Snippets: Sunday, December 4, 2016. Amazon, slayer of the Big Muda
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“The customer-experience path we’ve chosen requires us to have an efficient cost structure. The good news for shareowners is that we see much opportunity for improvement in that regard. Everywhere we look (and we all look), we find what experienced Japanese manufacturers call “muda”, or waste. I find this incredibly energizing. I see it as potential — years and years of variable and fixed productivity gains and more efficient, higher velocity, more flexible capital expenditures.” (Jeff Bezos; Amazon.com 2008 shareholder letter)
AWS re:Invent 2016 took place this past week, and as you’ve likely heard right now, quite a few new products and services were announced that will be joining their sprawling computing platform. “The world’s most customer-centric company” is now a decade into building out AWS, which remains quite true to its original mission of creating building blocks for developers to use and then getting out of the way. In a world traditionally dominated by those who sold Solutions, Amazon has come crashing in with a rather different company mindset: selling Primitives. No shortage of ink has been spilled about how the Primitives approach guarantees they’ll be treated as a commodity from day one: could it ever support the same kind of earnings, or valuation multiple on those earnings, as application vendors and solutions providers like SAP and Oracle?
As developers around the world migrate to the public cloud and begin to test the true potential of Amazon’s primitives approach, it’s becoming clear just how consistent this perspective is to Amazon’s retail philosophy. Your margin is their opportunity. Relentless focus on the customer. And just like with their retail business, it’s becoming evident that there are two kinds of muda: ‘small waste’, or inefficiencies at the level of individual organizations and practices; and ‘big muda’: inefficiencies baked into how entire industries are organized. Amazon’s persistent focus on discipline and the customer that has given them a long term advantage over traditional retailers who used to get away with small muda. But it’s their radical experiments like Prime, Marketplace and AWS that have really become the pillars of Amazon’s future success — the slayers of big muda.
It always starts with something a customer wants. Prime, Kindle, S3. From there, it evolves: Prime + Marketplace. Kindle + Kindle Direct Publishing. S3 + EC2, and now so much more. When you truly take a customer-centric perspective — not paying lip service, but actually walking the walk — then you can reshape industry after industry given a sharp enough wedge and a long enough lever. At some point, you look around and realize you’re not playing the small game anymore. AWS has reached and blown past this point with the traditional IT industry: not just competing on efficiency and cost, but on the prospect of transforming how software is built and deployed and on how the future of commercial computing will unfold. To be sure, others will follow: Google, Microsoft, and other usual suspects aren’t letting the big muda go uncontested. But in the long run, the transfer of power from the vendor to the customer has passed its tipping point. Amazon CTO Werner Vogels couldn’t have put it better in his re:Invent keynote:
“When we started off, we were really thinking about how to help Internet-scale companies, about the technologies we’d developed for ourselves, about the principals behind them, how we could help Internet-scale companies be successful. That was the thinking on day one. But if you look at what’s happened in the past years, it’s not just that we’ve delivered these services for you — we’ve completely transformed the IT industry. Not just from a technology point of view (which is really cool, and we’ll be talking a lot about that today) but also really from a structural point of view. If I remember, when I used to do these things as a tech leader for Amazon.com the retailer, I hated — truly hated — my relationship with my vendors.
Why? Because I always felt that they were in charge. I was never in charge. The only way to drive your costs down was to write these massive big checks up front. And when you’ve written this big check, they’d walk away, because they didn’t care anymore. It was so counter to the culture that we had at Amazon. Because at Amazon, our motto is to be the earth’s most customer-centric company. And it’s really easy to see how that works in retail. Because you have this direct relationship with your customers. And when we started building AWS, we vowed to ourselves to become the earth’s most customer-centric IT company.”
More about Amazon this week, both AWS and otherwise:
AWS re:Invent 2016 keynote: Andy Jassy
AWS re:Intent 2016 keynote: Werner Vogels
Amazon.com’s Annual Shareholder Letters
Transforming development with AWS | Werner Vogels, Amazon
How Amazon gets its holiday hires up to speed in two days | Laura Stevens, WSJ
Amazon is eating software (which is eating the world) | Simon Wardley
What’s happening in India:
Vijay Shekhar Sharma of Paytm: India’s ‘no cash’ champion | Shrutika Verma, Live Mint
The dot-com deadpool is back | Saritha Rai, Bloomberg Technology
Transportation:
The great self-driving shuttle race | Amir Efrati, The Information
How Otto defied Nevada and scored a $680 million payout from Uber | Mark Harris, Backchannel
Uber, Ola Services said cloes to regulatory clearance in India | Saritha Rai, Bloomberg Technology
The never-ending march of consumerization:
How humans became ‘consumers’: a story | Frank Trentmann, The Atlantic
How Domino’s Pizza reinvented itself | Bill Taylor, HBR
Music as the canary in the coal mine for what’s happening to the news | Bob Lefsetz
People with points of view:
Gina Miller on Justice, Brexit and being hated | Gina Miller, Vogue
Conversation with Greylock’s John Lilly: Simplify your message, and repeat often | Adam Bryant, NYT
Other reading from around the Internet:
Silicon Valley has an empathy vacuum | Om Malik, The New Yorker
Emails between Apple and FDA hint at future plans | Jonah Comstock, Mobihealthnews
Virtual Reality in Austin: a new generation of gaming and beyond | Patrick Curry
Busting some myths about European tech | Leila Abboud & Elaine He, Bloomberg Gadfly
Rapid fire news this week from the Social Capital family:
mParticle in the news, featured as one of 16 breakout startups in NYC that you need to know about (Number two in this list, but number one in ours);
Sage advice from Edward O’Riordan at Intercom on how to help solve the user’s problems through design;
Chamath sits down with Semil Shah at Post Seed Conference: Trump and the Valley, valuations, and more;
Mamoon Hamid in VentureBeat, on areas where tech has yet to make a big impact;
Our own Ashley Mayer on the phrase you should never, ever use when reaching out to busy people. Just don’t do it!
And finally, something fun to announce: our new Social Capital publication on Medium! You’ll be able to subscribe to everything we publish here — from posts from partners and friends to Snippets every week. Don’t worry, Snippets will still come to your inbox on Sunday nights. But now you have a way to link to it, find it more easily, and leave comments — starting the next Monday morning. We hope you like the new look!
Have a great week,
Alex & the team at Social Capital
