Bezos On Innovation

Amazon.com's founder discusses his approach to innovation—both how to do it and how to stay focused when critics question high-risk projects

Brian Smale

When a photographer recently directed Amazon.com (AMZN) founder Jeff Bezos to close his mouth during a shoot, the grinning chief executive didn't miss a beat. "Now that I've heard many times!" he said, letting loose one of his famous room-filling laughs.

Bezos has heard worse, of course. For nearly half of Amazon's 13-year history, he's been in Wall Street's doghouse, largely because he's insisted on massive spending to build the capacity that supports new services. While many Web companies were roaring back to life between 2004 and 2006, Amazon's stock fell from more than 50 to as low as 26.

But Bezos seems to be having the last laugh. Not only has Amazon emerged as the undisputed e-commerce champ, but the CEO has embarked on the most ambitious new growth initiatives in the company's history. The plan to sell access to Amazon's vaunted computing infrastructure has taken off with startups and recently with some corporations. Meanwhile, he insists the Kindle, a device unveiled last fall for reading electronic books, could be big enough to matter for the $14 billion company.

Bezos recently talked with BusinessWeek Senior Writer Peter Burrows at Amazon's Seattle headquarters about his approach to innovation—both how to do it and how to stay focused when critics question high-risk projects.

Q: Few CEOs have taken as much flak as you have for spending on innovation, in both good times and bad. What's your philosophy?
A: My view is there's no bad time to innovate. You should be doing it when times are good and when times are tough—and you want to be doing it around things that your customers care about. For us, it's such a deep-seated belief, I'm not sure we have a choice.

Q: The company has a reputation for frugality. Does that apply to the way you innovate?
A: I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out. When we were [first] trying to acquire customers, we didn't have money to spend on ad budgets. So we created the associates program, [which lets] any Web site link to us, and we give them a revenue share. We invented one-click shopping so we could make check-out faster. Those things didn't require big budgets. They required thoughtfulness and focus on the customer.

Q: You seem able to ignore criticism from Wall Street, the press, and others about your investments in innovation.
A: I believe you have to be willing to be misunderstood if you're going to innovate. That's actually a serious point. If you're going to do something that's never been done before—which is basically what innovation is—people are going to misunderstand it just because it's new.

Q: But don't you have an obligation to keep the stock from sinking?
A: We don't claim that our long-term approach is the right approach. We just claim it's ours. Our approach has been to be as clear as we can be about what kind of company we are and let investors choose.

Q: Do you ever check in with long-term shareholders regarding strategy?
A: We'll discuss it with the board but we won't go to outside investors. One of the nice things now is that we have enough scale that we can do quite large experiments without it having significant impact on our short-term financials. Over the last three years the company has done very well financially at the same time we've been investing in Kindle and Web services—and all that was sort of beneath the covers.

Q: Academics say Amazon excels at different kinds of innovation—from creating new ways of doing business to making small changes that improve the online store. Now comes Kindle, your first hardware product. How do you balance these approaches?
A: There is a ton of fine-grained innovation that happens on a daily basis.