A couple of days ago, I had the pleasure of chatting with Jeff Bezos before and after he gave an excellent talk to about 500 of our alumni. Jeff made a number of interesting (and humorous) observations, speaking on topics ranging from why Amazon experiments actively to how we've become a society of information "snackers" to his basis for spousal choice ("someone who can get me out of a third-world prison").
What made me think the most during the few minutes we chatted was his (seemingly simple) framework for making difficult decisions. Innovative companies like Amazon often have to make big decisions with little or no data. In making these choices, Jeff says that his choice is governed by "what would be better for the customer?". His point was that in the long-run, the interests of one's customers are perfectly aligned with the interests of one's shareholders. (This is clearly not the case when one has to manage short-term earnings.) He cited cases ranging from launching Amazon Prime to allowing customer reviews (both positive and negative) to remain on the site as examples where this framework paid off in the long run.
This observation (which seems to make more sense the more one thinks about it, although "perfectly" aligned might be a slight simplification) is an interesting one when applied to data ownership. Because it implies that in making data collection and retention choices, the smartest companies might be the ones who formulate policies that are aligned most clearly with the welfare of their customers. This is a lot simpler than thinking about expected future value and liability. I'm not yet convinced, but there's something interesting here.
I still don't have a comfortable feel for why they've entered the cloud computing business, but that's a subject for a different post.
6 comments:
I like Jeff Bezos' "simplistic" principle of considering the customers' best interests in making difficult decisions. This approach, while simple, is often overlooked in the corporate world. People are often focused on short-term gains and self-betterment. Without customers there would be no firm. Ingraining such a mindset into the culture of our firms would foster more benefits for our customers and focus our efforts where they count most. In general, IT investments made by firms could use a dose of this tonic as they are often made in isolation and have marginal or no voice of the customer taken into consideration.
Jeff Bezos also made another interesting comment, about there being three type of companies:
one, who try, fail, and are criticized by investors
two, who don't try for the fear of failure, and
third, who try, and succeed because of competence and luck
Amazon is definitely NOT in the second category. It takes leadership to be in the 1st or the 3rd type.
Bezos' perspective on making big decisions seems to make good logical sense. If you're a market-driven corporation (ie. have both individual and institutional shareholders), your business is not only serving the "customer" who uses your goods and services provided, but the "customer" who earns your dividends.
His perspecitve connects the downstream value-chain customer with the upstream financing customer and makes them one and the same.
Applied simplistically, any company who can conceptualize this same alignment is well served to make big decisions in the very same way.
It's always interesting to me that the most innovative ways of "winning" in the market come from very "common sense" driven solutions. Amazon's competitors could learn alot from Bezos.
At first, his philosophy may sound a bit corny and an exercise in PR. On the other hand, it may actually make a lot of sense. Assuming that lower price for a given service is in the interest of the consumer…
The overall profit made by single high margin transactions may is not sustainable. The internet allows customers to quickly find better deals with little to no barrier to switch vendors.
Jeff refers to the fact that a smaller margin will create transactions over the entire life of the consumer who in turn will generate much more profit than the single high margin transaction.
His approach may turn out to make a lot of sense, as long as Amazon can position itself as the most convenient and best valued online retailer. So far, so good.
Now, if he could only work on his laugh ;-)
It's an interesting proposition, but certainly not one that's applicable across the entire IT industry. Imagine if Google used just that factor to make its decisions. Most customers would rather never see an ad on the Web--but doing away with those ads would make Google's business model evaporate pretty quickly.
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