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Customer Focus Keeps Amazon Experimenting, Bezos says

October, 2003

Bezos

STANFORD GRADUATE SCHOOL OF BUSINESS—Amazon.com may be the largest online retailing company with 35 million customers and nearly $5 billion in sales, but founder and CEO Jeff Bezos hasn't switched on the cruise control. In his mind, "it's still day one."

Speaking to students and others who packed Stanford's Memorial Auditorium on Friday, Oct. 3, Bezos used a humorous slide show to compare the Internet boom with the golden age of electric appliances. (In appliance speak, Bezos said, the Internet is where the washing machine was nearly 100 years ago, made of two barrels with no off switch.) He also advocated experimenting as much as possible to keep innovation moving forward and emphasized the importance of putting the shopper first.

Amazon.com Strategy

Once an online bookseller, Amazon.com also now sells products like bread makers and tennis racquets from third-party vendors, who account for 20 percent of sales. Some might say the smorgasbord of products weakens the brand, but Bezos defended the strategy, saying he strives to keep the brand elastic by making the customer regularly re-evaluate Amazon.com. "We're actually trying to confuse them," he said.

A shopper, for example, who knows the site primarily as a bookseller might be bewildered to see that Amazon.com also sells the Segway Human Transporter. But, said Bezos, that "cognitive dissonance" is good and prevents the brand from setting "in quick-drying cement." Brand consistency, he added, develops by providing customers with a good experience whether they're buying a book or a $5,000 scooter. He shed little light on whether the number of products from third-party sources will continue to grow. "We try to do both things as well as we can," he said. "The marketplace will decide what ratio it will be."

While other companies have been successful with competition-focused strategies, Bezos said customers drive Amazon strategy. "Our competition set is in constant flux. If we were basing our strategy on who our competition is and what they're doing, we'd be changing our strategy all the time. Whereas if we base our strategy on customer needs, the customer needs are so much more stable, we get to have a much more stable strategy."

Customer focus is critical to aspiring entrepreneurs too, advised Bezos. When thinking about ideas for a new company, "you've got to be able to figure out how you can add value to the customer's experience. If your idea doesn't blow you away in that regard, I'd keep looking."

Internet Boom and Bust

Bezos said his conviction in Amazon.com was tested the most before the company got off the ground. Securing $1 million from 22 different angel investors involved countless meetings, phone calls, and "various forms of begging," he said. "It was by far the most tenuous part of Amazon's existence." When the stock plummeted during the bust in the late 1990s, Bezos said his biggest challenge was allaying the concerns of his employees, who were being bombarded with negative media news. "From the inside, if you had all the data, it didn't look very scary," he said.

Much of his talk, which was the Business School's first View from the Top lecture of the academic year, centered on putting the early years of the Internet into historical context. He compared the rise of the Internet to the golden age of appliances, when infrastructure played a key role. By the time electric appliances were introduced, most households were already equipped with electricity for lighting and consequently could use the same electric sources to power appliances as they did bulbs. In the same way, the infrastructure was in place for e-commerce: Computers were in 40 percent of households, telephone lines were installed, people had credit cards, and the postal service worked effectively. "There were four big pieces waiting for a match," Bezos said.

Moreover, the early stages in both cases were rocky. When electric appliances first hit the market, makers introduced all sorts of products, including flops like shoe warmers and tie presses, until they found appliances consumers needed and wanted. Similarly, many Internet businesses came and went. Another parallel: When electric appliances first hit the market, the technology was so primitive they didn't even have off switches. In Bezos' opinion, the Internet industry is at the same early stage right now.

Moving Forward

For that reason, Bezos said he encourages experimentation—and as much of it as possible. His mantra: "Maximize invention per unit of time." In other words, invent as many things per day per week as you can manage. How? Minimize the cost of experiments with small teams, and make build-and-deployment cycles as lightweight and non-dependent on each other as possible. Also, select the right people—some are "more comfortable in a high change environment," he said.

Third, "let builders build." Numerous groups of small teams will have ideas they want to pursue, and putting few constraints on them leads to faster innovation.

Finally, Bezos recommended tracking whether initiatives are successful. Using the Internet to collect data can provide hard facts about what's working and what's not, he said, and that prevents in-fighting and also eradicates hierarchical rank.

Despite the fact that Amazon.com is part of the old Internet establishment, Bezos takes none of his success for granted. "Any company like Amazon that goes from zero to $4 billion in sales in eight years, you don't have to know anything else to know there was a lot of luck involved," Bezos said. "Even our mistakes in retrospect turned out to be smart." Looking forward, he said, there are no "pre-ordained winners. It's incredibly fun to come in every day and invent new stuff with the 8,000 other people who work at Amazon. That's what keeps me motivated; that's what keeps me excited."

by Sarah Robertson