Amazon is running in the pace of its innovation. Thus the Echo, Amazon’s voice-controlled speaker, a big hit in this holiday season. Amazon is keeping specific sales figures under wraps, but the company says it sold nine times as many Echo devices during the holidays as it did a year earlier.
Amazon's CEO Jeff Bezos
 |
| Amazon Echo |
The latest example of Amazon pioneering a new product category and then going on to dominate it. Amazon has become the leader in the e-book market on the strength of its Kindle line of e-readers. And it dominates an important segment of the cloud computing market; Amazon Web Services is expected to generate $12 billion in revenue this year.
In
2017, Amazon is hoping to start doing something similar for
brick-and-mortar retailing. The company recently unveiled Amazon Go, a
convenience store whose no-checkout technology could revolutionize the
retail sector.
Thereby,
Amazon has shown a remarkable ability to succeed in a wide variety of
different product categories. That’s a contrast to most other
high-profile tech companies that are really good in one area — Google’s
dominant online services or Apple’s extraordinarily profitable hardware —
but struggle when the quest for growth pushes them outside their zone
of core competency.
“There's
an opportunity to do innovation in big companies,” says author and
startup guru Eric Ries. “But very few big companies have done this
really well. Amazon is one of them.”
Amazon
has figured out how to combine the entrepreneurial culture of a small
company with the financial resources of a large one. And that allows it
tackle problems most other companies can’t.
Tough Hands of Google.
Google
created or acquired a remarkable string of hit products during the
2000s, including Gmail, Google Maps, Google Docs, YouTube, Android, and
Chrome. These products have a lot in common. Most are online services
like Google’s original search engine. The two major exceptions — Android
and Chrome — are software that help people access Google’s online
services.
 |
| Google Moonshots |
But
so far, Google has had little to show for these efforts. Google Glass
was a flop. The company has developed some impressive self-driving
technology over the past six years but has still not turned it into a
commercial product. Google bought Nest in 2014, but the company has
struggled to expand beyond smart thermostats. Google acquired some
robotics startups in 2014, but hasn’t figured out what to do with them
and wound up putting one up for sale.
One
of the big problems here seems to be that Page and company are a little
too focused on solving hard technical problems. Creating a new computer
platform around a pair of glasses is a hard and interesting technical
challenge, for example. But it was never clear that solving it would
produce to a viable product.
 |
| Google's Otto 7.0.0 self driving truck |
Google’s
most promising “moonshot” is its self-driving car project, which is
widely regarded as the technology leader. But top engineers on the
project have grown impatient with the company’s slow pace in getting to
market. A team of Google engineers left Google to found Otto, a
self-driving truck company acquired by Uber earlier this year. The
leader of Google’s self-driving car project, Chris Urmson, recently quit
to create a self-driving car startup of his own.
Similarly,
robotics is an important area of computer science research. But it was
never clear what Google was going to do with a menagerie of robot
startups. The thinking seemed to be that Google would acquire the best
talent first and come up with a plan to make money later.
Of
course, it’s possible that Google’s self-driving car project or one of
the other moonshots will produce a spectacular business success that
will justify the costs of the other failures. But so far, at least,
Google’s efforts to branch out into markets other than online services
haven’t borne much fruit.
And where Amazon put it's head !
Google’s
approach — solve the hard technical problems first, worry about the
business model later — is rooted in the engineering background of Google
Founders Larry Page and Sergey Brin. In contrast, Amazon CEO Jeff Bezos
spent almost a decade working for several Wall Street firms before
starting Amazon — a background that gives him a more pragmatic outlook
that’s more focused on developing products customers will actually want
to pay for.
Bezos has worked to create a culture at Amazon that’s hospitable to experimentation.
“Thus
a random Amazon engineer mentions ‘Hey I read about an idea in a blog
post, we should do that,’” Eric Ries says. “The next thing he knows, the
engineer is being asked to pitch it to the executive committee. Jeff
Bezos decides on the spot.”
A
key factor in making this work, Ries says, is that experiments start
small and grow over time. At a normal company, when the CEO endorses an
idea, it becomes a focus for the whole company, which is a recipe for
wasting a lot of resources on ideas that don’t pan out. In contrast,
Amazon creates a small team to experiment with the idea and find out if
it’s viable. Bezos famously instituted the “two-pizza team” rule, which
says that teams should be small enough to be fed with two pizzas.
Ries
says that new teams get limited funding and clear milestones; if a team
succeeds in smaller challenges, it’s given more resources and a larger
challenge to tackle.
But
Amazon doesn’t spend too much time on internal testing. “They prioritize
launching early over everything else,” one engineer wrote in an epic
2011 rant comparing Amazon’s culture to other technology companies.
Launching early with what Ries has dubbed a “minimum viable product”
allows Amazon to learn as quickly as possible whether an idea that
sounds good on paper is actually a good idea in the real world.
Of
course, this method isn’t foolproof; Amazon has had plenty of failures,
like its disastrous foray into the smartphone market. But by getting a
product into the hands of paying customers as quickly as possible and
taking their feedback seriously, Amazon avoids wasting years working on
products that don’t serve the needs of real customers.
This
seems to be the approach Amazon is taking with Amazon Go, its new
convenience store concept. It’s a technology that could work in many
different types of retail stores, but Amazon’s initial approach is
modest: a single, relatively small convenience store. Media reports
suggest that Amazon plans to open 2,000 retail stores, but the company
disputes this. The Amazon way, after all, isn’t to open one store
because there’s a plan for 2,000. It’s to open one store and then open
thousands more if the first one is a big success.
Big resources .
In
the abstract this approach — minimize bureaucracy, start out with small
experiments, expand them if they’re successful — sounds so good that
it’s almost banal. But it’s surprisingly difficult for big companies to
do this, especially when they’re entering new markets.
Over
time, big companies develop cultures and processes optimized for the
market where they had their original success. Companies have a natural
tendency to establish uniform standards across the enterprise. When I
spent a summer as an engineering intern at Google in 2010, much of my
time was spent learning how to use the company’s powerful suite of
proprietary software tools. Google employees are expected to use these
tools across a wide variety of projects. That approach works great when
it’s creating a new online service that’s similar to early hits like
search or Gmail. But the tools can become a hindrance if a Google team
is trying to build something that’s very different from a search engine.
You
can make a similar point about Apple. The company is famous for its
elegant user interface, a reflection of the central role of designers —
rather than engineers or project managers — in the company’s development
process. That’s a good way to develop user-friendly gadgets like the
iPhone or Apple Watch, but it doesn’t necessarily work well for other
product categories. Apple struggled for years to make its iCloud service
(and predecessors like Mac and MobileMe) reliable.
In
contrast, Jeff Bezos has been fanatical about letting teams operate
independently of one another. “It doesn't matter what technology” teams
use at Amazon, one of the company’s former engineers wrote in 2011.
Bezos has explicitly discouraged the kind of standardization you see at
companies like Google and Apple, encouraging teams to operate
independently using whatever technology makes the most sense.
Bezos
has worked hard to make Amazon a modular, flexible organization with a
minimum of company-wide policies. That has made Amazon’s internal
culture somewhat chaotic and balkanized. An engineer on one Amazon
project can’t easily jump to another the way they can at Google or
Apple. Friction between teams with different cultures may explain why
some people find Amazon a stressful place to work.
But
this chaotic culture is also hospitable to innovation. A new team can
use the tools and processes that make the most sense instead of feeling
pressure to conform to company-wide standards.
Amazon is well positioned for the next decade of innovation
The
reason Amazon’s organizational choices are significant is that there
are a lot of opportunities for big companies that can emulate the best
characteristics of a startup.
Amazon
Go is a good example. It’s hard to imagine a small startup pulling this
off. The technology that makes the store work — using cameras and other
sensors to track a customer’s every step and instantly detect when he
takes an item off a shelf — is a sophisticated feat of computer science
that undoubtedly cost millions of dollars to develop. To recoup those
investments, Amazon is going to have to spend years — and millions more —
opening stores in an industry not known for its fat profit margins.
That requires the kind of deep pockets and longtime horizons that
startups rarely have.
Back
in the 1990s and early 2000s, the high-tech frontier was on the web.
Scaling a website from hundreds of users to millions is technically
challenging, but it doesn’t necessarily require a huge team or a ton of
physical infrastructure. That’s why companies like Google and Facebook
grew from nothing to billion-dollar companies.
In
contrast, the next generation of innovations is likely to be more tied
to the physical world and to conventional industries: apartment sharing,
self-driving cars, retail stores, health care innovations, and so
forth.
Google, Uber,
Tesla, and conventional car companies are all working on self-driving
technology. To succeed in this market, companies are going to have to
bring together software, hardware, sophisticated maps, and a strategy
for navigating complex regulatory issues — a combination that could be
too difficult for an independent startup to manage.
Amazon
and Google are both working on drone delivery technology, which has a
similar mix of hardware, software, and regulatory challenges. The
companies’ existing financial, technical, and lobbying infrastructure
will give them a big leg up in these markets.
One
way to deal with the conundrum is for big tech companies to acquire
startups early in their growth. That allows a startup’s innovations to
be combined with the resources of a big company. Uber acquired the
self-driving truck startup Otto less than a year after it was founded.
GM paid a billion dollars for the self-driving car startup Cruise in
March.
But acquiring
fast-growing startups is a very expensive way for a big company like
Google or Uber to stay on the cutting edge. And in many cases, this
strategy doesn’t even work. Google’s $2 billion acquisition of Nest was
supposed to accelerate the company’s growth, but instead the company has
struggled under the Alphabet umbrella.
This
is what makes Amazon’s evident success at nurturing entrepreneurial
projects internally so significant. Amazon doesn’t need to rely so
heavily on expensive and risky acquisitions because it has developed a
system for nurturing entrepreneurial projects internally. And as
technology invades the real world, there are going to be more and more
opportunities for these kinds of entrepreneurial projects.
Check out the really cool trailer of Amazon Go
