Why Innovate?
Amazon has built its reputation and company on innovation. The company’s CEO Jeff Bezos is famed for his visionary direction and gutsy focus towards the new and unexplored territories of online white space (Johnson, 2010). This topic will examine innovation's role in the fundamentals of online commerce in the case of Amazon.
Amazon appears to heavily innovate for two main reasons:
- For customer service
- To protect the future of its business
Customer Service
Amazon seems to adapt traditional retailing values such as an unswerving attention to upstanding customer service, brand recognition and building a memorable shopping experience specifically for the online medium (faberNovel, 2011). Amazon does this by incorporating the unique online ability to measure metrics through every click a customer makes with their mouse (Chaffey, 2012). This combination of traditional and online commercial concepts: focus on customer service and Culture of Metrics seems to be the motivating factors that drive Amazon’s inventions.
Future of its Business
Amazon’s position as a wholly online business in a real world economy places unique conditions on its ability to innovate. The Internet places extra stresses for speed and risk taking into unexplored territory, while traditional shareholders and economists demand increasing returns and financial security. Amazon adapts to this dual commercial environment by building a corporate structure of continuous innovation to evolve its business into the future and this is evident by its at-times-radical, at-times-conservative actions in the industry.
Jeff Bezos on Innovation
Amazon’s focus and nurture of continuous innovation begins at the very top – Amazon’s CEO and founder, Jeff Bezos. Examining his ethos into innovation can reveal the fundamentals of Amazon’s corporate structure.
In this TED Conference talk (video below), Bezos compares electricity’s early introduction in the 1900's to the current primitive stage of the Internet. This demonstrates his understanding of the ‘newness’ of the World Wide Web and the transitional period necessary to evolve to its ubiquitous potential.
In 2011 at an Amazon shareholder’s meeting, a question was raised that sparked an intimate response from Bezos into the qualities of innovation and its implementation at Amazon. Combining this discussion with Bezos's speech at TED can illustrate Amazon's ethos behind innovation and its current success in combining new and old notions of economics.
The question from the shareholder was: “If it’s still Amazon’s philosophy to make bold bets, I would expect that maybe some of them wouldn’t work out, but I am just not seeing that. So, my question is where are the losers?”
For a transcript of Bezos’s response click here (external link)
The key elements that can be drawn from Bezos’s response in understanding Amazon’s position in innovation are:
“You should anticipate a certain amount of failure”
This supports Kevin Kelly’s “Law of Inefficiencies” (1997) where providing an unproductive environment to allow for time wasting and failure is ideal for fostering innovation. This reveals a quality of the new commercial medium in the concept of Network Economies.
“Invent frequently”
Bezos mentions that 90% of Amazon’s innovation is incremental and low risk (cited by Cook, 2011, 3). He also mentions that “if you place enough of those bets, and if you place them early enough, none of them are ever betting the company” (cited by Cook, 2011, 4). Therefore, by having a continual loop of innovative projects, Amazon will constantly be early movers that have lost little if it fails, and gained exponentially should it succeed.
“We are willing to be misunderstood for long periods of time"
This demonstrates the evolving nature of Amazon’s commercial structure from traditional to online economics. They focus on a strong vision to be “Earth’s most customer-centric company” ("Amazon Investor Relations", n.d.) but are exploring the new environment of e-commerce, and are willing to be questioned on decisions that depart from the traditional world of economics.
Amazon’s Key Innovations and Patents
- Customer Reviews – this has morphed since Amazon’s inception and continues to play a vital role on its user interface (Spool, 2009).
- 1-Click Ordering (patent granted 1999) – stores customer’s billing information to allow for purchases to made in one click (Huggins, 2000).
- Affiliates Program (patent granted 2000) – system where 3rd parties can display advertising banners and receive revenue if banner is clicked and purchase is transacted (Huggins, 2000).
- Amazon Web Services (AWS) (2002) – also known as cloud computing.
- Search Inside the Book (2003) – allows users to search for keywords in full texts (URLWire, 2003).
- Kindle e-reader (2007) – the first e-reader to incorporate wireless 3G connectivity (Penenberg, 2009).
- Electronic Gifting (patent granted 2012) – system that allows for a digital gift giver to hold off payment until their recipient has accepted and downloaded the gift. Also allows digital gift to be cancelled if unaccepted in a period of time (Palis, 2012).
It is apparent that many of Amazon's patents appear to be unique processes rather than physical inventions. This push for patent filing has proven controversial for Amazon with public outcry and lawsuits (O'Reilly, 2000). Amazon's refusal to open source their innovations displays their conservative link to traditional economics. On the other hand, the patenting of processes demonstrates a shift towards the value of creativity that's evident of an evolving knowledge economy (Flew, 2008).
Disruptive Innovation
A term coined by Clayton Christensen. In Christensen’s definition, a disruptive innovation is a process where a product or service is launched insignificantly at the bottom of the market and moves ruthlessly up the market to upheave existing competitors (n.d.). In other explanations, it can be considered as an innovation that invades, forcibly changes and institutes new sectors within established markets (White, 2011). An easy example of disruptive innovation is cellular phones disrupting fixed line telephony (Christensen, n.d.).
Does Amazon and its innovations display disruptive qualities?
Amazon’s entry onto the online market as an online bookstore in 1994 has certainly disrupted the existing retail market. A physical bookstore had a limit to the number of books that it could fit on shelves; Amazon had infinite shelf space (Chaffey, 2012). Amazon’s innovative quest to cater to the online customer has resulted in a highly efficient service that serves customers quickly and at highly competitive pricing. Along with its expansion and innovation in a myriad of products and markets, Amazon has certainly disrupted not only the marketplace for books, but forced well established bricks and mortar retailers to rethink their business strategies.
Amazon’s Kindle is currently the centre of attention in its disruption to the book publishing industry. Amazon’s Web Services has also created an entire new sector within the IT industry, paving the way for cloud computing.
Innovator’s Dilemma
A theory developed by Clayton Christensen in a book of the same title ("Teradyne’s Aurora Project", n.d). In Christensen’s definition, he outlines two types of technologies – sustaining and disruptive. Sustaining technologies are already established and companies work to improve product performance. Disruptive technologies occur less frequently than sustaining technologies, so companies tend to overlook them as they do not satisfy demand and therefore do not seem appealing to invest in until demand and profits are sufficient. When disruptive technologies exceed sustaining technologies, companies who failed to adopt early enough get left behind ("Teradyne’s Aurora Project", n.d., Suster, 2010).
(Image courtesy of "Teradyne's Aurora Project")
Christensen’s view is that large and well-established companies struggle to deal with disruptive technologies (Suster, 2010). Amazon appears to overcome the Innovator’s Dilemma by adapting their corporate structure around continual transformation and willingness to invent in new markets with no fear of failure. Bezos acknowledges this need to overcome the Innovator's Dilemma by remarking, “What’s very dangerous is not to evolve” (cited by Penenberg, 1).
