Amazon could be ‘out of business’ if it stops innovating

Amazon’s Werner Vogels says the tech giant thrives by having small teams that behave like start-ups.

Amazon CTO Werner Vogels.

Amazon’s first, and to date only, smartphone was a fantastic failure.

The Fire Phone was a 3D-enabled Android smartphone that made it easier for customers to buy Amazon products. It sold so poorly that Amazon shares tanked by 10 per cent and the company yanked it from sale after just one year. It was a critical and commercial flop, with many analysts declaring it didn’t have a good reason to exist.

Many companies would fire the team behind such a misstep. But Amazon’s global chief technology officer Werner Vogels says it’s the fact the company didn’t — instead rewarding experimentation and failure despite being the third largest company in the world — that sets it apart.

“The phone didn’t go anywhere. But we learned so many things from that whole operation, which was amazing. Good things come out of failure, but that needs to be a part of your culture,” he tells The Deal. “You need to make sure that this pipeline of experiments is continuously fuelled, that there are all these things going on or always things that are on the backburner that you’d like to do.”

Vogels, who is in charge of driving technology innovation within Amazon, says the tech giant has a mechanism called the “institutional yes”. The premise is that if an employee wants to block something happening, the responsibility is on that person to do the work, rather than the other way around.

“That takes care of 95 per cent of all objections,” Vogels says. “If someone then writes a six-pager on why you should not be doing this, you’d better listen. And as such, many more experiments end up in our pipeline than what we should be doing, but it works really well for us.

“Many of these things are around creating mechanisms to make sure we can execute. Mechanisms work. And if you think about decisions that you make, they’re often what we call two-way doors. There are two types of decisions. One is irreversible — selling your company or selling your car. Most decisions, however, are reversible. Think about starting a new service, building a new product or changing your pricing.

“If you can back out of things, you don’t need to have big, slow, deliberate decision-making. You have already 70 per cent of the information, you can really just get started because you can back out if things don’t work out. And that allows us to move real­ly fast because we can get started way before all the information is in.”

The Dutch executive, who has been helping run Amazon remotely from lockdown in Amsterdam, says a typical mistake that businesses often make is to mix up the two decision types and labour over reversible decisions instead of moving quickly.

He says Amazon structures its organisation around very small teams. Vogels refers to them as “two-pizza teams”, in that you should be able to feed a full team with two pizzas.

“It’s up to 10 to 12 people, they’re big pizzas,” he says. “If your team is small, everybody on the team knows what everybody else is doing. Once your team starts getting to 20 or 25 or bigger, you need to start having meetings to understand what everyone else is doing or to define the work.

“Basically we are running very small start-ups within the whole bigger Amazon space. We have thousands of these teams, all solving different problems. Amazon is a technology company. When Jeff (Bezos) started Amazon, he didn’t want to start a bookshop. He was fascinated by the internet. So everything we’ve built over time has been technology driven.”

The world’s tech giants overall are worth more than the gross domestic product of many countries, and much is made of whether they’re “too big to fail”. Vogels thinks they’re not, and that Amazon could collapse within the next 10 to 15 years if it fails to keep innovating.

He likens Amazon to Australia’s big four banks, in that competition is no longer coming from the other banks but instead from young start-ups that are customer focused.

“Large enterprises need to start behaving like start-ups as well,” he says. “They need to develop real­ly fast, otherwise they will be disintermediated. And I’ve always said that about Amazon as well. If we stop innovating, we’ll be out of business in 10 to 15 years. And not because there’s another large Amazon stepping up; it will be death by a thousand cuts.

“Someone will be doing shoes better, someone will be doing diapers better.

“In many traditional businesses today we see that happening everywhere. So enterprises need to move fast as well. And one of the biggest advantages we have given to companies is the ability to move fast (via Amazon’s cloud infrastructure Amazon Web Services).”

Vogels says it’s that flexibility to turn AWS cloud infrastructure up and down as needed that has proved vital to businesses across the globe, particularly during an unpredictable pandemic.

“We have had companies like Slack or Netflix, they’ve seen a massive explosion in the use of their services during COVID, and on the other hand we’ve had a number of customers who have been terribly impacted, like the hospitality and airline industries,” he says. “We have worked on the cost of our architectures to make sure they can keep their IT costs to an absolute minimum. Ten or 15 years ago, a travel company like Expedia would have its own server park. And if your usage drops by 95 per cent, a very large part of that server park will sit useless and only cost you money.

“These days your applications and services are mission critical, and now with AWS we can actually scale at a minute basis with as much capacity as you need. We rely on these digital services, and they need to be reliable.”