Amazon to competitors: You’re not failing enough

It’s a tough slog, competing with Amazon, particularly Amazon Web Services. The cloud computing giant earns billions more in revenues than its next nearest competitors, even as it cranks out innovation at a dizzying pace. To such legacy IT and cloud competitors, failure is familiar.

The problem, according to Amazon CEO Jeff Bezos, however, is that Amazon competitors don’t fail nearly enough.

In his annual letter to Amazon shareholders, Bezos exults, “[W]e are the best place in the world to fail,” which willingness to fail translates into a culture that succeeds through iteration…to the tune of $7.3 billion in cloud revenue last year. And they expect around $10 billion in revenues next year.

Amazon

Amazon the best place in the world to fail

There are many things to like about Amazon, and many things that set it apart. But according to Bezos, perhaps the defining attribute of Amazon is its appreciation of failure:

One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and 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.

The reason that this willingness to tolerate and even celebrate failure is so critical, he continues, is that outsized returns hover behind potential failures:

Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten.

We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs.

The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments. (Emphasis added.)

And so AWS experiments, and at an ever-increasing pace. In fact, in 2015 AWS added 722 significant new features to its 70-plus cloud services (S3, EC2, Aurora, etc.), representing a 40% increase over 2014.

Not that this willingness to fail is aimless.

Atomizing the Amazon

According to Bezos, “90 to 95% of what we build in AWS is driven by what customers tell us they want.” Importantly, however, the company is structured in a way that allows atomistic innovation as it seeks to build on behalf of its customers. Amazon “is made up of many small teams with single-threaded owners, enabling rapid innovation,” Bezos notes.

Critically, such teams “speak” to each other through open APIs, an approach mandated years ago by Bezos:

  • All teams will henceforth expose their data and functionality through service interfaces.
  • Teams must communicate with each other through these interfaces.
  • There will be no other form of inter-process communication allowed: no direct linking, no direct reads of another team’s data store, no shared-memory model, no back-doors whatsoever. The only communication allowed is via service interface calls over the network.
  • It doesn’t matter what technology they use.
  • All service interfaces, without exception, must be designed from the ground up to be externalizable. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions.

In case Amazon employees thought this was optional, Bezos closed affectionately: “Anyone who doesn’t do this will be fired. Thank you; have a nice day!”

What would Bezos build?

Though AWS, Amazon’s retail business, and the Kindle get much of the press, one of the more interesting areas that Amazon is giving customers what they want is in the area of IoT. Interestingly, Amazon is hitting IoT from both the developer and consumer angle.

On the developer side, last October Amazon announced the AWS IoT Platform – “a managed cloud platform that lets connected devices easily and securely interact with cloud applications and other devices.” It’s a natural fit for the AWS crowd, giving developers an easy way to source fully managed infrastructure for building IoT applications.

Amazon also has released developer candy for the Amazon Echo, a voice-activated device that has the potential to serve as a central hub for all home automation. Though the Echo is focused on consumers, Amazon has opened it up to developers so they can build services (like Domino’s Pizza ordering) that extend the Echo platform.

In the time that I’ve owned the Echo I’ve seen a host of service improvements as Amazon and its developer ecosystem iterate on my happiness. Amazon released the Echo with relatively little fanfare. I didn’t even know about it until I saw one at my sister’s house and watched as they updated their collective shopping list by voice. It has quickly become a small but growing part of my family’s life.

Of course, it still has the potential to flame out like Amazon’s ill-fated Fire Phone. But that’s the point. Amazon is happy to make lots of bets, big and small, as it flirts with failure. In so doing, the company has ensured that its retail, cloud, and device businesses keep booming, not despite repeated failures, but because of them.

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