How important is innovation at Amazon? What are Amazon’s most successful services?<\/p>\n\n\n\n
The biggest gambles requiring the most judgment revolve around some form of innovation. Jeff Bezos places innovation at the core of Amazon’s identity and culture.<\/p>\n\n\n\n
Learn more about innovation’s crucial role in keeping Amazon fresh and energized.<\/p>\n\n\n\n\n\n\n\n
Innovation at Amazon is one of Bezos’s biggest priorities. Bezos\u2019s central business philosophy is that no matter how established your company is, you should always act as if<\/a> it\u2019s a startup.<\/strong> The alternative is complacency and stagnation, whereas a startup mentality brings energy and a gung-ho attitude to stay ahead. This doesn\u2019t just apply to the boss, but to every employee, because the next innovative insight could come from anywhere in the organization. For example, Bezos writes that Amazon Prime, which paid for itself by the sheer volume of business it generated, was first suggested by a low-level programmer. For this reason, all employees must be empowered to think for themselves and come up with risky ideas. If not, they may quit and innovate for your competitors instead.<\/p>\n\n\n\n (Shortform note: While Bezos celebrates the fact that innovative ideas can come from anyone, he doesn\u2019t describe the process by which new concepts are brought forward. However, in Creativity, Inc.<\/em><\/a>, Ed Catmull details the steps and hurdles to do the same thing at Pixar. Catmull acknowledges that many employees are uncomfortable giving feedback or suggesting ideas, so managers have to send the clear message that innovative ideas that fail are tools for learning<\/a> and won\u2019t result in negative reprisals. Unproven ideas are often risky, but Catmull says that nurturing them to fruition requires focusing on what makes them exciting<\/a> and working through the problems as they crop up.) <\/p>\n\n\n\n When innovating, Bezos says that it\u2019s important to keep ahead of sweeping industry trends<\/a>, such as the development of artificial intelligence, but it\u2019s equally important to be so aware of customers\u2019 needs that you can guess what they want before they know it.<\/strong> This involves a process that Bezos calls \u201cwandering\u201d\u2014inventing new products and services with only a vague notion of whether they\u2019ll be successful. This process of trial and error isn\u2019t as haphazard as it sounds, but it\u2019s driven by Amazon\u2019s employees\u2019 insights about how customers engage with the world and what potential innovations might create opportunities for Amazon and its users.<\/p>\n\n\n\n (Shortform note: A famous practitioner of Bezos\u2019s forward-looking innovation style was Steve Jobs, cofounder of Apple Computers. In Isaacson\u2019s biography of Jobs<\/a>, he comments that under Jobs\u2019s leadership, Apple rarely did market research, since Jobs was convinced that the market didn\u2019t know yet that it needed the new products he was pushing. This proved true for such game-changing innovations as the iPod music player and the iPhone<\/a>, though not all of Jobs\u2019s products turned out to be winners, most notably the NeXT academic computer station, which was an unmitigated flop.)<\/p>\n\n\n\n Of course, not every innovation will work and failure is to be expected. Bezos differentiates between bad <\/em>failure, such as poor customer service, and good <\/em>failure which comes from taking potentially profitable risks. The goal with any experiment is to fail as quickly as possible<\/strong> so you can learn what doesn\u2019t work, correct it, and do better. For instance, Amazon\u2019s successful Marketplace program grew out of two earlier failed attempts to bring third-party partners into Amazon\u2019s platform. When a company grows as large as Amazon has, Bezos insists that it has to fail bigger too, or else it isn\u2019t challenging itself hard enough. With the resources at Amazon\u2019s disposal, Bezos expects it to experiment and fail in new, astonishing, billion-dollar ways. <\/p>\n\n\n\n (Shortform note: Bezos\u2019s principle of \u201cfailing as soon as possible\u201d is applicable to any business, especially new ones. In The Lean Startup<\/em><\/a>, Eric Ries presents a systematic way to go about it, based on the premise that a brand-new business doesn\u2019t know what its customers want or how they\u2019ll use it<\/a>. Therefore, Ries describes business practices like a scientific experiment\u2014start with a hypothesis<\/a> about how customers will relate to your product (based on the most minimal version of it you can make), test your product\u2019s performance in the market<\/a>, then learn what you can<\/a> from what you\u2019ve done so far and make any changes<\/a> that your data shows are needed.)<\/p>\n\n\n\n The next economic hurdle Amazon faced was the Great Recession of 2008. During this downturn and the decade after, Amazon held its course and continued to grow. Bezos highlights three of Amazon\u2019s business innovations that blossomed into permanent, successful programs that have shaped Amazon\u2019s character in the 21st century\u2014Marketplace, Prime, and Amazon Web Services\u2014while explaining how Amazon faced the Covid crisis and continues to flourish in the shifting online economy<\/a>.<\/p>\n\n\n\n Launched in 2000, Amazon Marketplace grew out of attempts to host third-party vendors on Amazon\u2019s platform. In its early years, Amazon partnered with other sellers so customers could access goods that Amazon itself didn\u2019t keep in stock. After trying business models that separated outside vendors\u2019 products from Amazon\u2019s offerings, Amazon Marketplace placed third-party merchandise side-by-side with Amazon\u2019s products.<\/strong> Rather than diminishing Amazon\u2019s profits, Bezos argues that Marketplace is a win for all participants. It encourages healthy competition that results in better deals for customers while allowing Amazon\u2019s partners access to a global distribution network that they never could have built themselves.<\/p>\n\n\n\n (Shortform note: Though Bezos presents Amazon Marketplace as a panacea for customers and third-party sellers, not everyone agrees with his assessment. In 2023, the US Federal Trade Commission (FTC) filed a lawsuit alleging that Amazon has built an illegal monopoly<\/a> that prevents third-party sellers from offering lower prices, coerces vendors into using Amazon\u2019s fulfillment service, and overcharges businesses who have no choice but to sell through Amazon. Amazon responded that the FTC\u2019s lawsuit mischaracterizes Amazon\u2019s relationship with third-party sellers<\/a> and that it could result in higher prices and slower deliveries for consumers.)<\/p>\n\n\n\n Another risky venture was Amazon Prime, a customer loyalty program that coupled discounts with free shipping on most items.<\/strong> From its conception in 2005, the initial financial projections for Prime suggested it might be a financial boondoggle, and Bezos admits that Prime was risky because if it failed, it would be hard to roll back without incurring customer resentment. Instead, Prime was a smashing success. It turned out that customers were eager to pay an annual premium for the convenience it offered, as well as its added perks such as rapid delivery and streaming video. For many users, Prime made ordering online preferable to shopping in stores.<\/p>\n\n\n\n (Shortform note: Financial analysts who break down the consumer cost of Amazon Prime agree that it represents a bargain, depending on how you make use of the service. If used primarily for its free shipping aspect, you would have to order enough packages per year<\/a> to recoup the annual membership fee in saved shipping costs. If used for its digital streaming aspects, its pricing is comparable to that of competitors<\/a> such as Netflix and Disney. However, Amazon Prime\u2019s critics point out that its selection is limited<\/a>, its rapid delivery service is harmful to the environment<\/a>, and its discounts and ease of use may promote irresponsible impulse buying<\/a>.)<\/p>\n\n\n\n Amazon\u2019s third major innovation is completely separate from its retail identity. Initiated in 2006, Amazon Web Services (AWS) provides on-demand cloud computing tools<\/strong> that businesses can access on a pay-per-use basis. Bezos explains that AWS grew out of Amazon\u2019s attempts to solve its own computing problems. Once the company\u2019s software team designed the digital tools they needed, they realized that other companies would need them as well. The first AWS customers were small business start-ups that couldn\u2019t afford their own IT departments, but soon, even large corporations turned to AWS to save costs. Though AWS started as a sort of side hustle<\/a>, it now represents a significant pillar of Amazon\u2019s standing as an economic giant.<\/p>\n\n\n\n (Shortform note: Whether knowingly or not, when starting AWS, Bezos followed a practice articulated in 1985 by management expert Peter Drucker. In The Essential Drucker<\/em><\/a>, he explains that when an established company is experimenting with a new type of business venture, it should create the new program as a separate entity<\/a> and treat it as a startup rather than an expansion of the existing enterprise. If the side venture succeeds, it can then be brought under the company\u2019s larger umbrella, and if it fails, its negative returns won\u2019t impact the success of the parent business.)<\/p>\n\n\n\n In 2020, the Covid pandemic drove home how important Amazon is to its customers. <\/strong>Online retail let people order basic necessities without risking exposure from in-person shopping<\/a>. However, Bezos says that unlike the normal increase in business that comes with holiday shopping, the surge of online ordering during the Covid lockdown caught Amazon off guard. The company hired almost 200,000 new workers prioritizing delivery of essential goods. Amazon\u2019s Marketplace worked to clamp down on third-party vendors engaged in price gouging, while AWS provided cloud computing to government agencies, medical researchers, and emergency call centers, as well as schools and businesses that had to rapidly switch to online work.<\/p>\n\n\n\n (Shortform note: As people turned to online ordering during the lockdown, Amazon prospered while other retailers struggled<\/a>. However, because Amazon workers were deemed essential and remained in the workplace with little access to clear health and safety information<\/a>, the pandemic had an unexpected side-effect\u2014the unionization of Amazon\u2019s workforce<\/a>. Workers came together online to speak up about workplace safety concerns and organized strikes to demand better working conditions and stronger safety measures<\/a>. Amazon responded with anti-union pressure, but its workers\u2019 attempts to organize have been upheld by US labor officials<\/a>.)<\/p>\n\n\n\n While Amazon took the lead in online retail, its success didn\u2019t crush its competition\u2014instead, Amazon changed the nature of retail and created new markets for other businesses to pursue.<\/strong> Major competitors like Walmart have now moved into online retail while offering services that Amazon can\u2019t, such as curbside order pickup. By normalizing at-home delivery, Amazon created an avenue for companies such as Instacart that let grocery stores become online vendors. Bezos insists that he isn\u2019t dismayed by the increasingly crowded online marketplace because he doesn\u2019t believe that the competition detracts from Amazon\u2019s value. Rather, the online retail market is still growing, as is Amazon\u2019s overall share. <\/p>\n\n\n\n (Shortform note: Despite Bezos\u2019s statements welcoming competition, Amazon and its chief rival Walmart are racing neck-and-neck to be the US\u2019s top retail business<\/a>. In 2023, Walmart outpaced Amazon in revenue ($573 billion to $514 billion), business innovation, and environmental sustainability, while Amazon ranked higher in customer service and digital sales. Though Amazon long ago eclipsed eBay in terms of revenue and volume, eBay still remains competitive<\/a> as an outlet for third-party sellers to find a customer base. Meanwhile, Amazon\u2019s up-and-coming overseas competitor Alibaba is dominating in some global sectors<\/a>, specifically the Chinese market, and has more active users worldwide.)<\/p>\n","protected":false},"excerpt":{"rendered":" How important is innovation at Amazon? What are Amazon’s most successful services? The biggest gambles requiring the most judgment revolve around some form of innovation. Jeff Bezos places innovation at the core of Amazon’s identity and culture. Learn more about innovation’s crucial role in keeping Amazon fresh and energized.<\/p>\n","protected":false},"author":14,"featured_media":37949,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45],"tags":[1301],"class_list":["post-115903","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-invent-and-wander","","tg-column-two"],"yoast_head":"\nThe Value of Failure<\/h3>\n\n\n\n
Forging Ahead<\/strong><\/h2>\n\n\n\n
Business Innovations<\/h3>\n\n\n\n
Crisis and Competition<\/h3>\n\n\n\n