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The Jeff Bezos Formula for Asymmetric Competition

The art of moving quickly with a savvy strategy.

By Stephen Wunker, Contributor

Today’s announcement of the Kindle Fire, possibly the iPad’s most serious competitor, underscores how Amazon’s Jeff Bezos remains one of the most predictably revolutionary leaders in business. Selling at just $199, the Fire can accelerate the growth of the already white-hot tablet market through leveraging revenue streams Apple lacks. It embodies the sort of asymmetric competition that has become Amazon’s trademark. How does the company do it?

First, consider the legacy preceding the Fire. Amazon launched as an online bookstore slightly ahead of the dot-com frenzy, and it used a distinct business model to up-end a staid industry. Through collecting payment from buyers well before it paid suppliers, and by initially declining to carry any inventory itself, it could slash prices on popular titles and still make money through the “float” interest it earned on the money paid by users for purchases. Bricks-and-mortar chains couldn’t respond. Then, once Amazon had built up its own distribution centers, it could become a hub for users’ e-commerce needs through selling and distributing products from rival merchants.

Users became increasingly loyal to Amazon even in the hyper-competitive world of Internet retailing, and competitors couldn’t match the scope of Amazon’s offerings because they lacked the scale economies of those centers. More recently, the firm leveraged its market leadership in selling physical books online to become the dominant vendor of e-readers, leaving potential rivals such as Sony unable to gain much traction. It has also started to compete against traditional book publishers, offering leading authors a far-better payout on sales if they self-publish under an Amazon imprint. With a business model predicated on providing these authors with services that many don’t really need, old-line publishers cannot come close to beating Amazon’s terms. The company is also a revolutionary in businesses where it has lacked much scale; for instance, Amazon’s free video streaming for top customers competes asymmetrically against Netflix’s paid model.

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