

Not long ago employees at the Amazon.com summer picnic were outfitted with shirts labeled "get big fast," symbolizing the grow-at-all-cost mentality of the era. True to its mission, Amazon created a jungle of product lines beyond books, ranging from consumer electronics to power tools to cosmetics.

How quickly things change. Today the company has a product-reduction program that founder Jeff Bezos calls "get the crap out," and it is seeking partnerships with Best Buy and others to hand off some retailing categories. Mr. Bezos has stressed the need to refocus and "turbocharge" the core book business. Like so many of the businesses now experiencing troubles after the long boom, Amazon tried to diversify too far and too fast.

Bain & Co. has studied the growth paths of more than 2,000 companies around the world in order to understand the odds and drivers of profitable growth. What we found was shocking. Only one in 10 companies achieved true sustained, profitable growth—defined as 5.5% average annual revenue and income growth (adjusted for inflation) and earning the cost of capital—over the past 10 years. We also found that Amazon's troubles with its core are hardly unique.