“Working Backwards” by Colin Bryar and Bill Carr (2021) is a book that explores the principles and processes that internet juggernaut Amazon.com has employed to become one of the most successful companies in history. The authors are highly qualified to write about Amazon’s business practices; both served a cumulative 27 years as senior executives within the company and worked directly with founder and CEO Jeff Bezos. Both are firm in their conviction that “Amazon’s concrete, replicable principles and practices can be learned by anyone and scaled throughout a company.”
Amazon’s success is, in part, attributable to two key ideas: the company’s long term perspective (and willingness to take big risks and not worry about short term results) and its singular, obsessive focus on the end-customer. The book’s title refers to the Amazon practice of “working backwards” from the optimal customer experience in order to develop compelling goods and services. [Note: critics of the company might argue that Amazon's success is predicated on anti-competitive behavior, anti-union labor practices, cutthroat pricing, and tax avoidance schemes--these might be valid criticisms but they are not the focus of this book.]
The book is divided into two parts. The first part describes the specific principles and processes that Amazon uses to succeed, innovate and gain a competitive advantage in the marketplace. In many ways, these processes are innovations in themselves—they certainly buck the conventional wisdom adhered to by other corporations. In this part of the book, readers learn about the Amazon Leadership Principles (a set of 14 guiding values), planning process, written narratives (used in lieu of PowerPoint), product development process, hiring process, and autonomous teams led by single-threaded leaders who are laser-focused on a single task or responsibility. The goal is to cultivate a scalable, fast, autonomous organization, clear-thinking, and smart organization that is highly adaptable and good at spotting, vetting, and executing on new opportunities.
The second part of the book looks at four case studies consisting of four important product launches and how the principles and processes covered by the first part of the book were instrumental in the business rationale and development process. Readers learn about the development of the Kindle eBook platform (Amazon’s first digital media business), the Prime membership program (Amazon’s consumer loyalty program that ignited retail sales growth), Prime Video (which helped the company transition from physical media to digital media), and AWS (the web services division that came to dominate present-day Amazon’s revenue).
I’m not sure how broad the appeal of this book will be, which is a shame as I thoroughly enjoyed it. There’s a great deal of institutional wisdom along with practical (albeit unconventional) thinking for curious readers to chew on. Outside observers might focus on Amazon’s big product innovations, their stellar revenue growth, and stratospheric market valuation. But, as the authors so capably remind us, these are merely outputs—the logical consequences of the “invention machine” that Jeff Bezos and his team built. The real innovations are under the hood: the institutional culture and corporate mechanisms that enable innovation, invention, and smart-decisions to flourish.
Pros: Part 1 is info-dense and introduces a range of novel corporate practices in great detail. The narratives (six-pagers and PR/FAQ) which replace PowerPoint for meetings and presentations are of particular interest.
Cons: Subject matter may only appeal to a narrow audience. Part 2 is good, but could have been abbreviated or better incorporated alongside Part 1.
Amazon’s success is attributable to it’s long-term perspective and singular focus on the end-customer.
Per Jeff Bezos, the company culture is based on four things:
- Customer obsession instead of competitor obsession.
- A willingness to think long term (with a longer investment horizon than competitors).
- An imperative to invent—and accept the frequent failures that arise from this objective.
- Professional pride in operational excellence.
Jeff Bezos: “We need to plant many seeds because we don’t know which one of those seeds will grow into a mighty oak.”
Book aims to explain “Amazon’s peculiar behavior and how it has produced exceptional results.”
“Amazon’s concrete, replicable principles and practices can be learned by anyone and scaled throughout a company.”
Part 1: Being Amazonian
- This part of the book explores the principles and processes that Amazon uses to invent and innovate.
Chapter 1. Building Blocks: Leadership Principles and Mechanisms
“Amazon established a set of principles and mechanisms, enabling the company to grow from a single founder to several hundred thousand employees while remaining stubbornly true to its mission of obsessing over customers to create long-term shareholder value.”
Amazon’s Leadership Principles are ingrained in every significant process and function at the company.
Jeff Bezos: “You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it—not creating it.”
Amazon’s 14 Leadership Principles:
- Customer Obsession: “Leaders start with the customer and work backwards.”
- Ownership: “Leaders are owners. They think long term...”
- Invent and Simplify: “Look for new ideas from everywhere...”
- Are Right, A Lot: “They seek diverse perspectives and work to disconfirm their beliefs.”
- Learn and Be Curious: “Leaders are never done learning...”
- Hire and Develop the Best: “Leaders raise the performance bar with every hire and promotion.”
- Insist on the Highest Standards: “Leaders have relentlessly high standards...”
- Think Big: “Thinking small is a self-fulfilling prophecy.”
- Bias for Action: “Speed matters in business. Many decisions and actions are reversible and do not need extensive study.”
- Frugality: “Accomplish more with less. Constraints breed resourcefulness, self-sufficiency, and invention.”
- Earn Trust: “They are vocally self-critical, even when doing so is awkward or embarrassing.”
- Dive Deep: “Leaders operate at all levels...no task is beneath them.”
- Have Backbone; Disagree and Commit: Respectfully challenge decisions, show conviction, don’t compromise out of convenience, but commit fully once a direction is set.
- Deliver Results: “Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion.”
Mechanisms: The processes through which the Leadership Principles are realized.
- “Good intentions don’t work. Mechanisms do.”
- Amazon’s mechanisms translate the principles into action.
- Three key mechanisms for the senior management team:
** 1. The annual planning process.**
** 2. The goals process.**
** 3. The compensation plan.**
- Requires 4-8 weeks. Begins the summer before the calendar year (with the executive team, aka “S-Team).
- “This intensity is deliberate, because a poorly defined plan—or worse, no plan at all—can incur a much greater downstream cost.”
- High-level objectives are defined and then business units and divisions develop their own operating plans.
Goals planning (S-Team goals)
- Executive team reviews the operating plans from different corporate divisions/business units and select the most important ones to prioritize.
- Goals must be Specific, Measurable, Attainable, Relevant, and Timely (SMART).
- “Goals are aggressive enough that Amazon only expects about three-quarters of them to be fully achieved during the year.”
- Most corporate executives focus on big-picture, high-level matters. Amazon executives focus on execution details (per the Deep Dive leadership principle).
- Amazon eschews standard “performance-based” executive compensation.
- Amazon sets a maximum base salary of $160,000 for all employees (some executives may receive signing bonuses).
- The bulk of employee compensation is in Amazon equity. This aligns and rewards employees with the long-term success of the company.
Chapter 2. Hiring: Amazon’s Unique Bar Raiser Process
“When you consider the potential positive and negative impacts of an important hire, not to mention the precious time dedicated to it, it is shocking to consider how little rigor and analysis most companies put into their hiring process.”
Problems with conventional hiring approaches:
- Interviewers often lack a clear objective and ask questions that do not help with uncovering ideal candidates.
- Interviewer feedback is not written down, not specific-enough, and not targeted enough (no specificity nor purpose).
- Unstructured meetings a susceptible to groupthink and confirmation bias resulting in suboptimal hiring decisions.
- Short-term costs are that positions are not filled. Long-term costs are that poor hires are made damaging the company for long periods of time.
The Bar Raiser: The name for Amazon’s hiring process.
- Amazon believes its approach to hiring gives it a big competitive advantage.
- It is a “scalable, repeatable, formal process for consistently making appropriate and successful hiring decisions.”
- Amazon Bar Raisers are employees who receive special training regarding the hiring process.
- These trained individuals are always involved in the hiring process.
- “Every new hire should “raise the bar,” that is, be better in one important way (or more) than the other members of the team they join.”
Key steps in the Amazon hiring process:
Job description: You cannot hire the right person for the job if you don’t have a clearly defined job description. This is an essential point-of-reference for interviewers. “A good description must be specific and focused.”
Resume Review: Resumes should meet the requirements spelled out in the job description.
Phone Screen: 45-60 minute call with the hiring manager (once resumes are screened). Based on initial data, hiring manager decides if they would be inclined to hire the candidate based on preliminary data. If so, the candidate will be invited to the next step.
In-House Interview Loop: 5-7 hours of in-person interviewing. Includes hiring, manager, recruiter, and a Bar Raiser (highly trained interviewer). Ideally 5-7 interviewers—all participants will have some interview training. No participants will be more than one level below the position of the candidate’s position. Pool of interviewers should not include the prospective boss.
Behavioral interviewing: The process of evaluating a candidate’s past behavior and their compatibility with Amazon’s Leadership Principles. Each interviewer is assigned one or more of the 14 Principles to focus on in their interview (in order to learn how specifically the candidate aligns with the assigned principle).
Questions are mapped to assigned principles.
Example: “Can you give me an example of a time when your team proposed to launch a new product or initiative and you pushed back on their plan because you didn’t think it was good enough?”
STAR questions (Situation, Task, Action, Result):
- What was the situation?
- What were you tasked with?
- What actions did you take?
- What was the result?
The Bar Raiser: Coaches others on interviewing techniques and helps the team make an optimal, objective hiring decision.
Written Feedback: Interviewers generate detailed notes “as close to a verbatim record as possible.”
- Note comprise the feedback you share with fellow interview loop participants.
- Written feedback must be thorough, detailed, and specific.
- The report should be written shortly after completion of the interview.
- Oral feedback is unacceptable.
- Written feedback includes hiring recommendation based on four possible options: strongly inclined to hire, inclined to hire, not inclined to hire, or strongly not inclined to hire.
- Interviewers do not discuss their feedback until submitting their own report (to avoid bias).
Debrief/Hiring Meeting: After written feedback is submitted, the interview team meets to debrief and make the hiring decision. Team reviews interview feedback and has a chance to change their vote based on the cumulative information.
- “The Amazon debrief meeting is an opportunity for each interviewer to learn from others and develop their ability to assess talent.”
- Bar Raisers often spend more time coaching the interview team than reviewing the candidate (per the Amazon emphasis on internal learning and improvement).
Reference Check: This step only confirms the hiring decision. It is de-emphasized in the Amazon process.
Offer through Onboarding: The hiring manager makes the offer and sells the opportunity to the candidate (not the recruiting manager). “You may have chosen the candidate, but that doesn’t mean the candidate has chosen you.”
Chapter 3. Organizing: Separable, Single-Threaded Leadership
Velocity, a measure of speed and direction, is critical for a business.
“With all other things being equal, the organization that moves faster will innovate more, simply because it will be able to conduct a higher number of experiments per unit of time.”
Single-Threaded Leadership is Amazon’s mechanism whereby individuals are responsible for single, focused initiatives.
- These leaders have specialized responsibilities rather than a broad set of responsibilities.
- They run teams that are largely autonomous.
Dependencies can slow down innovation and the rate at which corporate teams operate.
- When a team cannot operate independently, its progress slows to whatever or wherever the gating dependency resides.
- As organizations become more interdependent and complex, an inordinate amount of time is spent on internal communication and coordination.
- Tightly coupled systems occur when a software architecture contains a large number of technical dependencies.
Amazon-specific dependencies that needed to be overcome:
- Shared code: Early on, Amazon had a single monolithic program called Obidos.
- Shared data: Similarly, Amazon had a single database for products, orders, shipments, etc. called “ACB.”
- Organizational: Teams had to navigate bureaucratic layers to secure project approval, prioritization, and resource allocation.
“Too much of any kind of dependency not only slows down the pace of innovation but also creates a dispiriting second-order effect: disempowered teams.”
Amazon determined that improving coordination and communication doesn’t resolve the problem of dependencies.
- Amazon instead looked to eliminate dependencies.
- Per Jeff Bezos: Eliminate communication rather than encourage it in order to make Amazon a place where “builders can build.”
Amazon switched to a modular system that reduced tightly coupled dependencies.
- Software teams built API interfaces (application program interfaces) for their systems and services.
- “An API is a set of routines, protocols, and tools for building software applications and defining how software components should interact.”
“Morale is...an output metric, whereas freedom to invent and build is an input metric. If you clear the impediment to building, morale takes care of itself.”
Two-Pizza Teams: An early Amazon approach to creating more autonomous teams.
- Teams were no bigger than the number of people who could be fed by two large pizzas (no more than 10 people).
- Amazon’s software architecture was highly influenced by this approach (e.g. modular APIs for services and data).
- “The solution is to encapsulate, that is, assign ownership of a given block of code or part of a database to one team. Anyone else who wants something from that walled-off area must make a well-documented service request via an API.”
- The menu analogy for APIs: When a diner visits a restaurant, they don’t go into the kitchen and prepare their own meal. The diner orders off a menu and requests what they want. The request goes to the kitchen where the meal is prepared. What occurs in the kitchen is entirely up to the staff, their only obligation is to deliver what you requested.
- “Today the advantages of a microservices-based architecture are well understood...the benefits include improved agility, developer productivity, scalability, and a better ability to resolve and recover from outages and failures.”
- These teams worked best for product development (technical teams). They didn’t work so well for other functions.
- This approach was later replaced with single-threaded leadership (see below)
Additional observations on autonomous teams:
- Autonomous teams are built for speed.
- If an autonomous team is poorly aligned, they can veer off course quickly.
- Autonomous teams should have a clearly defined purpose, clearly defined boundaries, and useful metrics for tracking progress.
- It’s up to the team to figure out the specifics of how they will achieve their goal.
- The most successful teams made initial investments in removing dependencies and building infrastructure and instrumentation before adding new features (aka they laid the groundwork for future innovation).
- Start slow in order to move fast.
Jeff Bezos: “Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow...if you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”
- Leaders whose focus is to get a specific job done. They don’t work on anything else.
- “Separable, single-threaded teams have fewer organizational dependencies than conventional teams.”
- Dave Limp (Amazon SVP): “The best way to fail at inventing something is by making it somebody’s part-time job.”
- Ask yourself: Is your team autonomous? Can they roll out changes without coordination or approval from other teams?
“Be stubborn on the vision but flexible on the details.”
Chapter 4. Communicating: Narratives and the Six-Pager
“Amazon relies far more on the written word to develop and communicate ideas than most companies, and this difference makes for a huge competitive advantage.”
Unlike most companies, Amazon DOES NOT use PowerPoint (or any kind of presentation software).
Written narratives are the primary communication tool used for proposals, plans, and process documentation. The company uses two main types of narrative:
- The six-pager: A document used to describe, review, or propose an idea, process or business (covered in Chapter 4).
- The PR/FAQ: A document used to develop and iterate on product ideas (covered in Chapter 5).
Edward Tufte (information design): “As analysis becomes more causal, multivariate, comparative, evidence based, and resolution-intense, the more damaging the bullet list becomes.” (from the essay “The Cognitive Style of PowerPoint: Pitching Out Corrupts Within”)
PowerPoint strips a presentation of important nuance.
Tufte: “For serious presentations it will be useful to replace PowerPoint slides with paper handouts showing words, numbers, data graphics, images together. High-resolution handouts allow viewers to contextualize, compare, narrate, and recast evidence. In contrast, data-thin forgetful displays tend to make audiences ignorant and passive, and also to diminish the credibility of the presenter.”
“From now on your presentation software is Microsoft Word, not PowerPoint.”
PowerPoint presentations also bias the audience towards effective presenters. However, it’s not a given that a good presenter’s idea is also good. Similarly, a boring presenter’s idea might be great (but colored by a weak presentation).
Jeff Bezos: “The reason writing a good 4 page memo is harder than writing a 20 page PowerPoint is because the narrative structure of a good memo forces better thought and better understanding of what’s more important than what, and how things are related. PowerPoint-style presentations somehow give permission to gloss over ideas, flatten out any sense of relative importance, and ignore the interconnectedness of ideas.”
Benefits of an effective six-pager:
- Six pages is optimal for a 60 minute meeting where the meeting participants spend the first 20 minutes collectively reading the document individually (in silence while taking notes).
- Document contains all essential information. Participants can review presentation, uninterrupted, in its entirety. The document is standalone and doesn’t require a presenter to fill in the blanks.
- The document is portable and scalable. It can be circulated easily and read by anyone at any time.
- Anyone can edit or add notes to the document.
- The document serves as its own record.
- Written narratives contain 7-9 times the information density of a PowerPoint.
- People read three times faster than the typical presenter can talk. Therefore information is more efficiently delivered and absorbed.
- “Narratives allow for nonlinear, interconnected arguments to unfold naturally—something that the rigid linearity of PowerPoint does not permit.”
- “Better informed people make higher-quality decisions, and can deliver better, more detailed feedback...”
“A complete narrative should also anticipate the likely objections, concerns, and alternate points of view that we expect our team to deliver. Writers will be forced to anticipate smart questions, reasonable objections, even common misunderstandings—and to address them proactively in their narrative document.”
“The six-pager can be used to explore any argument or idea you want to present to a group of people—an investment, a potential acquisition, a new product or feature, a monthly or quarterly business update, an operating plan, or even an idea on how to improve the food at the company cafeteria.”
Meeting format (for a 1-hour meeting):
20 minutes of reading the narrative.
40 minutes of discussion.
- Presenter does NOT walk the group through the document (the reading process takes care of this).
- Some teams proceed through the document page by page to discuss any concerns or feedback.
- Other teams take feedback from individuals all at once.
- Discussion centers on clarifications, insights, refinements, alternative ideas.
Someone (not the presenter) should be charged with taking notes on behalf of the audience. These notes can be incorporated into a revised version of the six-pager.
Chapter 5. Working Backwards: Start with the Desired Customer Experience
Working Backwards is the systematic way that Amazon builds new products.
- “Its key tenet is to start by defining the customer experience...”
- Once the desired experience is defined, Amazon works backwards from there to figure out how to realize said experience.
- The PR/FAQ (press release/frequently asked questions) is a narrative document that assists with the process of working backwards.
PR/FAQ is a document that imagines a product release has occurred. The employee writes a press release that details the product, its features, pricing. rationale, and more. The FAQ portion answers questions that both customers and outside observers will have as well as questions that internal peers and managers might have.
- Many companies use mock ups visual representations of a product to detail the customer experience.
- Writing up an idea requires precision and careful thought. “Half-baked thinking was harder to disguise on the written page...”
- “In a conventional organization, a press release is written at the end of the product development process. The engineers and product managers finish their work, then ‘throw it over the wall’ to the marketing and sales people, who look at the product from the customer point of view, often for the first time.”
- Most companies work forward: leaders define the product and try generate consumer interest. This is the classic “a solution in search of a problem” mentality.
- PR/FAQs are less expensive product experiments. Teams can determine whether a project is worthwhile or not without spending precious R&D money in advance.
Benefits of the PR/FAQ:
- Forces a customer-centric approach to product development.
- If the product isn’t faster, easier, cheaper (or better) than what’s already available, the product isn’t worth building.
- Process is iterative. Can be used to develop programs, systems, and policies, in addition to products and services.
Basic format (follows the 6-page rule for 1-hour meetings):
- 1 page press release.
- 5 pages or fewer for frequently asked questions.
Detailed press release format:
- Heading (one sentence): “Blue Corp. announces the launch of Melinda, the smart mailbox.”
- Subheading (on sentence) describing the benefits: “Melinda is the physical mailbox designed to securely receive and keep safe all your e-commerce and grocery deliveries.”
- Summary paragraph: Give a more detailed summary of the product and benefit.
- Problem paragraph: Describe the problem the service solves from the point of view of the customer.
- Solution paragraph: Describe how the product solves the customer problem.
- Quotes and getting started paragraph: Describe how a customer can obtain the product and how much it will cost. Include one quote from a company spokesperson and one quote from a hypothetical customer.
Detailed FAQ format:
FAQ section is more variable (there are no mandatory sections).
Amazon often divides the FAQ portion into an external section (customer focused) and internal section.
Consumer Needs and Addressable Market:
- How many consumers have this need or problem?
- How big is the need?
- How many consumers are willing to spend money to solve this problem?
- How much money will they spend?
Economics and P&L:
- What are the unit economics of the device?
- What is the rationale for the price point?
- What is the initial up-front investment required to build the product?
- If 3rd party adoption is needed, how will they be induced to use the product?
- Are there 3rd party technologies required?
- What are the challenging engineering problems to solve?
- What are the customer UI issues?
- How can we manage the risk of the up-front investment needed?
Most PR/FAQs never make it past the exploration stage.
- This is a feature not a bug.
- Rejecting projects via the PR/FAQ process is far less expensive than actually developing failed products.
- Process helps the company understand constraints and problems that hinder product feasibility.
- “Leadership and management are often about deciding what NOT to do rather than what to do. Bringing clarity to why you aren’t doing something is often as important as having clarity about what you are doing.”
Chapter 6. Metrics: Manage Your Inputs, Not Your Outputs
“Focus on the controllable input metrics, the activities you directly control, which ultimately affect output metrics such as share price.”
- Most companies focus on the wrong signals (the outputs).
- Input metrics drive desirable outputs.
- “Output metrics show results. Input metrics provide guidance.”
The Weekly Business Review (WBR): Amazon’s internal reporting that allows for effective input management.
DMAIC (Six Sigma process improvement method):
Define the metrics you want to measure. Amazon tracks things like selection, price, and convenience. These input metrics drive output metrics like orders, revenue, and profit.
- Amazon uses the “flywheel” concept from Jim Collins’ Good to Great. “You inject energy into any one element, or all of them, the flywheel spins faster.”
- The goal is to find the things that matter the most (but the process of identifying the optimal inputs is iterative).
- Data must be collected and presented in a usable format.
- “Do not compromise here. Make the investment.”
- Align the metrics with the customer experience.
- Make sure you are able to regularly audit the metrics.
- “The objective in this stage is separating signals from noise...and then identifying and addressing root causes.”
- “When Amazon teams come across a surprise or a perplexing problem with the data. they are relentless until they discover the root cause.”
- Corrections of Errors (COE) process: Use the “Five Whys” method developed by Toyota. Keep drilling down with “why” questions which may sit layers down a chain of probing questions.
- This step can only happen once sufficient investments in the first three stages have occurred.
- Example: If you reach a weekly 95% in-stock rate for products, figure out how to get to a 98% rate.
- Ensure that processes are operating as expected and maintain performance levels.
- This is an opportunity for identifying automation opportunities.
WBR deck (aka “the deck”):
Unlike the Six-pager or PR/FAQ, this data package is heavy with graphs, tables, charts, and visuals.
The document may include explanatory notes for the metrics.
“The deck represents a data-driven, end-to-end view of the business.”
“Emerging patterns are a key point of focus.”
- “Graph plot results against comparable prior periods.” (comparison is critical for trend identification)
- Graphs show multiple timelines. For example: 6-week and trailing 12-month. This provides a short-term perspective and a longer perspective.
“Anecdotes and exception reporting are woven into the deck.”
- Highlight unusual situations or developments.
A consistent format is maintained for ease of use and efficient interpretation.
The focus never shifts from input metrics to output metrics at Amazon, not at any level (even at the C-suite). At Amazon, inputs feed the outputs. There is a singular focus on controllable inputs.
“The WBR is a tactical operational meeting to analyze performance trends of the prior week. At Amazon, it was not the time to discuss new strategies, project updates, or upcoming product releases.”
Part 2: The Invention Machine
- Jeff Bezos (2015 shareholder letter): “We want to be a large company that’s also an invention machine. We want to combine the extraordinary customer-serving capabilities that are enabled by size with the speed of movement, nimbleness, and risk-acceptance mentality normally associated with entrepreneurial start-ups.”
- Bezos: “Failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.”
Chapter 7. Kindle
In the early 2000s the impending shift of consumer demand from physical media (e.g. books, music, video) to digital media posed an existential threat to Amazon, a company selling physical media.
“Jeff felt that if we tried to manage digital media as a part of the physical media business, it would never be a priority.”
“Jeff would reject what he saw as copycat thinking, emphasizing again and again that whatever music product we built, it had to offer a truly unique value proposition for the customer.”
- Fast follower strategy: Make a copy of successful products. The roadmap is to follow your competitors.
- Invention strategy: Be a market leader and innovate new products. There is no obvious roadmap.
- Bezos believed that invention would result in greater long-term customer and shareholder value.
“With each modification [of the digital media plan], the scope of each leader’s responsibilities would become narrower, but the intended scale of each role was greater. At most companies, reducing a leader’s scope would be considered a demotion...At Amazon it was not a demotion. It was a signal that we were thinking big and investing in digital for the long term.”
The value chain:
- Content creation <== Aggregation ==> Content consumption
- In physical media Amazon operated in the middle (as an aggregator). Value is created by sourcing and collecting millions of products under a single virtual store.
- In digital media Amazon sought other parts of the value chain to better serve customers.
Competency vs. customer-centric thinking:
Conventional companies ask: What can we do next with our skill set?
Amazon asks: How can we work backwards from a compelling customer experience?
- After answering this question Amazon then asks if they have the necessary skills and assets to do so.
E-books were identified as an area where Amazon could compete in digital media first:
- Music was already dominated (at the time) by Apple.
- Video was not yet feasible owing to bandwidth challenges and the studios.
- Amazon already had experience with physical books.
Build vs. outsource decision:
- Outsourcing can be faster in the short-run but costly in the long-run (since it creates heavy dependencies on 3rd party vendor). “You can’t outsource a customized, integrated, end-to-end experience.”
- Knowledge and expertise dividends accrue to the company that builds, owns, and operates its own intellectual property.
Amazon worked backwards via the PR/FAQ process to define the experience:
- A book reader that gets out of the way and lets the user interact directly with the content (form factor, weight, portability).
- Always-on connectivity and an accessible online storefront (Whispernet, digital store).
- Low-power, read-anywhere, legible screen (E Ink).
Chapter 8. Prime
Prime developed out of a recognition that Amazon’s fulfillment network was not meeting the needs of its customers in delivering convenient and fast delivery of goods.
“Prime was a perfect example of the multi-causal, nonlinear way in which business initiatives both major and minor got decided on and execute at Amazon.”
The question Amazon posed: “How could we offer a shopping experience so compelling that an ever-increasing number of customers would shift their retail buying online specifically to Amazon?”
Amazon customers cared about three things (all input metrics):
Prime aimed to solve the convenience input to the Amazon flywheel.
“To optimize the ship-to-deliver segment, we would need many more fulfillment centers, and they would have to be located so that free, one-to-two-day delivery was both possible and cost effective. That meant a much greater presence near urban areas.”
- Conventional companies might ask: Do you want “slow and free” or “fast and free?”
- A customer-centric company recognizes that “fast and free” is the logical next step.
Amazon’s high-level requirements for a solution:
- It must be affordable (free 2-day shipping was not sustainable).
- It must drive the right customer behavior (e.g., more consumer purchasing).
- It must be a better corporate investment than the alternatives.
Institutional no is the tendency for traditional companies to reject new ideas. These are errors of omission.
At some point, Bezos, realized you cannot prove a priori that free shipping would work. It had to be tested and tried out in the real world.
Chapter 9. Prime Video
Prime Video was added as a new benefit to Prime members in 2011.
Jeff Bezos (2016 shareholder letter): “We want Prime to be such a good value, you’d be irresponsible to not be a member.”
Unbox was Amazon’s first digital video service in 2006 (and a failure):
- Amazon had little experience with digital media services.
- Service was hamstrung by technical constraints.
- Service only worked on new Windows computers.
- Amazon had no hardware or software ecosystem to control the customer experience.
- Despite failure, the leader of the initiative (one of the book authors) is not fired. Per Jeff Bezos: “Why would I fire you now? I just made a million-dollar investment in you.” He admonished the author to document and share the lessons learned.
- No original content and aggregators were beholden to the studio’s DRM (digital rights management) schemes (which were not customer-centric).
Digital video service innovation exploded rapidly in the 2000s:
- 2005: YouTube launches with user-generated content, low-res content, and a widely-compatible Flash-based player.
- 2005: Apple launches video for new video iPods.
- 2006: Google buys YouTube.
- 2007: Netflix launches its video streaming service. Combines it with its standard mailbox DVD plan (no need to build up a new subscriber-base).
- 2007: Hulu launches with shows from Fox and NBC.
- 2013: House of Cards is one of the first Netflix originals to feature big-name stars in an award-winning show.
Amazon followed the example of Netflix and made sure to gain distribution on a wide range of 3rd party hardware: TVs, Blu-ray players, game consoles, etc.
“We did not have proprietary or unique content, as Netflix did. Nor did we have control of the devices people used to play and display content, as Microsoft, Sony, and Apple did.”
“The inputs to the Amazon [physical retail] flywheel of growth—low prices, faster delivery, lower cost structure—were not dimensions along which we could differentiate from our competitors if we only offered an a la carte digital video store.”
In digital media you can control one of two things:
- The method of distribution.
- The content itself.
By 2010 Amazon changed its strategy and put its resources into moving to either end of the value chain:
- Amazon Studios: To develop new proprietary content.
- Amazon devices: Fire Tables, Fire TV, Echo/Alexa.
Integrating Prime Video into the existing Prime customer based solved two problems:
- It circumvented the cold-start subscriber problem. Starting with launch day, the service had millions of users.
- It made Amazon’s customer loyalty unique and differentiated. Other online retailers could try to match Amazon Prime’s shipping value but they would be unlikely to match its content offering.
Chapter 10. AWS
Unlike Digital and Prime, Amazon Web Services (AWS) had nothing to do with the core business.
Cloud computing (as it now exists) didn’t exist in the early 2000s.
AWS grew out of early experiments at Amazon with developer facing tools and services like Amazon Associates (a program that allowed 3rd party affiliates to place links to Amazon products on their websites).
- In 2002 Amazon provided Amazon Associates data via XML feed. Affiliates would take the data and do with it as they desired.
- The “customer” for this service was a technical audience.
- Amazon created user manuals, technical specifications, and sample code to create a software developer kit (SDK).
- Soon after launch Amazon noticed 3rd party developers using their tools in unexpected and surprising ways (example: one developer created a quiz game that used cover art from movies).
Amazon’s first developer conference in Seattle attracted all of EIGHT people (even trillion-dollar companies have to start somewhere).
Jeff Bezos (2006 shareholder letter): “The culture demands that these new businesses be high potential and that they be innovative and differentiated, but it does not demand that they be large on the day that they are born.”
When Amazon launched AWS in 2002 they added a new set of customers (software developers) to their existing ones (buyers and sellers).
One of the biggest customers of AWS services were Amazon software engineers who found the AWS tools easier to use than some of the internal tools.
Amazon’s innovation culture allowed them to ask: “Why don’t we build a set of tools that any developer can use to build anything they want, even if it has nothing to do with our core business?”
Primitives are the known building blocks of software development. For instance, storage (Amazon S3) is a primitive.
- Pre-cloud approach: A company must acquire hardware and build out their own storage solution or engage with a 3rd party vendor.
- Cloud approach: An online account and credit card is all that is needed.
Undifferentiated heavy lifting: terminology for tasks that Amazon could provide on behalf of other companies in order to free those customers time and resources to focus on what they do best.
The AWS PR/FAQ “stated that we wanted the student in a dorm room to have access to the same world-class computing infrastructure as any Amazon software engineer.”
Amazon’s early bets on web services gave them a big head start over the competition. Combine that with Amazon’s experience with scaling large scale computational and data systems (for the retail store).
“Sometimes the Working Backwards process can uncover some surprising truths. Some companies, in a rush to get a project to market, ignore that truth and keep building according to plan...only to realize much later that there was a much bigger gain to be had if they’d taken the time to question their own assumptions.”
“The cost of changing course in the PR/FAQ writing stage is much lower than after you’ve launched and have an operating business to manage.”
- Example: Amazon identified several issues with pricing their popular S3 service. Early on they were trying to decide between a subscription plan vs. a pay per use (based on specific metrics). The PR/FAQ identified that per per use was the better model, though even after launch they had to further adjust the pricing model (but they were at least directionally correct in their early assessment).
Conclusion: Being Amazonian Beyond Amazon
“Being Amazonian” is applicable to other companies, business, industries, and projects. [Me: I’d argue that it appears beneficial on a personal/individual level too.]
“Failure is typically viewed as an experiment from which a great deal can be learned that can lead to change and improvement. Very often, failure is temporary and eventually gives birth to success.”
Suggestions on how to implement Amazonian principles:
- Ban PowerPoint and adopt the narrative approach (six-pager and PR/FAQ documents).
- Establish the Bar Raiser hiring process.
- Focus on controllable input metrics.
- Build and organization that accommodates autonomous teams with single-threaded leaders.
- Revise the compensation structure for leaders.
- Articulate the core elements of the company’s culture.
- Define a set of leadership principles.
- Define and understand your flywheel: what are your growth inputs?