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On September 4th, 2018, Amazon became a 1 trillion dollar company.

That's twice what it was a year ago, and only a month after Apple first broke the record.

Now, if your name rhymes with Real deGrasse Bison, you might point out that 1 trillion

is a pretty arbitrary milestone, that new years is fake, leap day is a lie, and the

phrase “time flies” is scientifically inaccurate.

But it's still a good excuse to stop and ask, Why?

Why is Amazon valued higher than Walmart, Samsung, Netflix, and Disney put together?

First, Jeff Bezos thinks only in the long-term.

And because investors understand this, the company can act in ways that only make sense

three, five, ten years in the future.

Second, they focus more on customers than the competition.

The goal is building loyalty, even if it means sacrificing profit today.

And finally, with remarkable scale comes remarkable efficiency.

When you ship billions of packages a year, you can buy your own airplanes, start your

own shipping company, and lower your prices.

But there's another reason Amazon has such an advantage: data.

No other website even comes close to the number of sales made with Amazon.

Not Ebay, not Apple, not even Walmart.

The battle seems already won.

Unlike a Costco or a Staples, companies can't really choose whether to sell on Amazon, only

whether they make the profit.

Say you're shopping for a pair of tennis shoes,

Most people would click buy, receive it in the mail, and never question who it came from.

It says Nike, the pictures are real, it even has the logo.

But often it's actually a reseller, who buys in bulk, adds a margin, and sells on

the same official-looking product page.

Sometimes it's not even the real product.

Knockoffs are everywhere.

In part, because Amazon isn't really incentivized to police them.

To you and me, it doesn't matter who the seller is if the price is right.

But for Nike, it's everything.

Brands can either refuse to sell on Amazon and watch other people do it for them,

Or they can embrace it, and yes, give them a cut of the profit, but at least see some

of it.

So, you can guess which one they choose.

Either way, Amazon wins.

In theory, a company the size of Nike doesn't need them, they have a recognizable brand,

and they can easily sell on their own website.

But even they submit to Amazon, who, at this point, isn't so much a player as the game

itself,

There's a whole industry around making sure your product shows up when someone searches

for it, and you get picked as the seller when someone clicks “buy”.

It's called “Winning the buy box”, in fact, here's a whole book about it, which

you can purchase, you guessed it, on Amazon.

Now, controlling 49% of online sales is impressive, But here's the catch: Online is only one-tenth

of retail,

It's a big slice of a relatively small pie.

To really prove its trillion-dollar valuation, Amazon needs to beat Walmart, at its game.

And that's harder than it looks.

This is Amazon's revenue from retail, this is Costco's, and this is Walmart's.

90% of Americans live within 15 miles of its doors.

You could drive twenty-six hundred miles through Canada, and take a ferry to the remote Kodiak

Island, but you still haven't escaped the land of low prices and… poor fashion choices.

Not even if you're Pitbull.

Whole Foods gives Amazon a 500 store head start, but nothing compared to Walmart's

eleven thousand.

And yet, I'd still bet on Amazon.

Here's why.

The average grocery store has a profit margin of about 1%.

The slightest change in efficiency can be the difference between failing and thriving.

They need to know what customers are buying, how much they're willing to spend, and when

they're vulnerable to advertising.

This is why stores are so eager to sign you up for their rewards program, are you sure

you want to pass up on this 5% cash back opportunity of a lifetime?

Because all of a sudden you're the perfect customer, voluntarily identifying yourself

at the cash register, allowing them to link your purchases together and slowly build a

profile.

No individual receipt is all that valuable, but together, they can start to see trends

and even make predictions.

A few years ago, Target made the news for doing exactly this:

A man from Minnesota drove to the store, demanding to see a manager,

His teenage daughter was receiving coupon after coupon for baby clothes and diapers

and strollers - what were they trying to encourage?

So Target called him a few days later to apologize, but by then, he had his own apologizing to

do, his daughter was pregnant, and Target knew before he did.

You might say they hit the bullseye.

The other benefit of all this data is predictive stocking, not the creepy kind, well, depending

on who you ask, It's being able to order and ship products in anticipation of their

demand.

Walmart began doing this back in 2004, Guessing which items it should order in preparation

for Hurricane Frances.

The answer was strawberry pop-tarts, of course

Today, this isn't just handy information, it's an essential part of the business model.

Consumers expect faster delivery and wider availability.

As free shipping becomes 2-day shipping… becomes 2-hour shipping, the dynamics of retail

change dramatically.

There isn't enough time to ship your bananas from Colombia, they have to be waiting in

a local warehouse before you decide to buy, but without wasting valuable space.

And that means predicting which items will be ordered and when.

Here Amazon has the advantage, It doesn't just know what products you buy but what device

you use, what you search for, how long you spend looking, all that and a whole lot more,

at much bigger scale than someone like Walmart.

It doesn't have to guess how shoppers behave, it knows.

Of course, there's also a downside.

Amazon has always been the magic way to make stuff show up at your door.

Walmart, well, controversial.

“Criticism of Walmart” isn't exactly the shortest Wikipedia page.

Part of which is just distance.

Walmart is visible.

With Amazon, you see only the results.

But public perception may start to change - more stores, more warehouses, more people

concerned about their privacy.

The seeds are already planted, there's even talk of regulating Amazon as a monopoly.

But it has a built-in defense against those arguments: Low prices.

It may control huge portions of many huge industries, but it uses that scale to save

money for consumers.

It even competes with its own sellers.

Amazon can find which products are selling well but whose brands people don't care

about, things like batteries and knives, analyze their return and review data, and manufacture

a cheaper version without the normal marketing expenses.

It's their version of generic brands, with the power of data.

Their most successful is AmazonBasics, which, if you search for something like “iPhone

charger”, is practically all you see, here, here, here, here, here and here.

Many of its brands you wouldn't even know were Amazon's, like Rivet and Presto.

It knows how to rank first on its own website, which allows it to sell more products, therefore

manufacture them cheaper, lower their prices, which, again, sells more products.

And the beauty of being in so many different industries, online storage, movie production,

music distribution, print publishing, organic groceries, personal electronics, and so on,

is more data and more uses for it.

That's why investors are so confident, Scale, long-term investment, customer-focus, and

data are all universal - they give Amazon an advantage in any business they enter.

In other words, if your business sells, well anything to consumers… there's a good

chance you should be worried.

Amazon isn't alone, the future of many industries is using algorithms to predict and analyze

big sets of data.

With Brilliant, you can learn those valuable computer science skills in a very approachable,

intuitive way.

Say you have a list customers and their purchases, and you want to guess what one of them will

buy next.

One way to do that is called Collaborative Filtering, noticing that many people who buy

a backpack also look for school supplies.

Some patterns are invisible to you and me, so we use a neural network.

For example, retailers might want to automatically classify their shoppers in different categories.

So you train the network with data you already have, which it can use to understand completely

new information you give it.

Those are the kinds of topics you can learn with Brilliant.

To get started or dive deeper into the world of computer science and learn more about Brilliant,

go to brilliant.org/Polymatter and sign up for free.

The first 200 people to use that link will get 20% off the annual Premium subscription.