What is Amazon's flywheel effect, which is the driving force of Amazon's growth?

by Vestman

The worldwide online shopping site " Amazon.com " is based on the idea that was felt when Jeff Bezos, the founder of the company, worked for hedge fund D, E, and Show . The driving force of the growth was a virtuous circle called the "Amazon flywheel effect (Amazon Flywheel Effect)".

Applying the Amazon Flywheel to Your Online Business - Sellics
https://sellics.com/blog-applying-amazon-flywheel-to-your-online-business

The Amazon Flywheel: Part 1 - Sam Seely
http://www.samseely.com/blog/2016/5/2/the-amazon-flywheel-part-1

A flywheel is a large and heavy car attached to a rotating shaft to maintain rotation at a constant speed by utilizing a flywheel. In the case of Amazon, it is called "Amazon flywheel effect" in the sense that it will continue to rotate if it starts to work well.

According to a book by Journalist Brad Stone, " Jeff Bezos Endless Ambition ", Amazon found the "Flywheel Effect" in 2001, the name was attached by Mr. Jeff Collins, strategy advisor about.

This is the figure showing "Amazon Flywheel Effect". It is said that it was a rough sketch by Mr. Jeff Bezos that became the basis. First, by starting a business with a low-cost structure, we realize lower prices of products and increase customer satisfaction (= "customer experience"). Customers who are satisfied with shopping will shop again, so the volume of transactions will increase as a whole. Then, the number of sellers entering will increase, so the range of products will be enhanced. As a result, customer satisfaction will be further increased. After that, "increase in transaction → increase in seller → increase in product lineup → improvement in customer experience" will continue as one cycle.

Benedict Evans, an analyst, points out that there is no outward arrow "getting profit" in this cycle and it is a closed structure.

Why Amazon Has No Profits (And Why It Works) - Benedict Evans
https://www.ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works

Amazon has been growing sales for many years and recorded more than 6 trillion yen in the third quarter of 2018. On the other hand, although profit is at record high, it is 324 billion yen, which is less than 10% of sales It is. This is because the revenue raised in existing businesses is increasingly used to create new businesses, not because "Amazon's operating costs have expanded" or "It suffered a loss in a specific business".

Mr. Evans pointed out that Amazon is now about 1% of the American retail market and should not benefit from entering new business and new categories, but Mr. Bezos It is expected to continue further investment.