By Walter Frick
Amazon.com’s grand ambition was on display earlier this month with the announcement that it will acquire Whole Foods for $13.7 billion.
The move raises the question faced first by booksellers, then the rest of the retail business, and now seemingly everyone: How can you compete with Amazon?
The retail giant doesn’t just want to be the place where you do your online shopping. It also wants to be where you watch TV and the infrastructure behind your favorite web sites—even the place that you do whatever offline shopping is left after its e-commerce behemoth is done gobbling up brick-and-mortar stores.
But is the only strategy in our winner-take-all era to get as big as possible, to aspire to serve everyone?
Netflix CEO Reed Hastings doesn’t think so. Of course, Netflix is no storefront operation. It’s worth $65 billion and has 100 million subscribers. But in a recent interview with Recode, Hastings explicitly rejected the Bezos approach of strategy-as-world-domination:
“We’re not trying to meet all needs… And so we can’t try to be that—we’ll never be as good as them at what they’re trying to be. What we can be is the emotional connection brand, like HBO or Netflix. So, think of it as they’re trying to be Walmart, we’re trying to be Starbucks.”
Management thinker Michael Porter would approve. “The essence of strategy is choosing what not to do,” he writes in his 1996 classic What Is Strategy. In Porter’s view, sustainable competitive advantage depends on trade-offs, including the fact that it’s difficult for one company to serve all customers across a wide range of needs.
Hastings is betting that Porter’s rules haven’t been repealed. Do strategic trade-offs really limit Amazon’s ability to compete with Netflix? It’s hard to say. Maybe digital technology and the changing economics of scale really have changed the nature of competition, as Irwin suggests. But if you were to bet on which firms would manage to thrive alongside giants like Amazon, you could do worse than pick ones like Netflix, where the CEO is thinking hard about differentiation.
In an era in which a small number of huge companies have unprecedented reach and control, Porter’s central question seems more important than ever: What won’t you be?
Walter Frick is a senior associate editor at Harvard Business Review.