What makes Amazon an outlier above all others is the sheer power of its identify as an invention machine: one that is able to deliver continuously, and at an ever-accelerating pace, ground-breaking, game-changing, and customer behavior-shaping inventions that create new market spaces and economic opportunities of massive magnitude.
That’s probably why Fortune Magazine described Bezos as “the ultimate disruptor” in 2012, Fast Company Magazine named Amazon the world’s most innovative company in 2017, and Forbes put Amazon on its list of World’s Most Innovative Companies in 2018.
Amazon’s scientists are leaders in their fields, from machine learning to computational linguistics. Amazon geeks out on some of the coolest science in the world. In a 2018 feature on Amazon’s dayone blog, readers could find out about how:
• Amazon is sponsoring the second annual Widening Natural-Language Processing workshop, whose goal is to support women and underrepresented minorities working in the increasingly popular field of natural-language processing (NLP). “Two Amazon scientists — Lucie Flekova and Amittai Axelrod — were on the organizing committee, which was led by Princeton postdoc Libby Barak and also included Carnegie Mellon’s Diyi Yang and the University of Sheffield’s Zeerak Waseem,”the blog reported. Amazon has undertaken a number of initiatives to support the education and development of women and minorities in computer science.
• University teams worldwide are competing for the $3.5 million pool of prizes and grants through the Amazon Alexa Prize by developing a socialbot that can converse coherently and engagingly with humans.
• Amazon and chief machine learning scientist Bernhard Schölkopf, is deeply engaged in the 2018 NeurIPS Conference where Amazon is sharing insights and applying advances in Bayesian learning, spiking neural networks, and chit-chat based and social bots.
• Dilek Hakkani-Tür, a senior principal scientist in the Alexa AI group, is seeing “a lot of advancements in image processing and speech and in many machine learning problems. Within dialogue, it’s still so hard to have machines that can learn how to converse in an open domain. I think that’s why people want to work on the problem.” Learn more at https://blog.aboutamazon.com/amazon-ai/the-state-of-ai.
This all flows from how much Bezos loves invention, which is clearly embedded in his DNA. His flair for invention showed up early in his childhood. His grandpa would assist him in “an open umbrella spine clad in aluminum foil for a solar cooking experiment; an ancient Hoover vacuum cleaner being transformed into a primitive hovercraft.”1
As founder and CEO of Amazon, Bezos wants to inject this invention DNA into Amazon, the company he created. In addition to sustaining the relentless drive to invent, Bezos also wants Amazon to master the necessary skills and the effective methodologies for invention.
Again this is no piece of cake. Most people would probably find this task too daunting to even try. But for Bezos, a born inventor and builder, the “impossible” challenge simply kindles more fire within. “We want to be a large company that’s also an invention machine.”2 (Our emphasis).
Invention is not an everyday task that fits everyone. Not everyone has the relentless drive needed. Most of those who are attracted by these impressive returns haven’t fully grasped that such returns invariably come with a hefty price tag: the costs of invention. They will talk a lot about innovation and sincerely aspire for invention, but have neither invested enough effort to figure out the innate costs associated with ground-breaking inventions nor made the conscious choice to accept these costs. When faced with these costs, they want to avoid them as much as possible.
What they fail to see is that costs and returns are two sides of the same coin. Rejecting the costs actually suffocates invention in its true sense, and by doing so, they are actually setting themselves up for failure.
So what are the innate costs associated with ground-breaking inventions? Let’s spend some quality time together on learning about them and thinking about the conscious choice required for serious commitment to inventions.
In a 2009 Fast Company interview, Bezos said, “There are two ways to extend a business. Take inventory of what you’re good at and extend out from your skills,” that is the well-known concept of core competencies, or “determine what your customers need and work backward, even if it requires learning new skills.”
Most companies that have built thriving enterprises eventually evolve into a more protective and defensive mindset in which they cling dearly onto its core competencies accumulated from the past; and seek to preserve and maximize short-term gains without investing enough in learning new skills required for the future. In this way, Motorola let Nokia take the lead, and ironically in the same way, Nokia passed the lead to Apple.
Since the first day Bezos has always focused clearly on serving future customer needs, and has been willing to work backwards to learn the new skills required. In fact, in a 2008 interview with Business Week, Bezos made the point that companies that innovate within their existing competencies are doomed to fail; innovation means building new competencies.3
This has been the common theme of Amazon’s invention and innovation. Just think about the impressive list of major breakthroughs in the company’s history, such as AWS, Kindle, and Alexa and Echo. When Amazon first started, none of the cloud, hardware, voice recognition, or AI was among the portfolio of existing competencies at that time.
Perhaps a little less obvious: the continuous learning of new skills generates compounding returns over time. The more new skills developed, the more new opportunities will be created and captured; and as such new opportunities unfold, the better the skills will be, and the higher the returns will be.
For example, when in 2004, Bezos decided to pursue a crazy idea that later became Kindle, Amazon had zero experience in hardware devices. When Amazon first ventured into the unchartered waters that later became AWS, nobody knew for sure what would be the outcome. With fast learning and proven mastery in both device and cloud-based services, Amazon’s later adventure of Echo seemed to be much more well-grounded.
This is what we meant by “compounding effects of inventions.”
In the case of Kindle, Amazon not only had the courage back in 2004 to get into the most crowded and competitive market of consumer electronics, but also didn’t shy away from the risk of self-cannibalization.
This threat was very real at the time. Amazon had made its first success in selling physical books online. If Kindle could do what it promised, customers could easily find and download an e-book within 60 seconds, without the trouble of buying or carrying physical books. The extreme success of Kindle could put all sellers of physical books out of business, including Amazon itself.
That’s why when Bezos appointed Steve Kessel, then a key executive in the traditional media business (including the selling of physical books), to lead Kindle and transition to digital media, he explicitly told Kessel “Your job is to kill your own business. I want you to proceed as if your goal is to put everyone selling physical books out of a job.”4 Amazon was clearly one of the “everyone” selling physical books.
When given this appointment, Kessel’s previous job, with all its responsibilities and subordinates, was immediately taken away from him. Why not allow Kessel to manage both the physical and digital media business at the same time? The answer was crystal clear to Bezos, “If you are running both businesses, you will never go after the digital opportunity with tenacity.”5
Bezos’ approach could leave many puzzled. Why was he so determined? Because Bezos knows too well that if you don’t dare to kill your own business, others will. The classic example would be Kodak, who used to be the unequivocal global leader in the film market but filed for bankruptcy in 2012. The interesting part is that Kodak in fact invented the digital camera.
Failure is a necessary and integral part of invention. There is no shortcut here. To pursue invention, tolerance of failure is a must. Or more precisely, the possibility of failure should be encouraged and embraced.
Amazon clearly understands this point and actually believes in failing early and iterating until they get it right. Such a belief gives Amazons a distinctive competitive edge, and frees Amazon to “pioneer into the unexplored spaces.”6 As Bezos explained:
“One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins.7 To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.”8
During the past 25 years of innovation and invention, Amazon has encountered numerous failures. Here are the 18 significant ones:9
Year |
Failed Innovations (year abandoned, if applicable) |
1999 |
1. Amazon Auctions (abandoned 2000)2. zShop (abandoned 2007) |
2004 |
3. A9 search portal (abandoned 2008) |
2006 |
4. Askville (abandoned 2013)5. Unbox (abandoned 2015) |
2007 |
6. Endless.com (abandoned 2012)7. Amazon WedPay (abandoned 2014) |
2009 |
8. PayPhrase (abandoned 2012) |
2010 |
9. Webstore (abandoned 2016) |
2011 |
10. MyHabit (abandoned 2016)11. Amazon Local (abandoned 2015)12. Test Drive (abandoned 2015) |
2012 |
13. Music Importer (abandoned 2015) |
2014 |
14. Fire Phone (abandoned 2015)15. Amazon Elements diapers (abandoned 2015)16. Amazon Local Register (abandoned 2015)17. Amazon Wallet (abandoned 2015) |
2015 |
18. Amazon Destinations (abandoned 2015) |
Interestingly, as a company grows bigger, if one wants to continue to invent at a size that can move the needle, the experiment needs to be big enough to really matter. Since it’s an experiment, no one can guarantee success; the size of failed experiments will go up as well. As a result, unless you can make peace with the possibility of large-scale failure (large-scale risk-taking implied), large-scale success will not come. That’s why Bezos mentioned the phrase, “multibillion-dollar failures,” for the first time, in his 2018 Shareholder Letter.
Among the 18 failures mentioned above, the Fire Phone is undeniably a multibillion-dollar failure. However, from the ashes of Fire phone, Amazon was able to harvest its learnings and leverage the experience of its developers to accelerate Echo and Alexa. Those two proved to be victories that turned out to be much larger in scale and much longer in timeframe.
Bezos is not alone in such daring to fail. In June 2017, Netflix CEO Reed Hastings told a technology conference, “Our hit ratio is too high right now. We have to take more risks . . . . to try more crazy things . . . . we should have a higher cancel rate overall.”10
Invention is anything but efficient. It’s difficult, lengthy, and full of uncertainty because no one knows how much longer it will take and when the real breakthrough is going to come.
To copy, to follow conventional wisdom or to benchmark against best practices would be much easier, much faster, much more certain and efficient.
Bezos is well aware of the difference between the two approaches and fully appreciates the beauty of the former’s inefficiency. In his words, this is power of “wandering,” clearly not efficient, but definitely required for invention, especially for the “outsized discoveries, the ‘non-linear’ ones.”11
It takes patience to wait, sometimes for years. It also takes courage to shrug off the long periods of misunderstanding for years. All of Amazon’s ground-breaking, game-changing, and customer behavior-shaping inventions has taken years to develop: two years for AWS to launch its first service, three years for Kindle from development to product debut, four years and a 2000-member team for Echo, and “several years building our own data engine, Amazon Aurora, a fully-managed MySQL and PostgreSQL-compatible service with the same or better durability and availability as the commercial engines, but at one-tenth of the cost.”12
All great inventions need to start with an idea, a brilliant one, a revolutionary one, or a seemingly impossible one. So how does Amazon continuously generate new ideas and meticulously pick which ones to pursue?
Many people have great inspirations. However, much of this potential brilliance is wasted as a result of the “omission bias,” an interesting phenomenon highlighted by Patrick Doyle, CEO of Domino’s Pizza since 2010. That is “the reality that most people with a new idea choose not to pursue the idea because if they try something and it doesn’t work, the setback might damage their career.”13
How to overcome this barrier and ensure that people with the new ideas, the great ideas, and the seemingly crazy ideas have both the courage and the channel to voice their views and be heard without fear?
Amazon invented a unique way, called “the idea tool,” to tap into employees’ creativity and imagination. Anyone who has an idea can submit his or her thoughts without filters of layers of managers or concerns about feasibility from either technical or financial points of view.
For example, the initial idea, which later developed into “Prime,” was in fact a proposal made by an Amazon junior software engineer called Charlie Ward back in 2004. His thought that Amazon could “offer people kind of an all-you-can-eat buffet of fast, free delivery.”14 By that fall, this idea had gathered enthusiasm among other employees and caught Bezos’ attention. Immediately hooked by this “big idea,” Bezos called for a Saturday meeting nearby his home and kicked off the destiny-defining journey for Amazon right on the spot. As of year-end 2018, Amazon has more than 100 million prime members worldwide,15 the second-highest number of paid subscribers only next to Netflix.16
In addition to the people inside Amazon, Bezos also seeks ideas from those outside. After the initial success of selling books over the Internet, Bezos “emailed a thousand randomly selected customers and asked them, besides the things we sell today, what would you like to see us sell.”17
Once you have the ideas, how to select which one to pursue further?
At Amazon, the ideal adventure to create is not aimed at merely 100 or 1000 people. Bezos seeks inventions that speak to billions of customers and millions of enterprises worldwide. With Internet and digital technology, this is both feasible and economically attractive. The $232.9Bn revenue18 a year is still very small. All in all, Amazon only commands less than 4% of US retail and less than 1% of global retail.19
In his 2017 interview with Fast Company, Bezos said, “Our job is to provide a great customer experience, and that is something that’s universally desired all over the world.” Why universally? Why all over the world? Because that’s about the scale Bezos has in mind.
Why so big? Because of the risky nature of invention, in which “failure and invention are inseparable twins.” What could offset the numerous failures along the way? A big win, such as AWS.
Other than a large addressable customer base, what else could ensure big scale? The answer is “simple.” Steve Jobs firmly believed that the best design is the simplest. On this point, Bezos couldn’t agree more. “Simple is the key to easy, fast, intuitive, and low-cost.” More importantly, “simple scales much better than complex.”20 (Our emphasis).
That’s why Amazon’s third Leadership Principle, right after Customer Obsession and Ownership, is “Invent and Simplify.”
No wonder the first service launched by AWS back in 2006 was Simple Storage Service, and during the entire development process, Bezos constantly reminded the team to simplify further.
Amazon famously obsesses with customers because they are “divinely discontent.” As Bezos wrote, “People have a voracious appetite for a better way, and yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’.”21
Amazon also chooses to focus on customers instead of competitors because, “If you’re competitor-focused, you have to wait until there is a competitor doing something . . . . Being customer-focused allows you to be more pioneering.”22
By focusing on customers and their discontents, you will open up the floodgates of never-ending inspirations. Once truly obsessed with how to continuously delight them you will be surprised at how many ideas you could come up with.
Regarding customers, Bezos has a very high bar. What he looks for is an experience that dramatically exceeds customers’ expectations, something that has been long believed impossible, and something that would generate a genuine “wow” or even a “magic” moment.
In other words, Amazon invents on behalf of customers, instead of waiting for customers to say what they want.
“The biggest needle movers in Amazon are exact things that customers don’t know to ask for. We must invent on their behalf. We have to tap into our own inner imagination about what’s possible. AWS itself – as a whole – is an example.23”
To constantly delight and wow customers, the idea has to be distinctively differentiated from others. It is even better to be unique, or seemingly impossible. Bezos has no interest in being a copycat or offering a me-too product or service. Before embarking on an idea, he ensures that it is actually worth doing, “we want something that’s uniquely Amazon.24” (Our emphasis).
Bezos therefore strongly encourages his team to always imagine the impossible. Amazon Go is the perfect example. Bezos had been asked for years whether Amazon would open physical stores and his reply had always been “yes” but only when Amazon could come up with something different. This day finally came with Amazon Go. This venture called for a complete re-imagination of a whole new customer experience: walking into a store, picking up what is needed and just walking out without “annoying and lasting-for-ever checkout lines” anymore.25 Many customers describe the experience of shopping at Amazon Go as “magical”.26
That’s exactly what Amazon looks for in great ideas.
In many companies, once an idea has successfully attracted the attention and support of one top executive or the CEO, implying the approval of team and budget, it’s time for rubber to hit the road.
The Amazon way is radically different. It all starts with the press release. This formal exercise enables people to further ponder and polish the idea, to make it more robust and more specific, and to develop this big idea from a simple concept to a development-ready blueprint. It is an internal document that looks at what the future would be like with the successful execution of the idea being proposed.
According to John Rossman, a former Amazon executive, a sample press release for the third-party selling platform would go as follows:
“Amazon Announces Huge Growth in Third-Party Selling,Delighting Customers and Sellers
Seattle, WA: Amazon announced results for the third-party selling business today. Using the third-party selling platform, Amazon customers can now shop across many categories of products today including apparel, sporting goods, home decor, jewelry and electronics with incredible selection, price and an experience equaling orders fulfilled by Amazon.
The Amazon customer now thinks about Amazon for any retail need, thanks to the third-party selling business. Over 30% of all orders at Amazon are now third-party sold and fulfilled orders, across 10 new and expanded product categories,” explained Director of Merchant Integration John Rossman. “We tackled several difficult hurdles to make this successful, with the key being that sellers had a great experience. Sellers can now register, list products to sell, take orders and fulfill in the middle of the night, without ever having to talk to someone at Amazon.” 27
From this 142-word document, one can clearly see 3 things that would play pivotal roles in the following development:
At Amazon, every project, be it development, innovation, or invention, needs to start with the customer.
Potential questions to answer include: Who are the customers? How will they use it? What is their new experience? Which existing experience will it replace? What changes will it require them to make? Why will they prefer it? What are the benefits in the eyes of the customers? If the customers are not the end users, you need to go all the way to the end users and think through the same set of questions again.
Amazon always considers customer experience as an end-to-end process. Each touch point along the customer journey matters, regardless of whether it is under your control or not. Customers don’t care who owns which part of the process, whose KPIs it is, or whose role and responsibility. If they don’t like the experience, they will go somewhere else. Therefore, the end user experiences need to be equally great no matter which party—third-party sellers or first-party seller (i.e. Amazon itself)—provides the service.
Given the innate uncertainty of product development, many companies take a “wait and see” approach towards setting goals. At Amazon, goals are taken seriously. They need to be bold, specific, and measurable.
Goals cannot be a low-hanging fruit that one can achieve easily. They must be so high up in the sky that they are almost beyond the eyesight of many and can only be achieved through audacious effort. What drives creativity? It’s the challenges. If something gets too easy, people’s true creativity will be left under-utilized or even un-tapped.
Back in the early days, Amazon had been struggling with third-party sales. Total percentage of third-party selling was a stagnant three percent in 1999 and 2000. Amazon Auctions and zShop, two attempts to conquer the third-party arena launched in 1999 both failed. Despite all these setbacks, the team for the third-party selling platform set their goal at thirty percent, implying a 10-time jump.
At Amazon, before the kick-off of any new product or service project, the team must set a specific launch date in the press release. This is not a firm commitment that can trigger firing or other punishment if the owners of the idea fail to launch on that date. Rather, the discipline of putting one’s best guess on the table — and in formal writing — has tremendous value as a strong forcing mechanism for thinking things through thoroughly, taking one’s proposal seriously and, when faced with difficulty, pushing oneself to do everything humanly possible to honor one’s own commitment.
Prime is an excellent example. When Bezos decided to kick off the project, he set the launch date at the next earnings announcement, leaving the team only eight weeks to turn the huge idea into a ready-to-launch flawless solution.
All these goals are bold, specific, and thus measurable. In this way, there is no wiggle room to tweak a lukewarm result into a glamorous hit or to paint a failure into glory.
To convert a big idea — one that is distinctively differentiated, uniquely Amazon, and even seemingly impossible — into reality is never easy. After all, there must be almost insurmountable hurdles that prevent others from trying or even imagining the possibility of success.
In the case of the third-party selling platform, one huge initial hurdle was how to make it mostly self-service and automated. Why did the team choose this design principle despite all the difficulties? Because these qualities would maximize its ability to scale, so it could be big, really big.
This is also why the enabling and the governing of third-party sellers needs to be automated as well.
Most people would assume that the easiest way to help third-party sellers operate their business better and grow their business faster would be to conduct training or offer specific help via experienced veterans through calls, on-site visits, or coaching and consulting. That’s not the best approach under this design principle, so the team wouldn’t even stray there.
This is exactly the value that a well-thought-out press release would offer: clarity and discipline.
As you would well expect that writing a solid press release requires long time of in-depth thinking. Sometimes, it can take ten or more iterations.
After the press release has been shared and discussed, and the big idea developed from a simple concept to a development-ready blueprint, it’s time to select a leader and put together a team to make it happen.
Amazon has a well-known approach to drive project development: the two-pizza team, or as Amazon refers to it, 2PT. The 2PT teams refer to “autonomous groups of fewer than ten people — small enough that, when working late, the team members could be fed with two pizza pies.”28
Many people take the concept literally, i.e., the team size, usually 6-10 people. As Bezos repeatedly pointed out, if you can’t feed a team with two pizzas, the team is probably too big.
Is team size the only thing that matters? Of course not.
At Amazon, a project team with clear mission and specific goals needs to be cross-functional, full-time, and co-located. It’s a total immersion experience with the team constantly working together, hour upon hour, days and nights, and in some cases, months and years.
Why? Creativity comes from people’s interactions; inspiration comes from intensive concentration. Just like a start-up, the initial founding team huddles together in a garage, experimenting, iterating, discussing, debating, trying and retrying, again and again. One idea triggers another, one inspiration sparks another, and eventually a destiny-defining breakthrough comes.
Many companies that want to adopt the 2PT approach indeed set up teams with 6-10 people, but usually fail to make them cross-functional, full-time, and co-located. When all team members have their respective full-time jobs to work on and various sets of demanding KPIs to deliver, their participation in the project, no matter how critical it is, is bounded to be reduced to something more like extra-curricular activities for one or two random hours every week. They have no choice but to opt out of weekly team meetings if duty calls. That’s why full attendance at team meetings is so rare. In most cases, even when they do show up, their minds are somewhere else.
In short, the projects may well be the top priorities for the company, but full-time dedication and co-located concentration, the individuals never see them that way.
The right leader may not guarantee success, but the wrong leader will surely guarantee failure. In each of Amazon’s major breakthroughs, you will find a strong leader.
Back in 1999, who led the Amazon logistics, and built fulfillment into a core competency? Jeff Wilke. He is now the CEO of Worldwide Consumer. In fact, Fulfillment by Amazon (FBA) has become an important enabling infrastructure for Amazon ecosystem partners.
Who led the mission to create Kindle and was full-heartedly devoted to the courageous and audacious endeavor into the unknown, even when it meant “killing your own business?” Steve Kessel. He is now the SVP of physical stores.
Who led the invention of cloud services and built AWS into a $26.7Bn revenue business?29 Andy Jassy. He is now the CEO of AWS.
All the three are currently S-team members led by Bezos personally.
Nothing overcomes the wrong person. In the wrong hands, great ideas will not blossom.
In most companies, when things go south, finger-pointing becomes a routine charade.
For example, when a new product fails to deliver expected revenue and profits after three years’ trying, the R and D team will be blamed by others for poor design, the sales team will be blamed for poor selling, and the product team will be blamed for poor judgement about market and poor understanding of customer needs. Some collateral damage will be inevitable during the crossfire.
At Amazon, the project team is held accountable end-to-end (e2e), meaning their ownership extends all the way from concept, to design, to development, to testing, to launch, and to post-launch operation.
Why? Bezos believes in the principle of “eat your own dog food.” This is a forcing mechanism of enforcing crystal clear accountability for everyone with nowhere to hide, no one at whom to point the finger.
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Bezos is clearly succeeding in building an invention machine at Amazon that is able to continuously generate ground-breaking, game-changing and customer behavior-shaping inventions that create new market spaces and economic opportunities of massive magnitude.
As Bezos proudly announced that “invention is our DNA”30 and “inventions have become second nature at Amazon.”31
However his job is far from done. Bezos needs to remain vigilant, constantly on guard against the subtle traps that could break this incredible invention machine. Among all possible traps, he singled out decision-making as particularly important.
“We want to be a large company that’s also an invention machine . . . . Can we do it? I’m optimistic . . . . but I don’t think it’ll be easy. There are some subtle traps that even high-performing large organizations can fall into . . . . and we’ll have to learn as an institution how to guard against them. One common pitfall for large organizations – one that hurts speed and inventiveness – is ‘one-size-fits-all’ decision making.”32
Lengthy decision-making coupled with layers of endless approval processes can wear down a fighter, extinguish a creative fire and dampen the passion for invention. Fully aware of the stakes at hand, how would Amazon design a decision-making mechanism to fix the “one-size-fits-all” problem?
Let’s explore this in the next chapter: High-Velocity and High-Quality Decision-Making.