How Amazon Innovates: Lessons in Strategy for Microsoft and Others

2/25/10Follow @gthuang

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desk: in-box, out-box, and too hard. Whenever we’re facing one of those too-hard problems, where we get into an infinite loop and can’t decide what to do, we try to convert it into a straightforward problem by saying, ‘Well, what’s better for the consumer?’”

Indeed, some of the most important things Amazon has done have seemed like tactical losers to established companies who were looking at the short term. But Amazon has always been fixated on improving the consumer experience regardless of conventional wisdom, according to Bezos’s comments in HBR: “In the very earliest days (I’m taking you back to 1995), when we started posting customer reviews, a customer might trash a book and the publisher wouldn’t like it. I would get letters from publishers saying, ‘Why do you allow negative reviews on your website? Why don’t you just show the positive reviews?’ One letter in particular said, ‘Maybe you don’t understand your business. You make money when you sell things.’ But I thought to myself, We don’t make money when we sell things; we make money when we help customers make purchase decisions.”

Then, of course, there are plenty of features and products that didn’t pan out, because customers didn’t want them or didn’t care. Amazon’s failed online auction business (similar to eBay) comes to mind; Bezos says he learned consumers just wanted their sales to be done quickly on the site, instead of dealing with bids. In such cases, the company has been able to cut losses fast and move on. “The key, really, is reducing the cost of the experiments,” Bezos has said.

It will be interesting to see how well Kindle e-books and “active content”—essentially mobile applications for the Kindle device—end up selling. One advantage Amazon’s forthcoming mobile apps might have over Apple’s iTunes, for example, is that the demographics of the Kindle community might be more tightly focused compared to other devices—because users might tend to be business people, travelers, and academics, say. That could help outside developers target specific types of consumers. And Amazon Web Services, the cloud computing platform used by many companies to store data and run applications, is maturing; how will it stack up against the onslaught of other tech firms, like Microsoft, Google, IBM, and VMware, who are also providing fast, cheap, reliable services for businesses that want to save money on their IT infrastructure?

Another intriguing experiment to watch is Amazon Fresh, the delivery service for … Next Page »

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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