Bezos On Innovation
Amazon.com's founder discusses his approach to innovation—both how to do it and how to stay focused when critics question high-risk projects

Business Week, IN Focus April 17, 2008, 5:00PM EST text size: TT
Brian Smale

Welcome to our alumni of our new Implementing Organic Growth class.

There are some very powerful leanings in these excerpts from a BW interview Amazon’s Bezos…….

Bezos has heard worse, of course. For nearly half of Amazon's 13-year history, he's been in Wall Street's doghouse, largely because he's insisted on massive spending to build the capacity that supports new services. While many Web companies were roaring back to life between 2004 and 2006, Amazon's stock fell from more than 50 to as low as 26.

But Bezos seems to be having the last laugh. Not only has Amazon emerged as the undisputed e-commerce champ, but the CEO has embarked on the most ambitious new growth initiatives in the company's history. The plan to sell access to Amazon's vaunted computing infrastructure has taken off with startups and recently with some corporations. Meanwhile, he insists the Kindle, a device unveiled last fall for reading electronic books, could be big enough to matter for the $14 billion company.

Q: The company has a reputation for frugality. Does that apply to the way you innovate?

(Great, great insight and an important lesson for folks who control the purse strings)
A: I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out. When we were [first] trying to acquire customers, we didn't have money to spend on ad budgets. So we created the associates program, [which lets] any Web site link to us, and we give them a revenue share. We invented one-click shopping so we could make check-out faster. Those things didn't require big budgets. They required thoughtfulness and focus on the customer.

Q: You seem able to ignore criticism from Wall Street, the press, and others about your investments in innovation.

A: I believe you have to be willing to be misunderstood if you're going to innovate. That's actually a serious point. If you're going to do something that's never been done before—which is basically what innovation is—people are going to misunderstand it just because it's new

Q: Academics say Amazon excels at different kinds of innovation—from creating new ways of doing business to making small changes that improve the online store. Now comes Kindle, your first hardware product. How do you balance these approaches? (Understand your portfolio of innovations initiatives)
A: There is a ton of fine-grained innovation that happens on a daily basis. That kind is super important—things that make our operations more efficient and lower cost so we can afford to offer lower prices to our customers. But there is a spectrum, and at the other end is large-scale innovation like Kindle and Web services and Amazon Prime [a membership program that offers free shipping]. With large-scale innovation, you have to set a very high bar. You don't get to do too many of those [initiatives] per unit of time. You have to be really selective.

Q: Every company claims to be customer-focused. Why do you think so few are able to pull it off? (This is right on target – your current capabilities serve as a platform not a limiting box to meet the targeted customer needs)
A: Companies get skills-focused, instead of customer-needs focused. When [companies] think about extending their business into some new area, the first question is "why should we do that—we don't have any skills in that area." That approach puts a finite lifetime on a company, because the world changes, and what used to be cutting-edge skills have turned into something your customers may not need anymore. A much more stable strategy is to start with "what do my customers need?" Then do an inventory of the gaps in your skills. Kindle is a great example. If we set our strategy by what our skills happen to be rather than by what our customers need, we never would have done it. We had to go out and hire people who know how to build hardware devices and create a whole new competency for the company.

Q: Does that mean that dealing with the whipsaws on Wall Street have not been a management problem for you?

A: Not really. It's like trying to get people to be long-term-oriented. Also, people who want to pioneer and find new ways of doing things know there are going to be ups and downs, that there will be profound moments of success and failure. And that's O.K. It's not an experiment if you know it's going to work.