How Amazon Thrives On Being Misunderstood


How Amazon Thrives On Being Misunderstood

What are Amazon’s greatest innovations? Drones? Cloud computing? Echo and Alexa? These are impressive; some are even revolutionary. However, I believe Amazon’s greatest innovations are the ones that have changed the basics of competing to the point where they now sound mundane.

My top list of greatest Amazon innovations includes Free Everyday Shipping, Prime Loyalty, and Item Authority. Deceptively simple, Item Authority signed up multiple sellers of the same item to increase item selection, availability, and price competition. It was the “killer feature” that led to Amazon overtaking eBay in the mid-2000s as the destination site for third-party sellers.

What are the common traits each of these innovations share, other than that they come from Amazon? For one, they are all customer experience and business model innovations. They are not really that technical. What they also have in common is the fact that incumbents and industry pundits woefully underestimated their impact on the industry and the bottom line. These innovations were implemented when Amazon was young, small, and neither respected nor feared by the industry the way it is now. Here are just a few examples:

  • “Amazon is pulling everyone into the gutter to play that [free shipping] game.” ~ Bob Schwartz, former president of Magento and founder of Nordstrom.com
  • “There’s many moments where a voice assistant is really beneficial, but that doesn’t mean you’d never want a screen. So the idea of [Amazon Echo] not having a screen, I don’t think suits many situations.” ~ Philip Schiller, senior vice president of worldwide marketing for Apple
  • “While recent stories and reports of a new entity competing with the three major carriers in the United States grab headlines, the reality is it would be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx.” ~ Mike Glenn, executive vice president of FedEx
  • “We do not believe our vendors selling product directly on Amazon is an imminent threat. There is no indication that any of our vendors intend to sell premium athletic product, $100-plus sneakers that we offer, directly via that sort of distribution channel.” ~ Richard Johnson, CEO and chairman of Foot Locker
  • “When you think about the online versus the offline experience, we don’t need AI in our stores. We have ‘I.’ We have living, breathing, 4,500 style advisors in our stores.” ~ Marc Metrick, president of Saks Fifth Avenue
  • “What the hell is cloud computing? . . . I mean, it’s really just complete gibberish.” ~ Larry Ellison, executive chair and chief technology officer of Oracle
  • “I don’t really worry so much about [AWS], to be very blunt with you. We need to worry about ourselves. We’re in a great position.” ~ Mark Hurd, CEO of Oracle

All of these public statements from entrenched industry leaders remind me of the classic quote by Thomas Watson, chairman of IBM, who in 1943 said, “I think there is a world market for maybe five computers.”

The most impactful and underappreciated aspect of innovation is challenging common and long-held assumptions about how things work. When you create an alternative to these assumptions, expect many doubters.

Being Misunderstood: The Best Sign Of Disruption

Over the years, as Amazon has upset the status quo and disrupted cozy business tradition after cozy business tradition with innovation, the establishment fought back with mockery and dismissals. In Jeff Bezos’s mind, this is being “misunderstood.” If you are going to innovate, you not only have to be willing to be misunderstood but you must also have a thick skin. To many of its competitors, Amazon makes no sense. “It’s the most befuddling, illogically sprawling, and—to a growing sea of competitors—flat-out terrifying company in the world.” If you aren’t upsetting someone, you likely are not disrupting much of anything:

“One thing that I learned within the first couple of years of starting a company is that inventing and pioneering involve a willingness to be misunderstood for long periods of time. One of the early examples of this is customer reviews. Someone wrote to me and said, “You don’t understand your business. You make money when you sell things. Why do you allow these negative customer reviews?” And when I read that letter, I thought, we don’t make money when we sell things. We make money when we help customers make purchase decisions.” ~ Jeff Bezos

Consider the feature Look Inside the Book. In 2001, Amazon launched this program based on a simple concept—the idea of emulating the bookstore experience by allowing Amazon surfers to look at the pages inside of a book before buying. Of course, this required Amazon to house book content in online form on the site, which raised some questions about whether this would expose book content to piracy. Publishers were worried and skeptical. The program would also be very costly. Each book would have to be scanned digitally and indexed, a huge logistical challenge.

Jeff gave the go-ahead for a large-scale launch, recognizing that this was the only way to see whether it would go over with Amazon’s then 43 million active customer accounts. The feature debuted with an astonishing 120,000-plus books. The database took up 20 terabytes, which was about 20 times larger than the biggest database that existed anywhere when Amazon was founded.

David Risher was Amazon’s first vice president of product and store development, responsible for growing the company’s revenue from $16 million to over $4 billion. He described the strategy behind the launch of Look Inside the Book this way: “If we had tried it in a tentative way on a small number of books, say 1,000 or 2,000, it wouldn’t have gotten the PR and the customers’ perception. There’s an X factor: What will it look like in scale? It’s a big investment, and a big opportunity cost. There’s a leap of faith. Jeff is willing to take those gambles.” Ultimately, the publishers embraced the Look Inside the Book program as an asset to sales.

The Value Of Critics

Anytime you do something big, that’s disruptive—Kindle, AWS—there will be critics. And there will be at least two kinds of critics. There will be well-meaning critics who genuinely misunderstand what you are doing or genuinely have a different opinion. And there will be the self-interested critics that have a vested interest in not liking what you are doing, and they will have reason to misunderstand. And you have to be willing to ignore both types of critics. You listen to them, because you want to see, always testing, is it possible they are right? But if you hold back and you say, “No, we believe in this vision,” then you just stay heads down, stay focused, and you build out your vision.

A current example of Amazon being willing to be “misunderstood” is its overall healthcare strategy. By partnering with Berkshire Hathaway and JP Morgan Chase to start the yet unnamed healthcare company headed by Atul Gawande, how will Amazon strive to change healthcare and insurance for their employees? Is their strategy to sell supplies to hospitals? Is it to integrate the PillPack acquisition into a Prime benefit and give customers cheaper prescription deliveries (along with a new book)? Or is it to transform the overall customer experience of healthcare and healthcare insurance and change the cost structure, which is a huge drain on both businesses and employees? Or is it something else? I doubt that Amazon will clarify this in the short-term, and I actually expect that they will add more healthcare investments to their portfolio.

There are two sides to “being misunderstood” to consider. The first is that if your goal is big innovation, in which the customer experience and business model are dramatically changed, then if established stakeholders are not being naysayers, you should be worried. The second side is in planning and preparing your stakeholders, such as investors and partners, for the negative reactions. Amazon, often through the annual shareholder letter, consistently reminds investors that Amazon will look for long-term business results, not sacrifice long-term value for short-term results, and it will be misunderstood, often. Are you willing to be misunderstood?

Questions To Consider

1. When was the last time you did something that benefited customers but upset the traditions of business?

2. What aspects of your customer experience would be different if you started over?

3. What business model innovations could be applied to your industry?

Contributed to Branding Strategy Insider by: John Rossman. Excerpted from his book, Think Like Amazon, 50 1/2 Ideas To Become A Digital Leader (McGraw-Hill)

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Tags: Apple, Amazon, Nordstrom, Ebay, United States, Larry Ellison, Berkshire Hathaway, Ibm, Jeff Bezos, Richard Johnson, Oracle, Jp Morgan Chase, Alexa, Branding, Magento, Saks Fifth Avenue, Jeff, Atul Gawande, Thomas Watson, McGraw Hill, Philip Schiller, Brand Innovation, Blake Project, Marc Metrick, Mark Hurd, Mike Glenn, David Risher, John Rossman, Item Authority, Bob Schwartz

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