This blog was updated on February 23, 2024.
In 2001, Amazon founder and CEO Jeff Bezos scribbled a diagram onto the back of a napkin that would ultimately define the company’s business model. He called it the “virtuous cycle” – a core approach to building Amazon by starting with the customer and working backwards, rather than focusing on a product or service.
“Our mission is to be Earth’s most customer-centric company,” Bezos told PBS anchor Charlie Rose in 2010. He went on to explain that what distinguishes Amazon from other successful retailers – such as Walmart – is the company’s strict and long-term focus on the customer. “We see our customers as invited guests to a party, and we are the hosts,” said Bezos. “It’s our job every day to make every important aspect of the customer experience a little bit better.”
Bezos’ original sketch of the “virtuous cycle” (pictured above) depicts a flywheel. By definition, a flywheel is a heavy, rotating disc or wheel that is specifically designed to use its own kinetic energy to keep moving. Flywheels are often used to provide continuous momentum in heavy machines that require tremendous power such as locomotives and tractors. Due to the weight of a flywheel, it typically requires great effort to move from a standstill. As it begins to rotate, however, its design helps store and redistribute its own energy to build momentum. Once a flywheel is in motion, it is difficult to stop.
The Amazon flywheel propels itself on the same principle. Centered around customer satisfaction, each part of the business model feeds momentum into another part, which in turn improves the efficiencies of other parts. This enables the business to grow, expand, and improve with its own inertia.
At the core of Amazon’s flywheel is the relentless pursuit of customer-centricity. Everything begins with the customer. Amazon’s commitment to offering low prices sets the foundation for its flywheel. By consistently delivering competitive pricing across a vast array of products, Amazon attracts a broad spectrum of consumers, from budget-conscious shoppers to those seeking premium goods.
Coupled with competitive pricing is Amazon’s unparalleled selection. The company’s platform boasts an extensive catalogue of items, ranging from everyday essentials to niche products. This vast selection not only caters to diverse consumer preferences but also encourages customers to consolidate their shopping needs onto Amazon’s platform, enhancing convenience and driving repeat visits.
Convenience is a cornerstone of Amazon’s strategy. The company has invested heavily in streamlining the shopping experience, with features like one-click ordering, same-day delivery, and hassle-free returns. By prioritizing convenience, Amazon cultivates customer loyalty, as users come to rely on the platform for their shopping needs, whether it’s for routine purchases or last-minute buys.
Central to Amazon’s flywheel is the relentless pursuit of enhancing the customer experience. The company leverages data and technology to personalize recommendations, improve search functionality, and tailor promotions, ensuring that each interaction with the platform is intuitive, efficient, and gratifying. As customers have positive experiences, they are more likely to return and engage with Amazon’s ecosystem, further fueling the flywheel.
As customer satisfaction grows, so does Amazon’s traffic. The influx of visitors to the platform not only reinforces its position as a premier destination for online shopping but also attracts third-party sellers eager to tap into Amazon’s expansive customer base. The addition of new sellers enriches the platform’s selection, contributing to its appeal and amplifying the virtuous cycle of growth.
Scale plays a pivotal role in Amazon’s flywheel. As the company expands its customer base and product offerings, it achieves economies of scale, driving down costs and enabling further investments in price reductions, infrastructure, and innovation. Amazon’s relentless pursuit of efficiency permeates every aspect of its operations, from logistics and fulfillment to cloud computing and customer service.
Infrastructure is a critical enabler of Amazon’s flywheel. The company’s extensive network of fulfillment centers, distribution hubs, and data centers forms the backbone of its operations, facilitating speedy order fulfillment, reliable delivery, and robust digital services. Amazon’s continuous investment in infrastructure ensures that its operations remain agile, scalable, and resilient, even amidst surges in demand or unforeseen challenges.
Innovation is the lifeblood of Amazon’s flywheel. The company has a long history of pioneering new technologies, business models, and customer experiences. Whether it’s introducing voice-activated shopping with Alexa, revolutionizing cloud computing with Amazon Web Services, or reimagining physical retail with Amazon Go stores, the company continually pushes the boundaries of what’s possible, driving differentiation and competitive advantage.
The flywheel model illustrates how each component of Amazon’s business reinforces and amplifies the others, creating a self-reinforcing cycle of growth and innovation. As the company continues to prioritize customer-centricity, invest in infrastructure, and push the boundaries of innovation, its flywheel will only gain momentum, solidifying Amazon’s position as a global leader in e-commerce and beyond.
Under the flywheel concept, a business will be in a constant state of growth so long as the prices continue to drop, the selection continues to expand, and the delivery experience continues to improve. This is precisely what Amazon has achieved over the past 20 years – but not without taking risks and making calculated decisions.
In the early 2000s, as Amazon started to attract more customers to its website, the company chose to open its marketplace to 3rd party sellers rather than monetize this traffic with its own product line. As Jeff Wilke, CEO of Amazon’s Worldwide Consumer Business has explained, this decision was designed to expand the selection of available products. It was based on the company’s mission to improve the customer experience. As more sellers joined the marketplace and more products became available, Amazon’s customer base continued to grow. With more customers came more revenue and instead of turning a profit and paying dividends, the company reinvested in itself to lower prices and add new services – all based around the principle of improving the customer experience.
It’s important to note that Amazon’s flywheel concept not only applies to the growth strategy of its marketplace, but also brands that sell on it. To generate sales, you need reviews. To get reviews, you need conversions. To get conversions, you need traffic. To get traffic, you need – well, you get it. Much of this begins with Amazon content and SEO optimization.
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Today, Amazon is the largest and most powerful retailer in the world. What began as an online bookstore has transformed into an ecommerce behemoth that has revolutionized – or at least reshaped – multiple industries and counting. In its 2023 Q4 Earnings Report, Amazon reported net sales increased 12% to $574.8 billion compared with $514.0 billion in 2022. This growth is not just revenue, but also profit and can be directly attributed to the Amazon flywheel business model. Over time, Amazon has been able to introduce new products and services while at the same time lowering prices and costs, which translates to an increase in profit. Amazon shows no signs of slowing down, either. In fact, the nature of the flywheel is self-propelling, meaning Amazon will continue to not just expand, but expand faster, which is exactly what Jeff Bezos envisioned when he scribbled a little diagram onto what is now likely the most influential napkin of the 21st century.
