The Beachhead: Amazon’s Multi-Billion Dollar Growth Strategy

Tuesday, June 6th, 1944, Allie forces launched the largest seaborne invasion in history. Under serious fire from gun emplacements overlooking the beaches, obstacles like mines, barbed wire, and stakes, the Allied forces eventually took the beach to established five different beachheads in Normandy.

It wasn’t until June 12th that all five beachheads were linked together. From these five linked beachheads laid the foundation for success as Allie forces pushed invasions further into the Western Front.

In planning for the invasion, four different sites were considered: Brittany, the Cotentin Peninsula, Normandy, and the Pas-de-Calais. Both Brittany, the Cotentin Peninsula have narrow isthmus making them vulnerable for the German forces to easily cut off Allied troops. Pas-de-Calais is the closest site to Britain. The Germans considered this the most likely landing ground and redoubled efforts to fortify defenses. This left Normandy giving the Allied forces both a site easier to attack as well as setting a foundation to launch future invasions deeper into Europe and eventually Germany.

“A beachhead market is the place where, once you gain a dominant market share, you will have the strength to attack adjacent markets with different opportunities, building a larger company with each new following,” Bill Aulet, author of Disciplined Entrepreneurship: 24 Steps to a Successful Startup

Startups entering the market can use the beachhead strategy for higher odds of winning. The foundational beachhead can pour revenue and profits into the expansion of new categories. Find an uncontested space to enter that won’t be heavily defended by current incumbents with deeper pockets to establish a beachhead. On the flipside, startups that fail to establish and own a durable beachhead and go broad too fast increase the risk of failure.

$100M in Funding to Failure

Starting from a series of mergers and acquisitions, Defy Media was created in 2013. Defy grew to 400¹ employees, 75 shows, 140 million followers across social media, reaching 221 million unique visitors according to ComScore across 19 brands². In 2016, Defy Media raised $70 million series B. Total reported funding came in at $100 million³. in 2018, Defy Media was on track to do $50 Million in revenue4. Defy Media announced it was shutting down in late 2018.

Alloy a teen entertainment magazine and digital property. From there Alloy bought a book publisher 17th Street Productions. The string of acquisitions continued with Smosh, a YouTube channel, The Escapist, a video game magazine, launched a programmatic advertising offering across websites Defy didn’t own, as well as a video licensing and syndication lines of business. As Alloy turned into Defy Media and expanded into other media properties, brands, and channels Defy failed to truly establish the beachhead to use for category expansion.

Alloy magazine was one of several different teen lifestyle, general interest, entertainment sites. Defy Media needed to shore up ownership of its beachhead to use as the foundation for future expansion into adjacent categories. Ownership of the beachhead was another misstep. The Allied forces didn’t rent or lease the landing of Normandy from German occupation. Defy Media built followers and subscribers on top of Google and Facebook’s platform. Defy Media was renting.

Owning and controlling the beachhead makes stepping into adjacent categories more secure. Consider if Amazon had built the largest book selection within eBay’s auction system. Amazon would be a very different company today–if at all. Defy Media could have continued to build out its economic moat with Alloy as well as shoring up its beachhead with acquisitions closer to the next market. Alloy was focused on serving the female teen audience. Defy Media could have made acquisitions for the working female millennial, the Gen X female parent, and female-focused health properties. From the beachhead, the next market should be the closest market next to the core customer.

Amazon’s Beachhead Growth Strategy

In 1994, Jeff Bezos started Amazon focused on books. Books allowed Bezos to create an unlimited selection without worrying about the product spoiling. Books, for the most part, have a predictable demand curve based on the longtail. With books, Bezos was able to establish a beachhead as the foundation of revenue, profit, and infrastructure to pour into expanding into adjacent, larger product categories. With each product category addition, Bezos’ flywheel compounded Amazon’s growth.

At the time, books were relatively overlooked. Groceries, electronics, even pet supplies had the focus of other founders and VCs. Books allowed Bezos entry into e-commerce without having to fight well-funded competitors in other markets. Books gave Bezos the ideal beachhead. It was large enough to attract a base of customers, establish the logistics infrastructure, but not large enough to attract competitors nor incumbents looking to defend the space at all costs.

After the competitive advantage in books was set, Amazon began to expand into adjacent categories. The logistical and technical infrastructure was already build and gave Amazon the foundation to rapidly dominate each new category. From electronics to pet supplies, fashion and now groceries, Amazon has grown into the multi-billion dollar, dominant force highlighting the powerful advantage of a beachhead strategy.

From Beachhead to Growth Flywheel

After dominating and expanding, growth became formulaic for Amazon. Product category expansion, average order value, purchase repeat rate, traffic, and conversion rate gave Amazon a predictable formula fueling sustainable growth without relying on paid traffic to grow. Using data from searches, buying rate, and category size, the decision to enter a new market over another becomes clear. After dominating each new category, launching in a new market became easier each time.

“Amazon invited business thinker Jim Collins to present the findings from his soon-to-be-published book Good to Great. Collins had studied the company and led a series of intense discussions at the offsite. “You’ve got to decide what you’re great at,” he told the Amazon executives.Drawing on Collins’s concept of a flywheel, or self-reinforcing loop, Bezos and his lieutenants sketched their own virtuous cycle, which they believed powered their business.”
― Brad Stone, The Everything Store: Jeff Bezos and the Age of Amazon

Illustrated a different way. The growth equation can also be viewed as a growth loop where each part of the equation starts to compound for the entire company. More selection in both product verticals and depth of each product verticle means higher customer satisfaction which means a higher frequency of purchases. More customers means more traffic and data leading to lower infrastructure costs. Lower costs leads to more customers. More traffic attracts more sellers giving customers more selection. With each cycle, Amazon created a stronger, deeper economic moat.