A Tale of Two Platforms

Before winner-take-all became the name of the game, a bookseller called Ingram showed a better way

Tim O'Reilly
14 min readApr 16, 2021


Note: This is a republication of an article that I published last week on LinkedIn Pulse exploring the limits of Amazon’s vaunted “customer obsession” when pursued at the expense of suppliers, and contrasting it with the philosophy of Ingram, the book wholesaling platform that gave Amazon its start.

A few days later, Jeff Bezos published his 2020 letter to Amazon shareholders, which almost reads like a response to my article. Though that could not have been possible given that his shareholder letter must have been well underway when my article first appeared, the update to Amazon’s thinking is very relevant. In his letter, Jeff seems to have recognized some of the ways that Amazon’s customer-primacy focus is insufficient. He wrote:

“If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with. Any business that doesn’t create value for those it touches, even if it appears successful on the surface, isn’t long for this world. It’s on the way out.”

Jeff went on to provide calculations about how much value Amazon has created for each of the constituencies the company touches. While some of his math doesn’t really hold up (that will be the subject of another post), it’s clear that he is thinking hard about the issue of how to balance competing priorities, and that’s a really good thing. Given the history of Amazon’s brilliant innovations in pursuit of the goals that it sets out, its new ambition to be “Earth’s Best Employer and Earth’s Safest Place to Work” in addition to “Earth’s most customer centric company” is likely to lead to some remarkable changes. I still hope to see Amazon aspire to be Earth’s most supplier-centric platform as well.

With that, here’s my original article.

Jeff Bezos is the world’s richest person, and Amazon, the company he founded, one of the world’s most admired and valuable. Two recent books, Invent and Wander: The Collected Writings of Jeff Bezos, with an introduction by Walter Isaacson, and Working Backwards, by longtime Amazon executives Colin Bryar and Bill Carr, offer lessons from the company’s enormous success.

The Family Business, by Keel Hunt, due out April 20, tells the story of another company, Ingram Industries, which, not coincidentally, played an indispensable role in enabling Amazon’s initial success as the world’s largest online bookstore. Ingram is a family owned business, founded in 1857 as a sawmill in Wisconsin but reinvented multiple times, eventually becoming a transportation and distribution company based in Nashville. 50 years ago, it branched out into book wholesaling, later adding video (and in the heyday of that industry, packaged software.) When Amazon was founded In 1995, it was essentially a web front-end to Ingram’s warehouses and its database of virtually every book that was commercially available. Even today, the Ingram Content Group is a key part of the hidden infrastructure of publishing and bookselling in the US, including Amazon.

Reading these corporate biographies in parallel provides a lot of food for thought. I spend a lot of my time these days studying marketplaces and the technology platforms that enable them: Amazon, Google, Shopify, Alibaba, and of course, my own O’Reilly learning platform. I’m interested in what makes marketplaces succeed and what makes them fail. And in particular, I’m trying to understand how modern technology-based platforms decide the central question of economics: who gets what and why?

When I was asked to write a foreword for The Family Business, I agreed to do so on the strength of my own company’s long association with Ingram — it was a key enabler of O’Reilly’s publishing business as well as of Amazon’s and still remains an important partner — but also because the decisions that Ingram has made as a company have something important to teach us about today’s economy, lessons that are complementary to those that are taught by Amazon. Ingram, like Amazon, teaches us about the necessity of constant corporate reinvention. It teaches us the advantages that come from being a platform — an enabler of other businesses. But it also teaches some lessons that are in stark contrast to those from Amazon and other Silicon Valley giants.

The core narrative of Silicon Valley is of the invention of a new, magical user experience so transformative that it draws hundreds of millions of users: a storefront from which you can order any product with one click, a search engine that gives access to all the world’s information, a phone that is “insanely great,” an app that summons a car and driver to pick you up within minutes wherever you are and take you wherever you want to go. Exponential user growth is seen as the ultimate measure of success. Today, Silicon Valley companies look to be valued at billions of dollars on that metric alone, when some of them can hardly be called businesses, since they have no profits and may even lack a plan for earning any.

Jeff Bezos founded one of the first of the internet’s hyper growth companies, but he understood that the reality is far more complex than simply growth in users. In 2001, he supposedly drew Amazon’s strategy on a napkin. The picture looked something like this:

Amazon’s Flywheel, from a talk by former Amazon VP Jeff Wilke
Amazon’s Flywheel, from a talk by former Amazon VP Jeff Wilke

Jeff pictured a flywheel in which sellers provide a big selection of products, and the unique Amazon customer experience of unparalleled access to those products drives more traffic, drawing even more sellers. Growth of a super-scale business allows a lower cost structure, allowing Amazon to lower prices for customers, which drives an even better customer experience, which drives more traffic, draws more sellers and more products, around and around, faster and faster.

Companies like Amazon, Uber and Lyft, and even Google and Netflix, are marketplaces, connecting and enabling both buyers and sellers. Amazon connects buyers to hundreds of millions of products; Uber and Lyft connect riders with drivers, and Google and Netflix connect readers and viewers with content providers.

One of the big problems in these hyper-scaled marketplaces is building up both sides of the market at the same time. Uber and Lyft demonstrate just how expensive it is. They invested billions of dollars in marketing, and even today arguably sell their services for less than it costs to provide them in order to acquire more passengers.

It’s a lot easier if you only have to build one side of the market. When Amazon launched in 1995 as “the world’s biggest bookstore,” it didn’t have to spend money assembling a critical mass of books, publishers, and authors. Ingram had already done that. Starting in 1970, Ingram had been connecting publishers and bookstores, such that any bookstore — not just Amazon — had access to every book in print. Jeff’s revolutionary insight, the one that launched Amazon, was that the web made it possible to create a friendly online interface to Ingram’s enormous catalog and that technology could be used to radically simplify the process of ordering and delivering. And the flywheel began to spin.

By 2001, when Jeff drew his flywheel diagram, Amazon was already selling electronics and music CDs as well as books, and before long, it was the interface to virtually anything its customers might want to buy. Amazon also created its own, much faster, real-time distribution layer, while continuing to rely on Ingram (and other wholesalers of different kinds of products) for those products that have less demand. As its flywheel spun faster and faster, Amazon took in more and more products and vendors, built more and more infrastructure for warehousing and delivery, and became the master of logistics that we see today. With the success of its third-party marketplace, millions of sellers now compete to offer hundreds of millions of products.

As explained in Working Backwards, one key to Amazon’s success has been its relentless focus on the consumer. Customer obsession is the first of Amazon’s leadership principles. In his 1998 Letter to Shareholders, Bezos wrote, “Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation.”

And there’s the rub. Because Amazon understands so well that delighting the customer with lower prices, faster delivery, and a better customer experience drives its growth, it can sometimes forget that it operates a two-sided marketplace in which its merchants also matter. Rather than considering its merchants as among those “with whom we have a relationship, and … the ones to whom we owe a great obligation,” Amazon seems to view them as a resource to be exploited, an inexhaustible fount of redundant supply to whom no obligation is owed.

This is the Achilles heel of Silicon Valley. Focus on the user, taken as the only gospel, becomes a liability. Amazon faces antitrust investigations in both Europe and the US based not just on strongarm tactics against competitors but against its merchants. Google is likewise being investigated for competing against the web sites whose content it was originally created to help consumers search. Uber co-founder and CEO Travis Kalanick’s palpable disdain for one of his drivers led to a massive PR backlash and his ouster from the company.

Amazon’s treatment of its merchants seems like a curious blind spot in a company that has been so prescient, so innovative, and so capable of creating value for those in its ecosystem. Looking at Bezos’s flywheel, it should be clear to the company that merchants are as important to the flywheel as customers.

Why does this happen? Unlike many critics of Silicon Valley, I don’t think it’s because the leaders of these companies are making decisions solely motivated by profit as is so often claimed by their critics. In fact, Jeff Bezos, Larry Page and Sergey Brin, and Mark Zuckerberg are profoundly thoughtful individuals working to do the right thing. The problem is that they are working within an economic system that values growth above all else, disdains small businesses as inefficient, and tilts the playing field against them.

In the dominant economic narrative for the last 40 years, growth and “economic efficiency” (reflected in lower prices) are the key measures of progress. This favors giant firms at the expense of smaller ones, leading to a two-track economy in which some “superstar firms” soak up all the profits while others are left behind. Unfortunately, that means workers in a large part of the economy and our society are among those left behind. Worsening economic inequality is not something that just happens. It has been designed into the modern economic system.

Silicon Valley represents the apex of this type of thinking. Investors and entrepreneurs celebrate “blitzscaling,” hypergrowth before profits, to build an unshakeable lead, even a monopoly position, before competitors realize what they are up to. The rewards of such a position are enormous. Payoffs in the stock market can be far greater than could ever be achieved through earned operating income. Tesla’s stock, for example, currently has a price/earnings ratio of 1106. What that means in plain language is that the company’s stock market valuation represents more than 1100 years — yes, over a millennium! — of its current level of profit. Amazon’s valuation is somewhat more reasonable, representing only 77 years of today’s profits. Ironically, the better known and more expected the stream of future profits, the lower the valuation seems to be. Apple, with a profitability rate 5 times that of Amazon, only has 34 years of profit reflected in its stock price. Meanwhile, 81% of all IPOs in 2020 were for companies with no profits at all! (In 1980, by contrast, 91% of IPOs were for profitable companies. In 1999, right before the dotcom bust, the number was down to 14%. Count that as a warning.)

Since most of the compensation for Silicon Valley companies’ most valuable and sought-after employees is in stock options, growing that valuation inevitably becomes one of the company’s core objectives, even when the company consciously values other factors ahead of growth. The machine requires growth, or else it breaks down. It’s much like driving an SUV rather than a smaller vehicle. Regardless of your values or where you are going, when you pull up to the pump, you need to fill up a bigger tank.

As is true across most of the modern economy, which sacrifices many an externality on the altar of growth, distorting a complex system by favoring one element at the expense of others is bad in the long term. For example, while Amazon has made the market for many goods more efficient when it comes to lower-cost goods, it has raised the risk of counterfeit goods. Jeff Bezos has told his team that “[other companies’] margin is our opportunity,” and accordingly, Amazon works to eliminate anyone it considers a middleman between the consumer and the ultimate source of supply. As Business Insider pointed out, though, this didn’t eliminate costs so much as it “shifted them to different, often hard to police and control places instead.

“Before online retail, supply chains relied on friction to achieve quality. Becoming a vendor to Walmart required years of work and experience. Those vendor relationships were precious and would last for decades. Because of how hard it was to build one, Walmart could trust on the network of vendors to keep up the quality. In turn, they were invested in vetting their suppliers. Friction in the system meant the supply chain could be trusted. And if anything went wrong, there was a clear path to follow to find the responsible party.”

For Amazon, competition with its merchants also means that those merchants have an incentive to look elsewhere for a better deal. Over the years, Amazon has rebuffed competitors from Ebay to Walmart. Shopify, a platform company that provides infrastructure for companies to operate their own ecommerce sites, is the first rival that has begun to catch up to Amazon, with Gross Merchandise Volume now about $120 billion to Amazon’s $490 billion (versus $100 billion for Ebay, and Walmart in the “single digit billions.”) One executive at Shopify said to me, “Amazon went down the wrong path enough for us to exist.” [Correction: the original version of this story incorrectly listed Ebay’s market cap of $38 billion instead of its GMV.]

What does all this have to do with Ingram?

Ingram is a private company. That means it doesn’t have a public stock price that allows it to receive decades of future earnings today. In this sense, it’s an old-fashioned company, which provides a service and makes its money in the form of each year’s profit. A dollar of earnings is worth a dollar to the company, not $1100 (Tesla), not $77 (Amazon), not $34 (Apple) or $37 (Google or Microsoft.)

Unexpectedly, this allows a company to take a longer-term, more balanced view. If you can achieve an astronomic valuation on user growth alone, it is easy to convince yourself that any improvement that delights users and speeds user acquisition is worthwhile, whether it be lower prices, faster delivery, or more corporate efficiency to enable those things, even if it is at the expense of other elements of the flywheel, such as the merchants who sell on your platform or the drivers who deliver the packages or the passengers to their destination.

Ingram doesn’t have “users.” It is a B2B platform. Both sides of its marketplace are businesses: that is, publishers and bookstores (in the segment of its business that we have always dealt with.) And it has to thoughtfully balance the needs of both of them. It can’t sacrifice one to please the other. And it doesn’t have to do so to please Wall Street. Ingram’s management understands that the businesses on both sides of its marketplace are its customers, and obsesses about both of them.

Ingram’s innovation began with support for booksellers. In 1973, the company provided a weekly microfiche feed of new titles, radically improving the ability of small bookstores to keep up with the output of the fast-growing publishing industry. However, much of what has driven Ingram over the years is innovation designed to support its suppliers (authors and publishers). For example, when Ingram introduced print-on-demand via its Lightning Source subsidiary in 1997, it radically improved the economics for publishers of slow-moving books, like university presses. Since unit costs decrease with volume, publishers were always tempted to overproduce, ending up with massive inventory costs, and often, inventory write offs. Before O’Reilly went print-on-demand with Ingram for many of our titles, we routinely wrote off millions of dollars a year of unsalable inventory. For many small publishers, this is the difference between life and death as a company.

Ingram focused tirelessly on making the book supply chain more efficient for everyone — remaining invisibly in the background, such that today, small bookstores selling online can have books dispatched from Ingram’s warehouses with the bookstore’s own branding.

There’s no question that Amazon has also introduced many services that benefit the supplier side of its marketplace. But Amazon’s innovations on behalf of the supplier side often come with costs designed to soak up their margin. Merchants on the platform are expected to compete fiercely with each other for attention. Amazon’s huge and fast growing advertising business, for example, can be seen as a tax on merchants. Before the addition of this lucrative business, merchants mostly had to compete on product quality and price. Now, they must also pay to play. It’s hard to see how this doesn’t end up being bad for the consumer as well. Where once we were sure that Amazon was showing us the products that represented the best combination of high user ratings, popularity, and low price, now we are first shown paid placements.

We have learned a lot from Amazon that guides our work at O’Reilly, but we have also learned an enormous amount from Ingram. As I said in the Foreword that I wrote for The Family Business:

[Ingram] is a company that has always served its partners, growing as we grow, and never at our expense.

Print publishing is a much smaller part of O’Reilly’s business today (though Ingram delivers a far larger part of it, particularly since 2005, when O’Reilly president Laura Baldwin made a deal with John Ingram to switch us over to print-on-demand using Ingram services — another example of the transformative power of Ingram’s infrastructure investments). Today, the largest part of our business is O’Reilly’s online learning platform, a subscription-based digital marketplace for over forty-five thousand business and technical books, thirty thousand hours of video, live online training, interactive coding environments, technology certifications, and more, provided by hundreds of content partners and used by five thousand enterprise clients.

In managing this marketplace, we continue to take our inspiration from Ingram’s generous enablement of its partner ecosystem, even as we use technologies from the digital realm like machine learning and personalization to help our customers navigate the best and most useful content and learning experiences provided both by our own team and by our partners. At O’Reilly, one of our mottos is “Create more value than you capture. I like to think that we learned to think that way at least in part because of our long partnership with Ingram.

One of the most important lessons we learned from Ingram is what we might call supplier-focused innovation. Many of the new features on the oreilly.com platform didn’t come about because we were thinking about new features to delight our customers (though that was also one of our goals), but because we were trying to figure out new ways to make money for our marketplace suppliers — the authors, publishers, and other content producers who co-create the value of our platform.

We launched our platform in 2000 (seven years before Amazon entered the ebook market with the Kindle) after I received a pitch from one of the many startups in the ebook aggregation space. I realized that while it aimed to offer a great deal to consumers, it wasn’t sustainable. As I did some back-of-the-napkin math for the startup over dinner, I pointed out that their offer was for the grand total of six cents per book per subscriber, which we would then have to share with our authors. If you believed, as I did, that ebooks were going to be a primary modality for customers, that wasn’t going to cut it. We needed a business model that would preserve incentives for authors to keep producing new books (and later, many other types of materials.)

Years later, we introduced one of our most popular modalities on the platform, live online training, when Laura Baldwin realized that we needed to create new sources of revenue for our authors. Our customers turned out to love it, but the idea came from thinking about how we could offer new opportunities to our creators.

So yes, read the books about what we can all learn from Amazon. It is rightly one of the bellwether companies of the 21st century. But don’t forget what we learn from the giants of an earlier era, like Ingram, before winner-takes-all became the name of the game. A platform has an obligation to serve all of its partners and stakeholders, not just its users.



Tim O'Reilly

Founder and CEO, O'Reilly Media. Watching the alpha geeks, sharing their stories, helping the future unfold.