Amazon Buys MGM Studios: How Moves by Competitors change the Orthodox Expectations
Amazon recently announced the acquisition of MGM Studios for $8.45 billion providing Amazon Prime Video with more than 4,000 films and 17,000 TV shows. This is a solid strategy move at a bargain price that keeps Amazon ‘in the game’ on a rapidly expanding customer expectation axis that is being driven by competitors trying to monetize their content.
While many executives (and consultants) like to try and overcomplicate strategy, strategy design is fairly straight-forward, unfortunately strategy execution is complicated, difficult, and messy. For strategy execution to be successful, the leadership team must be willing to constantly challenge the accepted view of how customers really see the organization relative to competitors, how competitors are changing to compete, AND then engaging every employee in the organization in a focused, sustained effort at consistency in direction. Amazon is executing both of these approaches quite well.
We know that organizations pour substantial effort into crafting strategy. Before I talk about why this move by Amazon is so effective, let’s break the myth of Strategy complexity – Strategy design (development, crafting, whatever term you prefer) is made up of just two elements. Virtually every organization (OK, every organization) can be separated into those areas that are standard and those areas that are potentially exceptional.
Every organization must provide customers, suppliers, employees, etc. with the same fundamental offerings / services of those provided by their most direct competitors. It is that maintaining of the table stakes (the “conventional operations” or “orthodox” expectations) of the business at a median expectation level that allows the organization to be a player in the industry. Unfortunately, this takes a constant effort and often means we need to play catch up. Most of what is done on most days at most organizations is the execution of those table stakes expectations of customers / employees. It is the blocking and tackling (sorry for the football metaphor) that is the very reason any customer CONSIDERS (that is willing to put your product or service in the pool to potentially purchase from) buying from an organization. This is where Amazon’s Prime streaming effort has been focused.
The other element of strategy design is the crafting of several true competitive advantages such that your customers will go past your competitors and buy from you (preferably at a higher price, but just getting them to go past competitors and come to your organization is sufficient).
Strategy implementation (which is most of the effort organizational leadership engages in on a daily basis – or should be!) is about the continual, persistent, focused effort to engage with employees such that they maintain the ‘orthodox’ relative to competitors while driving the potential competitive advantages as far and as long as we can. The more consistent you are with your employees and your customers, the more you will reap the rewards of a solid strategy.
Most of what is done at most organizations most days are the standard, conventional (orthodox) operations that must be done by virtually every business in the industry:
The standard operations of any organization must be done. If you fail to meet the standard expectations (for your business) of your customers, then they will stop buying from your organization
The standard operations of any business must be done well. The employees must maintain the level of delivery on these elements such that customers will not switch to another competitor to get something that is simply ‘table stakes’
However, the standard operations of any business need only be done at the median expectation level relative to the comparison competitive set. Overspending or overreaching on an orthodox element costs you time, money and mental fire-power for something that customers are not willing to pay you extra for (or go past competitors and seek you out).
Amazon appears to be well versed in their understanding of strategy and especially what they must do to keep up with the ‘Joneses’. While competitors can and do raise the bar on these ‘table stakes’ (orthodox) elements all the time, the proof of its value is seen in customer behavior. We can hypothesize that offering customers the option of a driverless car will increase usage of our ridesharing business or that offering customers the option to pool with other customers will increase our EBITDA (earnings before interest, taxes, depreciation, and amortization). The proof of these extensions on a fundamental orthodox expectation (getting from where you are to where you want to be without having your own vehicle) can only be seen after the money is spent.
So many organizations throw money at something they see as a potential differentiator only to find out that they simply raised the Orthodox expectation of customers and are easily and quickly imitated by competitors.
What constitutes these standard expectations is decided upon by the customer as the customer compares our operations to that of our competitors. Furthermore, (whether we like it or not) the level of expectation is always moving up. What was once special, unique, rare, or even a competitive advantage becomes standard over time. Competitors constantly ratchet up Customers’ expectations (except in the airline industry where they constantly ratchet them down – but that is for another time).
Organizations that started up their web pages in the 1990s were cutting edge. Today, we not only expect to find everything on the web; we also expect to transact much of our business that way. A cell phone in the 1990s was able to make a phone call (some of the time). Today, we barely care if we can make phone calls. Most of the wireless companies have moved to unlimited calls because the name of the game is data. Not that long ago, college applications were tedious affairs involving a lot of paper and overnight delivery. Today, the whole process is done electronically, much to the dismay of FedEx, UPS, and other carriers. The list goes on and on, with obvious ramifications.
Many of these new expectations frustrate company executives. They can’t see the value in providing X. The competitors start raising the bar on these expectations and a decision must be made. Is this now the “NEW NORMAL” or is this simply a waste of money that customers don’t care about?
There is a danger in doing this analysis internally. We have well-known built-in biases that truly prevent us from openly challenging our current norm. We have budgets, plans, investments all predicated on how we see the industry.
Amazon produces original content for their Prime Platform – as does Netflix, Discovery+, Peacock, Apple+, and the list seems to go on forever. They offer a wide variety of shows and movies for purchase (a slightly unusual offering more akin to Google Play, Vudu, your cable provider). They provide a streaming option that also gives customers free shipping on virtually anything they might want delivered to their house (oh yeah, there is that).
Unlike their competitors in the video streaming space who are primarily content providers trying to cash in on their library (or new shows), Amazon is trying to cash-in on customers buying ‘stuff.’ As more and more content providers decide to run their own for-profit streaming service, they are removing content from Amazon, Netflix and other more generalized providers thereby limiting those providers the ability to be a viable player in the industry. Just look at the money that these providers (including Netflix) are pouring into new content.
Buying MGM Studios gives Amazon a wealth of well-known content allowing it to remain viable (orthodox) in the streaming media industry. It is NOT a competitive advantage and not what they are hanging their ‘STRATEGY HAT’ on. They have the resources to monetize the catalogue at a fraction of the risk/cost of new content. Amazon loses money on their streaming service every single year. They have no real prospect for it to break even, let alone make money.
Amazon has been on a well-focused strategy implementation effort for many years. Since half of strategy is remaining a ‘player’ in customers’ expectations, Amazon is executing strategy quite well.
