Scaling Reputation - Thinking about the Amazon/Zappos Deal

One of the concepts that we’re thinking hard about at the Y&R Lab is what “scaling” means to 21st Century business. In the 20th Century we saw the miracle of industrial scaling driving huge gains in efficiency, which lowered price and expanded commerce as we not only earned but were exposed to a vast variety of products. Ultimately, industrial scale would reach its apotheosis in the mortgage back security, with no physical limitations this product scaled nearly infinitely and profits rushed in.

As we have watched this wonder of industrial scaling unravel, causing massive financial and social damage, we have started to rethink whether industrial scaling is a proper way to grow business and the US. The core problems of scaling are two fold. The first is that scaling becomes an operation unto itself, with entire businesses built up around the idea of scaling as a goal. Scaling is not the goal, the goal is providing the customer with the product they need at the time they need it. The other problem with industrial scaling is that the benefits are concentrated creating large systemic risks in the event of the failure of a single, highly scaled product.

Now let’s return to the Amazon/Zappos deal and think about scale in the networked economy of the 21st century. Zappos has principally scaled, not production or operations, but its customer service and they’ve done if not through efficiency, but through authenticity.  In the 21st Century the challenges of building great businesses are different than in the 2oth century and at the core of success is responding to the consumer. Amazon has responded to the customer with remarkable innovations in supply chain and information transparency, but they still did not have the customer service piece. Zappos has built the ultimate lab for figuring out how to maximize the VALUE of customer service to a business.

The 21st Century’s innovations are seeping into our business culture and in time these will be understood to be the mega-innovations that establish the United States as the hub of product and service innovation, which is then exported to the emerging consumers of the BRIC and ultimately African and Asian economies. America’s opportunity is in leading the network economy, not protecting the industrial economy. As a result we have much to learn from the work of Amazon and Zappos as they navigate towards business success.

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Tagged as: 21st century, amazon, Customer service, m&a, network economy, Supply chain, Zappos