Why Amazon is accelerating towards SaaSification with the successor of Jeff Bezos

SaaSification of Industries · Luigi Mallardo · February 16, 2021

Jeff Bezos has surprisingly announced that in Q3 2021 he will step down as Amazon CEO. Surprising was also the choice of his successor: Andy Jassy, the company’s top cloud executive and CEO of Amazon Web Services (AWS).

For those who are not familiar with AWS, it’s Amazon business unit providing cloud computing platforms and APIs to individuals, companies, and governments, on a pay-as-you-go basis. It’s SaaS (Software as a Service) and represents roughly 10% of Amazon’s total sales but more than 50% of the company’ operating income.

Why did Bezos appoint the head of AWS instead of appointing the head of Amazon Store or another big e-commerce boss?

What can we expect from the “SaaS guy” of Amazon once he will be heading up the whole business?

Mindset shift.

Jassy will bring the SaaSification perspective to the rest of the Amazon organization, as it pertains to the cloud and infrastructure world he’s been living in for a long time.

With this appointment, the business will accelerate the transition from a transactional model to a brand model that’s built around memberships and digital technology.

This is a natural evolution for the online bookstore which transformed into a mega-retailer with global reach in a slew of different categories from gadgets to groceries to streaming.

Saasification is not about the technology. It’s about the change of the way of thinking and acting of the management.

More subscriptions probably, but that’s not the main point.

Amazon’s subscription revenue accounted for less than 7% of all Amazon revenue in 2019. We can most likely expect an increase in subscriptions after Jassy will take the lead but we shouldn’t expect a huge shift.

The main point is that Amazon could accelerate towards a “reprogramming” of the business and go-to-market playbook in line with the SaaS mentality. Read in a previous post how players like Nike or Starbucks are following the same route (link).

Without having a focus on subscriptions a company like Nike for example hired last year the new President and CEO, John J. Donahoe II, from a SaaS company.

Nike, like Amazon, is executing the same type of game plan that is typical of SaaS:

  • Product innovation roadmap.
  • App ecosystem.
  • Creation of a consistent end-to-end technology platform.
  • Vision for the marketplace, a digitally connected experience, where membership is a true differentiator.
  • Omnichannel execution.

Channel ecosystem.

Jassy has done an impressive job in developing the partner ecosystem of AWS. It will be exciting to see how it evolves even further moving forward on a global Amazon business perspective.

He’s also an obvious candidate to take over from Bezos, in terms of continuing to lead the organization down that path of tech-driven reinvention and disruption.

Ambitious projects with recurring revenue in the DNA.

The future will reward companies that are able to build resilience to shocks and the way forward is finding opportunities to build recurring revenue. 

Amazon’s most ambitious projects started up under the leadership of Jeff Bezos. They are businesses of recurring revenue generation in their own nature.

Who would be better than Andy Jessy – the Amazon “SaaS guy” – to bring them forward in the appropriate way?

  1. Video games. Amazon Game Studios so far has struggled but Jassy said he’s still committed to the gaming business. At the end of 2020 Microsoft announced a major expansion into video gaming through the acquisition of ZeniMax Media with 15 million subscribers. Who is going to become the “Netflix for Gaming”? Link.
  2. Groceries. After acquiring Whole Foods Market, Amazon launched a lower-cost grocer, Amazon Fresh. The company is also scaling up its already-booming food delivery operation.
  3. Amazon Studios. Amazon has spent billions so far to compete with Netflix for shows and movies. Unlike Bezos, Jassy isn’t known for frequenting industry galas, but like his boss, he recently bought a Los Angeles-area mansion.
  4. Health care. Amazon’s official launch of Amazon Pharmacy is bad news for traditional pharmacies. Amazon is now in the business of delivering prescriptions that will be eligible for discounts and two-day shipping under its Prime subscription. Link.
  5. Digital helpers. Amazon is working for building home technology devices, rolling out flying home-security cameras, a proprietary low-power wireless network, and, perhaps someday, a home robot.
  6. The cloud. Amazon’s cloud division, the source of most of the company’s profit, is expected to reach almost $60 billion in revenue this year, more than four times the total in 2016. Jassy has led the unit since its founding.

More Customer Centric and SaaS-type KPIs

Amazon was born with a Customer Centric mindset in the 90s. Have you watched the visionary TV interview of Jeff Bezos in 1999? Link.

Nevertheless, having been a business with e-commerce roots, the typical KPIs tracked by the management must have been historically focused on product and distribution performance such as:

  • Shopping cart abandonment rate.
  • Conversions rate.
  • Average order value.
  • Shipment performance.
  • Gross profit margin

Products and categories must be at the core of the business and customer dashboards.

You should login into your personal Amazon account and you will realize how the e-commerce and transactional mindset is still there.  I did it into my family Amazon account, I found the details of our shopping journey in 2020 and they are interesting.

We did 54 purchases in 2020, from toys (we have a young kid), coffee machines (we are Italians ;), books, and other products in a few different categories. I found all the details about the products and the shipments. Nothing else.

I would be so curious to see their internal dashboards and the KPIs they look at.

What should we expect by the SaaS mindset taking the lead in Amazon?

  1. Less focus on selling you individual products and more focus on getting the higher possible share of your recurring budget for living expenses (in grocery, toys, home goods, etc).
  2. More focus on understanding and maximizing average MRR (monthly recurring revenue) per customer.
  3. More focus on Net Retention Rate and how to drive the spent per customer per year. What’s their plan to get my family spend more on Amazon in 2021?
  4. Churn obsession and how to avoid the risk of having customers to stop purchasing through their omni channel platform (online Amazon store + offline such as Amazon Fresh, Whole Food, etc).

The winning companies of the future will move from net sales and COGS to new KPI’s like MRR, churn, LTV and CAC. They are the metrics of the future economy.

“You are not so much selling a product as you are creating annuities with a lifetime value that far exceed whatever you paid to acquire them”. Ben Thompson of Stratechery.

CONCLUSIONS

With the appointment of Andy Jassy, Amazon will accelerate the move from an e-commerce focus to becoming a business built around memberships and the merge between digital technologies and the physical world.

The SaaS mindset will take the lead in the whole organization and the focus will be more and more on initiatives that will enable a growing share of predictable recurring revenue streams.

The manager who built Amazon Web Services from scratch will also likely push further on Own Brands.

With AWS, Alexa, Amazon Fresh and other initiatives Amazon is building its own brand portfolio. It seems to be following a similar pattern to global retailers like Tesco, WallMart, Carrefour.

At some point the big retailers of the “old world” decided to build their own Private Label products that as a whole have reached the biggest market share in most consumer brand categories.

Exciting and challenging times ahead.

 

If you enjoyed this post, you will also like Why the key is SaaSification and not Subscription AND SaaSification vs Subscription: objections and questions AND this 7 minute podcast we recorded at Sales Hacker a few weeks before the pandemic exploded. 

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Featured image by Building Materials Online (BMO)