Overcoming The Innovator’s Dilemma: How Taking Risks and Recognizing Opportunity Allowed Jeff Bezos to Transform Amazon into ‘The Everything Store’
Taking a look around the commercial landscape today, it’s not only difficult to remember a time before Amazon.com’s e-commerce revolution, it’s nearly impossible to remember when Amazon’s existence was limited only to the selling of physical books.
Lapses in memory like this can be common when discussing Amazon, primarily because of how quick, innovative, technologically advanced, and unafraid to embrace new methods (even at the risk of cannibalizing itself) the online store has been since its 1997 launch. However, Amazon has hardly been the only innovative or technologically advanced website or company to come along in the last 20 years, so what was it about an online bookseller from Seattle that allowed for its singular success?
The answer to that question is “Jeff Bezos,” Amazon’s founder and CEO who has been the driving force behind the company’s culture, strategy, and long-term vision since its inception. Amazon’s innovations under Bezos’ leadership have primarily focused on creating an optimal customer experience, but they have also been rooted in a desire to not fall into the trap of “The Innovator’s Dilemma” that many companies found themselves ensnared in during the late 90s/early 2000s.
Developed by Harvard professor Clayton Christensen, “The Innovator’s Dilemma” surmises that failed companies do not collapse because they are consciously avoiding new and potentially disruptive methods, but rather because they do not want to undermine their traditional methods and risk short term losses by embracing a new method that is promising and could yield long-term results.
With this in mind, Amazon’s innovations under Bezos’ wing have always prioritized a hyper-focus on not mortgaging the future for the present, and also not sacrificing quality for convenience. Bezos’ unparalleled abilities to anticipate customer needs, forecast the dawn and progression of e-commerce, and to not be afraid of leveraging short-term profits for long-term success are what have allowed Amazon to become the innovative force it is today.
There is a common theme throughout The Everything Store: Jeff Bezos and the Age of Amazon when it comes to describing Bezos himself: his ability to maintain forward progress and anticipate future opportunities without getting too muddled in the present. From his becoming an original investor in Google, his insistence on pursuing the Alexandria Project (the remnants of which resulted in the Kindle and e-book sales), the creation of the Blue Origin aerospace company, and even the delayed reconciliation with his long-lost biological father as he instead tended to Amazon matters, Bezos is described as a man with unmatched determination and vision for the future.
Ram Shiram, the former COO of Junglee and eventual Google investor and executive at Amazon, echoes this description when describing the leadership style of Bezos at Amazon:
“He’s so prescient. It’s like he can peer into the future… He’s also extremely shrewd and self-aware and knows just how far he can push something.”
This ability to “peer into the future” was already in full force when Amazon.com was launching in 1997. While keenly aware of his long-term goals for it to become “The Everything Store,” Bezos knew that the infrastructure and logistics at his disposal (he had limited storage and was being funded partly by a loan from his parents and a small group of investors) made this simply impossible in that moment. Instead, by realizing that selling books online could fill a void in the marketplace and eliminate the need for Amazon to stock warehouses, Bezos was able to properly narrow Amazon’s focus in the short-term and improve its chances at long-term success in one fell swoop.
As Amazon progressed and became a successful bookseller, Bezos long-term thinking also helped him remain shrewd enough not to buckle under the initial pressure of more established brick and mortar stores Amazon faced. As stores like Barnes & Noble and Borders attempted to squash Amazon by doubling down on their established business models — refusing to potentially undercut their short-term sales by investing in online sales — Bezos was able to accurately predict where the market was going and secured a patent one-click purchasing. He also moved Amazon to a larger building, and utilized fresh capital to upgrade Amazon’s servers, not invest in physical. In an ultimate example of just how well Bezos was able to outthink his contemporaries at other bookstores, Borders actually tasked Amazon with running its online business so it could focus on its physical locations.
While Bezos accepted — and in a sense, created — the disruptive method of online bookselling, other stores like Borders refused to take the short-term risk and invest in a similar method, and they paid dearly for it. Borders went out of business in 2011, the same year Amazon expanded fulfillment centers and experimenting with next-day delivery and Bezos tested the first rocket ship for the fledgling Blue Origin space travel company he founded… as a side project.
Bezos’ ability to consider repercussions, and benefits, that would occur years down the road was also recounted by his good friend Danny Hillis, who said that Amazon was able to differentiate itself because Bezos “approached it from the very beginning with that long-term vision… It was a multi-decade project.” While not specifically mentioning Barnes & Noble and Borders, Hillis also mentions that by casting a longer net by thinking with a larger time frame, Bezos had the ability to “accomplish a huge amount” instead of getting caught up with immediate successes and failures of short-term results.
Ajaz Ahmed and Stefan Oleander echo this general sentiment in their book Velocity: The Seven New Laws for a World Gone Digital, which suggests seven rules to follow when innovating in a digital landscape. The first rule is that “A Smith & Wesson beats four aces.”
“Velocity doesn’t care who you are or how good you were yesterday. It’s coming for you anyway,” it reads. “Don’t be a sitting duck. See the big picture. Find the pain points, see the patters taking shape and act.
Similar strains of this thought process can be seen in Amazon’s later forays into home goods, e-books, and hardware. In each instance, Bezos maintained a long-term view of Amazon’s business model, found lucrative “pain points” to take advantage of, and did not settle until his long-term goals were met. When necessary, he undercut the fundamentals of “The Innovator’s Dilemma” by risking immediate financial losses in the hopes of finding the long-term profits — he risked the cannibalization of Amazon’s bookselling at one point to develop e-books and the Kindle. By doing this, Bezos and Amazon were able to innovate and succeed while sidestepping the problems that rival companies fell victim to.
Additionally, as Bezos’ decisions have driven wave after wave of innovation at Amazon, he has also been very careful to not deviate from the company’s mantra of cultivating a great user experience and providing the lowest prices possible for consumers. In its efforts to bring users the lowest prices, Amazon has found itself in price wars with smaller startup companies it is often trying to acquire (Zappos, Diapers.com). Without the proper messaging and cultivation of a brand message, it would have been easy for the public to deem Amazon as a corporate bully pushing around smaller companies in these instances.
However, while Amazon has not always been completely immune from this label at times, Bezos has been very effective in avoiding this by establishing the reason for these moves as “maintaining the lowest prices for the consumer, no matter what.” Similarly, when dealing with larger companies such as Barnes & Noble, Apple, or print publishing houses, Bezos has been equally effective in relaying Amazon’s mantra of “eliminating the gatekeeper” to speed up innovation and develop new processes.
In either instance, this positioning has helped Amazon minimize bad PR and stay in the good graces of its customers. It also echoes another one of Ahmed and Oleander’s rules: “Have a purpose larger than yourself.” This law argues that “velocity will disproportionately reward organizations and individuals that aim to make meaningful and enduring contribution.” While this law is not explicitly referenced by Bezos at any point, he is acutely aware that a company can have all the advanced ideas in the world, but if no one trusts the company it’s in serious trouble and may suffer as a result. This is perhaps best manifested in Bezos’ Amazon.love memo where he establishes how he wants Amazon to “conduct itself and be perceived by the outside world” and even goes so far as to list companies that are “well-liked” (Nike, Google) and ones that are “feared” (Microsoft, Goldman-Sachs). Well aware that being stamped with the label of a “heartless corporation” could slow Amazon’s ability to effectively spread its innovations to consumers, this is another important aspect of Bezos’ leadership that has allowed Amazon to continually look at itself and adapt so it can remain a driver of innovation in e-commerce.
In 2015 Amazon continues to drive innovation on all fronts. Once an online bookseller making waves with its ability to stand up to established brick-and-mortar bookstores, Amazon now has innovative hardware (Kindle Paperwhite, Echo smart-speaker), Golden Globe Award-winning television shows (Transparent), optional two-day delivery for a vast array of their products through Amazon Prime, a thriving marketplace that likely offers any product a consumer could possibly think of, and more.
These are not innovations that one would initially expect from a bookseller, and they have only occurred because of the manner that Jeff Bezos has run his company. By not being afraid to take risks and being willing to endure short-term losses in order to improve the overall long-term standing of the company, he has transformed Amazon with innovation after innovation and forced it into the same conversation as Apple and Google when it comes to revolutionary brands. And by sticking to these ideas and continuing to grow the company, it’s hard to predict what innovations Amazon still has ahead of it in the years to come…
…Unless you’re Jeff Bezos.