Thread by @DCoolican

1/ Been thinking about Amazon recently. One of its big advantages is psychological. Lots of people are simply afraid to compete with them. It fuels a fear flywheel that clears out the competition. I think the brave and crafty will use it as an opportunity. Judo-amazonomics?

2/ When Amazon enters a space (or even glances at it), people run for the sidelines. Founders pivot, investors stall, established players spin up “innovation” teams to deal with the looming threat.

3/ Often the landscape clears of everyone except the old incumbents who have no choice but to fight. It makes it easier for Amazon to enter, which in turn makes them more fierce in the future.

4/ Look at what happens to stock prices when Amazon’s eyes flutter in a particular direction. Double digit drops are the norm, even if it’s just “rumors” that Amazon’s coming.

5/ I have no idea what their plans are in health insurance but healthcare companies shuddered when Amazon announced they’d do “something” a few months back. Same thing happened when they flirted with ticketing in 2017. Or digital prints in 2016. The list goes on.

6/ This fear flywheel is strong. But the best founders are pragmatic optimists looking for hidden opportunity. There’s gold in them hills.

7/ In some ways Amazon’s fear flywheel clears out the crowd and makes it easier for an early stage company. This can be huge advantage from other markets where startups not only slog it out with incumbents but other upstarts trying to elbow their way in.

8/ Borrowing Alfred Marshall’s analogy, young trees always manage to find the cracks of light in an old forest. It helps that they don’t have other saplings to worry about.

9/ It’d be profoundly stupid to underestimate Amazon. It built the machine that makes the machine. But it can’t do everything at once. And some things are more important to it than others.

10/ For example, when Amazon announced they were offering print photography Shutterfly fell 12%. Amazon's going to crush them right?

11/ Turns out Amazon was using a white label provider and the experience was meh. Since that day, Shutterfly's maintained top line revenue and its stock price has nearly doubled.

12/ Photo prints (rightly) aren't really a priority for Amazon, but I would guess their foray reduced the number of upstarts trying to take share from Shutterfly.

13/ Two pieces of advice to anyone thinking of starting a business here:
(1) find a niche that isn’t core to Prime and
(2) prepare yourself for a day when Amazon might come.

14/ On (1) ask yourself whether what you’re building would be a significant feature for Prime. Health insurance feels like it could be a core part of a Prime membership. Photo prints, not so much. Ticketing is probably somewhere in the middle. Find the holes that Prime creates.

15/ On (2) build something that that makes your product defensible if/when Amazon comes for your market.

16/ Maybe it’s a network effect they can’t overcome, (like the streetwear marketplaces). Maybe it’s a unique buying experience they can’t replicate (like jewelry or eyeglasses). Maybe it’s a strong brand (take your pick). Maybe it’s something else (hint: scale is a bad answer).

17/ Regardless of the type of defensibility you build, it better be crazy strong because if you’re wildly successful (and I hope you are) then they’ll at least test your boundaries.

18/ I look forward to the case studies of the future, where we all look back at how a few crafty and brave founders used Amazon's fear flywheel to their advantage. I’m sure it’ll seem both rational and obvious in retrospect.