David Rosenthal: belief

Transcript context

…He's talking about it as this brand new thing. It's $79 a year. He's observing this really fascinating thing about the business, where he wants to transform customer experience from a variable cost into a fixed cost. He's describing what if you could shift all of that to a really, really big fixed cost, basically, to get operating leverage on it. One example that he talks about is that they have this great feature, and everybody's experienced this, I'm sure. When you go to buy something on Amazon, there's a little banner that tells you, you already bought this if you already bought it. While that may seem like it can diminish short term revenue, his view is it builds trust with the customer for the long term because you say, oh, thanks, Amazon, maybe I already have this in my house, or maybe there is a chance you wanted to buy the same thing and you just get that delightful customer experience, that reassurance that this is indeed the exact same ASIN or an Amazon identifier of a specific product that you are looking for. He points out, this would cost us the exact same amount to build this thing that provides customer confidence whether we had a million customers or 70 million customers. What he's describing is the most perfect, vivid example of scale economies, where once they get all these customers and once they acquire them all to Prime so they are all loyal, subscribed, guaranteed-to-shop-here customers, then you can amortize every new investment in every new feature across a massive customer base. How could anyone build as good of an experience as you can, because they have to fund it with revenue from fewer customers? I'm not saying that Amazon only has this as one of the powers that enables them to achieve persistent differential returns versus competitors, but Jeff was writing that part of the book as he was giving the speech. It just sent alarm bells off of my ears. That's awesome. Maybe now actually is the right place to talk a little bit about Prime and this dynamic. Yes, so true. Now, as you say, Amazon isn't necessarily the only company that this is true for. You could say similar things of Walmart, especially now that they have Walmart+. You could very certainly say the same thing of another one of our favorite companies that we have not covered on Acquired that we have to now after these first two episodes of the season. That would be Costco, Seattle Hometown Heroes. You mentioned Prime. We skipped over this in history and facts, but I think let's talk about it a little bit here. Jim Senegal and Jeff are buds. They're tight, at least they were. And at least Jeff credits a particular lunch with Jim from teaching him a lot of lessons. In particular, the one I think you're referencing, which is customer loyalty is the thing that matters. In particular, because as we all know, Jeff is absolutely laser-focused on not gross margin percentage, but the absolute dollar amount of margin dollars over a full customer lifetime, that you can get.…

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