One question at Amazon.com’s shareholder meeting this morning in Seattle clearly made an impression on Jeff Bezos, sparking an extraordinary response from the Amazon CEO and founder on the qualities of innovation and the characteristics of the company.

The question: Amazon seems to be executing well lately — is the company taking enough risks? Added the shareholder, “If it’s still Amazon’s philosophy to make bold bets, I would expect that maybe some of them wouldn’t work out, but I am just not seeing that. So, my question is where are the losers?”

Continue reading for the full text of Bezos’ response, transcribed from the company’s webcast.

In a way, that is like the nicest compliment I’ve ever gotten. First of all, I think we have gotten pretty lucky recently. You should anticipate a certain amount of failure. Our two big initiatives, AWS and Kindle — two big, clean-sheet initiatives — have worked out very well. Ninety-plus percent of the innovation at Amazon is incremental and critical and much less risky. We know how to open new product categories. We know how to open new geographies. That doesn’t mean that these things are guaranteed to work, but we have a lot of expertise and a lot of knowledge. We know how to open new fulfillment centers, whether to open one, where to locate it, how big to make it. All of these things based on our operating history are things that we can analyze quantitatively rather than to have to make intuitive judgments.

When you look at something like, go back in time when we started working on Kindle almost seven years ago….  There you just have to place a bet. If you place enough of those bets, and if you place them early enough, none of them are ever betting the company. By the time you are betting the company, it means you haven’t invented for too long.

If you invent frequently and are willing to fail, then you never get to that point where you really need to bet the whole company. AWS also started about six or seven years ago. We are planting more seeds right now, and it is too early to talk about them, but we are going to continue to plant seeds. And I can guarantee you that everything we do will not work. And, I am never concerned about that…. We are stubborn on vision. We are flexible on details…. We don’t give up on things easily. Our third-party seller business is an example of that. It took us three tries to get the third-party seller business to work. We didn’t give up.

But. if you get to a point where you look at it and you say look, we are continuing invest a lot of money in this, and it’s not working and we have a bunch of other good businesses, and this is a hypothetical scenario, and we are going to give up on this. On the day you decide to give up on it, what happens? Your operating margins go up because you stopped investing in something that wasn’t working. Is that really such a bad day?

So, my mind never lets me get in a place where I think we can’t afford to take these bets, because the bad case never seems that bad to me. And, I think to have that point of view, requires a corporate culture that does a few things. I don’t think every company can do that, can take that point of view. A big piece of the story we tell ourselves about who we are, is that we are willing to invent. We are willing to think long-term. We start with the customer and work backwards. And, very importantly, we are willing to be misunderstood for long periods of time.

I believe if you don’t have that set of things in your corporate culture, then you can’t do large-scale invention. You can do incremental invention, which is critically important for any company. But it is very difficult — if you are not willing to be misunderstood. People will misunderstand you.

Any time 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.

We’ll have more of Bezos’ comments on other topics in a follow-up post.

[Update: Hat tip to Evan Jacobs, who asked the question.]

Follow-up: Bezos explains why Amazon.com is so big on tablets

Follow-up 2: Amazon.com still trying to figure out grocery delivery business

Comments

  • http://blog.redfin.com GlennKelman

    What a great answer. What’s amazing about Amazon is that it seems to have bypassed the midlife crisis that hits all the other tech titans. Every Amazonian I meet is very motivated, and extremely clear about the company’s strategy. And Amazon has led a shift to mobile devices rather than being victimized by it. There are very few companies that can be foxes and hedgehogs, that can relentlessly focus on incremental and disruptive innovation. Amazon (or maybe Costco) is the best run company in Seattle.

    • http://twitter.com/JessiDarko Jessica Darko

      What a load of crap.  Amazon changes strategy every 4 months. There are hundreds of abandoned initiatives that were good for a press release and then never followed up on.   The company does not reward innovation, but only political backstabbing.  If you’re ruthless you can advance quickly, without regard for your actual skills.  Engineers are managed by people who are barely computer literate in many cases. My boss was on his way to being a prison guard (his degree was in criminal justice) when he happened into the amazon gig.  He’d driven off %60 of his team by the time I gave up, yet his boss– a social worker by training– saw nothing wrong.  Innovative ideas are not tolerated, let alone supported.  The engineering culture is based on ego, and the arthictecture of their products is a joke, with the possible exception of AWS which was only able to succeed because it had a very politically connected benefactor.   I’ve worked for Apple, Microsoft and a couple dozen startups in Seattle and the Bay Area over the past 20 years.  None of them were as poorly run, or as hostile to employees, suppliers and all other “partners” as Amazon. 

      In fact, if you talk to people in Seattle, you regularly hear horror stories about the company.

      • Guest

        “There are hundreds of abandoned initiatives that were good for a press release and then never followed up on.”

        Would you kindly name five of them?

        • THomas

           “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.”
          Haters gonna hate.

          • http://twitter.com/JessiDarko Jessica Darko

            And ass kissers are going to suck ass.

          • Guest

            Haters hate, especially those who have “worked for Apple, Microsoft and a couple dozen startups in Seattle and the Bay Area over the past 20 years.” It’s unsurprising to note that such a bad attitude goes hand-in-hand with an average company tenure of (240 months ÷ 26 companies = 9 months / company).

          • http://twitter.com/JessiDarko Jessica Darko

            My average tenure working for others is 6 years.  As a consultant you can work for multiple companies within the course of a year without job hopping.

            I think it is interesting that, rather than recognize my experience as valid, you make up a lie about me to smear me. 

        • http://twitter.com/JessiDarko Jessica Darko

          restaurant menus, catalogs, maps to compete with google, movie showtimes, a9, industrial products… oh wait, that was six, right off the top of my head without having even kept up with the company for many years.

          • Guest

            Of those, how many represented a substantial expense for Amazon? Do you believe that doing the above six items jeopardized the long-term integrity of the company? Did any constitute, as you say, a “change” in “strategy” for the company on the whole? How many of the above were the result of “political backstabbing”? How many did your social worker boss, who you so callously described as “on his way to being a prison guard,” champion?

          • http://twitter.com/JessiDarko Jessica Darko

            You’re right, I shouldn’t respond to snotty anonymous idiots who ask irrelevant questions, because that just invites them to ask even more irrelvant questions.  You trolled me, congrats.

          • Guest

            I apologise for requesting additional information from you about Amazon’s failings as a company. Best wishes in your future endeavours.

        • http://www.facebook.com/kmorrill Kevin Morrill

          I don’t agree with the above commenter, but A9 is an example of a big flop for Amazon.

      • Bigemptybox

        So much anger after all these years…

        • http://twitter.com/HoeyHimself Patrick M. Hoey

          I think someone’s just bitter about bumping into a glass ceiling here and there.

      • Guest

        “Amazon changes strategy every 4 months.”

        What was Amazon’s strategy in February 2011? How does it differ from their strategy in October 2010, June 2010, February 2010, or the present?

      • Vhonavar

        Wow! You worked for Apple, Microsoft, and a “couple dozen” startups in Seattle and the Bay area over the past 20 years? Wow! That is on average less than a year for each of your over 24 past employers. Very impressive indeed. I suppose every one of them did not meet your  expectations well enough for you to stay on the job for more than a year on average? Or perhaps your slacker whiner downer attitude got you fired before you had completed a year of employment on average with each of the over 24 employers over 20 years? 

        • http://twitter.com/JessiDarko Jessica Darko

          I’m sure you’ve never heard of the consept of consulting, have you?  As a consultant you can work for many companies within the course of a year, without job hopping. 

          As I pointed out in my original comment, %60 of the team left before I did.  I actually stuck around longer than most people, out of a misguided sense of loyalty. 

          I find your personal attacks and dishonesty reflect more on you than on me. 

      • http://twitter.com/kcopen Ken Copen

        As an exec at a large global advertising agency for 11 years, i’ve seen people like Jessica come and go (as apparently many of the other companies she has worked for have). People that are bitter, complain, blame everyone else for the things that they don’t achieve and take 0 accountability. Innovative companies are constantly changing and it is extremely uncomfortable most of the time for some people. Yes it is up to the managers to manage that change effectively, but it is also the employees responsibility to participate in that change. I don’t doubt that there is mismanagement at a company as large as Amazon, but if it was as rampant as the poster imagines, somehow I doubt they would be one of the most successful companies in the world.

        • http://twitter.com/JessiDarko Jessica Darko

          My average term of employment is over 6 years. However, as a consultant you can work for multiple companies in the span of a single year without job hopping. I have several patents.

          Amazon is the only job that I’ve ever regretted taking. The rest have ranged from good to great.

          If they had rewarded innovation, or even just treated me decently, I would have remained.

          As I pointed out, %60 of the team left before I did. I stuck around even long after I’d realized the situation was untenable out of loyalty.

          In attacking me personally, rather than responding to the issue, you show yourself to a person lacking in honor and integrity.

          You have shamed yourself, because you know nothing about me, and you know nothing about amazon. In fact, being incapable of coming up with a counter argument is the reason you chose to lie about me. I believe you’re incapable of thinking, really.

      • Spike McLarty

        Hey Jessica – Sorry you got the bum’s rush. I’m afraid this is what happens when you tell people something they don’t want to hear.  I don’t know how widespread the conditions you describe are at Amazon, but your description is consistent with other reports I’ve seen.  Unfortunately, companies can be very successful for years while being very unpleasant, dysfunctional workplaces for some or even most employees.  I suppose we all wish it were otherwise – and it certainly offends the human desire for justice, fairness, and – in Bezos’ case – heroes.

  • http://twitter.com/evanjacobs Evan Jacobs

    Hey, that was my question! I was hoping for a confirmation from Jeff that Amazon would continue taking the very large risks necessary to ensure that Amazon maintains it’s position as one of the world’s most innovative companies but I don’t really feel like I got that assurance from him.

    I did, however, like the part of his answer where he talks about being “stubborn on vision and flexible on details” and I imagine that if, for example, Kindle wasn’t an immediate success that Amazon would continue investing in it because it is consistent with their view of the future.

    • http://obscurelyfamous.com Daniel Ha

      Thanks for asking the question Evan.

    • http://obscurelyfamous.com Daniel Ha

      Thanks for asking the question Evan.

    • http://www.facebook.com/people/Teoh-Yi-Chie/643950464 Teoh Yi Chie

      Why take very large risks (betting the company) when you can spread out the risk (planting many seeds)? Managing risk is very important and I think Amazon fared very well in this aspect.

  • Anonymous

    Seems like one pretty cool dude to me. Wow.

    http://www.total-privacy.no.tc

  • http://twitter.com/rohi81 Rohit Nallapeta

    This is very inspirational. Founders should  be willing to be misunderstood and just build out their vision!

  • http://twitter.com/rohi81 Rohit Nallapeta

    This is very inspirational. Founders should  be willing to be misunderstood and just build out their vision!

  • http://pop-pr.blogspot.com Jeremy Pepper

    Great answer – and I wonder if the risks they do take aren’t just put out there as a PR stunt or push, but done in the background and then released publicly in a way that works.

    But you can also look at all of Amazon beyond books and music as risks. Some stores have worked, some haven’t, but a good part is that they haven’t really changed perception of what is Amazon enough with the general consumer. 

  • http://twitter.com/bradleybuda Bradley Buda

    I would have liked to see him go after the original question: what are specific failures? The list does seem to be relatively short. Some ideas here: http://www.quora.com/What-are-the-notable-Amazon-product-failures-of-the-last-five-years

  • Anonymous

    It’s going to be really interesting to see how Amazon makes out with the next iteration of devices, including the rumored Android phones. I really like Amazon and buy tons of crap from them – and certain things I love (DRM free music!) and other things I dislike (DRM-laden Kindle books). But all in all their 2-day Prime shipping and prompt service makes me go back to Amazon over and over again.

    I’m guessing that launching their different programs probably was marginal from an investment perspective compared to their retail sales. I’m sure the Kindle was expensive to design and manufacture, but they have sales and revenue and profit they can use to invest in that sort of development with minimal risk now. I don’t really see any “break the bank” investments they have made that would have tanked the company if they failed.

    Nick Reuter
    http://www.totaltab.com

  • Anonymous

    It’s going to be really interesting to see how Amazon makes out with the next iteration of devices, including the rumored Android phones. I really like Amazon and buy tons of crap from them – and certain things I love (DRM free music!) and other things I dislike (DRM-laden Kindle books). But all in all their 2-day Prime shipping and prompt service makes me go back to Amazon over and over again.

    I’m guessing that launching their different programs probably was marginal from an investment perspective compared to their retail sales. I’m sure the Kindle was expensive to design and manufacture, but they have sales and revenue and profit they can use to invest in that sort of development with minimal risk now. I don’t really see any “break the bank” investments they have made that would have tanked the company if they failed.

    Nick Reuter
    http://www.totaltab.com

  • Bob

    His answers are outstanding. What a breath of fresh air compared to Steve Ballmer.

  • Bob

    His answers are outstanding. What a breath of fresh air compared to Steve Ballmer.

  • Rick.M

    As Bezos said (using other words), continuous improvement is very important to maintain the competitiveness of mainstream growth and cash cow products such as the book business at Amazon – and basically these should not be toyed with, other than to develop and implement incremental innovations.

    And – one might go on this way for quite some time (and apparently quite successfull) without ever needing to innovate disruptively, but in EVERY company’s existence will come a time when it needs to be successful in recognizing, managing, and deploying disruptive innovation (If you don’t understand or believe this, read Clay Christensen’s first 3 books, starting with Innovators Dillema, or if you’re short on time, shortcut directly to “Seeing What’s Next”. The come back and let’s discuss.)  

    Business history is replete with examples of companies who never tried to be disruptive and as a result were unable to withstand the onslaught of a disruptive competition, it only makes sense to spend a part of each business cycle thinking of and trying something that has the potential to be disruptive without breaking the bank. These attempts at disriuptive innovation may (or may not) launch you into a new business opportunity with high potential for growth and profits, but in either case you will certainly be better prepared to recongnize, prepare for, and cope with disruption when it (inevitably) comes your way. 

    • JT

      If only the idea of “continuous improvement” was applied to their affiliate services, instead of removing heavily-used features every few months with no explanation.

  • http://justinfreid.com Justin Freid

    I also think his answer was awesome and thoughtfully encompassed more than just an understanding of Amazon but business and inventiveness in general.
    After reading the transcript and being impressed by his fluidity, I’m torn between regarding Mr. Bezos as an Obama-class orator or thanking the the kind transcriber for cleaning up errors.
    It reads like a chapter from a book on business development.

    • http://www.facebook.com/people/Jim-Wolfson/100003102927273 Jim Wolfson

      Please don’t insult Mr. Bezos and Amazon by comparing him to Ofailure and his legacy of destruction, depression, dependency and wreckage.

  • http://twitter.com/supplyIE supplyIE

    Nice insight from a company often perceived to lack creativity and innovation. Inspirational for all founders to focus on their visio

  • Andante887

    great people big stories please visit:www.gooddealitems.com

  • seseliagil

    It is pronounce wiggling and everyone likes it.happy birthday It also needs to amend examinee and someone.

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