Buying Scale

Buying Scale

The recent results from tech giants Google and Amazon surprised many. After years of buying scale, both appeared to pause and as a result delivered results that beat everyone’s expectations.

When I talk about scale as one of our five ‘vectors of change’, it has a very specific meaning. The increasingly connected and global nature of social and business culture means that it is very hard to compete based purely on geographic reach. Not only are there always new entrants coming into your space (literally), but the tools with which you reach a geographically-defined audience are increasingly global platforms: Facebook, Twitter, LinkedIn. In order to reach a local audience you are often competing with noise from global competitors. Even the smallest organisations have to consider this when thinking about how they communicate with their market and compete.

The scale that Google and Amazon have acquired, through heavy investment in infrastructure and services, and buying other companies, makes them a competitor to millions of organisations around the world. But the way that they have stratified their organisations also makes them a partner.

Retailers, though competing with Amazon, may choose to sell through Amazon’s marketplace (some would argue to what extent they have a choice). They might use Amazon’s fulfilment services to ship their goods. Their own shop may be hosted on Amazon’s Web Services platform, as so many websites and applications are. And though the retailer may begrudge Amazon the margins it takes in the store, it’s hard to argue that there is not a net benefit to the retailer: the combination of reach and economies of scale it offers would be hard for a single retailer to match.

The reason this works is the hard lines between each of division of Amazon’s business. Though all part of the same organisation, from the outside it looks as if each operates independently. The way in which they interface with each other appears largely the same as the way in which third parties interface. Clear divisions of function with open, low friction interfaces between them is one of our principals for building agile organisations, but clearly it is crucial for scale as well.

The lines at Google are a little more blurry, in part because of the way it makes money from the data of users of its services. Given that it monetises your email data, it’s hard to be absolutely confident that it won’t also monetise what you put on its cloud platform. But it still manages to ‘co-pete’ with millions of businesses around the world.

The likelihood is that Amazon and Google will return to buying scale. They’ve shown the markets they can turn in big profits when they want to. The cash piles and cashflow can now be released again for further expansion, either organic or through acquisition, until they need another show of force.

As long as both organisations maintain the hard lines and low friction between their functions, they can keep on scaling for some time yet.

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This article is by Tom Cheesewright. This post forms part of the Future of Business series. For more posts on this subject, visit the Future of Business page.

Tom Cheesewright

Futurist speaker Tom Cheesewright is one of the UK's leading commentators on technology and tomorrow. Tom has worked with a huge range of organisations across a variety of markets, to help them to see a clear vision of tomorrow, share that vision and respond with agility. Tom draws on his experience to create original, compelling talks that are keyed to the experience of the audience but which surprise and shock with unexpected facts and examples.

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