Bezos On Innovation

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That kind is super important—things that make our operations more efficient and lower cost so we can afford to offer lower prices to our customers. But there is a spectrum, and at the other end is large-scale innovation like Kindle and Web services and Amazon Prime [a membership program that offers free shipping]. With large-scale innovation, you have to set a very high bar. You don't get to do too many of those [initiatives] per unit of time. You have to be really selective.

Q: Every company claims to be customer-focused. Why do you think so few are able to pull it off?
A: Companies get skills-focused, instead of customer-needs focused. When [companies] think about extending their business into some new area, the first question is "why should we do that—we don't have any skills in that area." That approach puts a finite lifetime on a company, because the world changes, and what used to be cutting-edge skills have turned into something your customers may not need anymore. A much more stable strategy is to start with "what do my customers need?" Then do an inventory of the gaps in your skills. Kindle is a great example. If we set our strategy by what our skills happen to be rather than by what our customers need, we never would have done it. We had to go out and hire people who know how to build hardware devices and create a whole new competency for the company.

Q: How do you build a culture that is comfortable sticking with ambitious, controversial initiatives?
A: We have three all-hands meetings a year, and I'll tell people that if the stock is up 30% this month, please don't feel you are 30% smarter. Because when the stock is down 30% a month from now, it's not going to feel that good to feel 30% dumber. When the Internet bubble burst, our stock went from over 100 a share to a low right after September 11 of 6. Throughout that entire period, the fundamentals of the business continuously improved. You can see the stock price going in the opposite direction of the fundamentals. So it wasn't that worrisome to us.

Q: Does that mean that dealing with the whipsaws on Wall Street have not been a management problem for you?
A: Not really. It's like trying to get people to be long-term-oriented. Also, people who want to pioneer and find new ways of doing things know there are going to be ups and downs, that there will be profound moments of success and failure. And that's O.K. It's not an experiment if you know it's going to work.

Q: Amazon director John Doerr thinks Kindle can work and grow into a $1 billion business.
A: Well, there are a lot of people who read. Is there the potential to make that a meaningful business? I believe there is. The onus is on us to continue to execute well. We've been working on this for three years.

Q: In those three years, did you ever consider killing it?
A: Not at all. I remember one meeting where one of our executives said to me, "So how much are you prepared to spend on Kindle, anyway?" I looked at him and said, "How much do we have?"

Q: Did you mean it?
A: Sure! The key is to pick things that you think are really important, and then focus on them.

Q: Do you feel vindicated, given how well the company is doing now?
A: No. I've taken plenty of criticism, but it's always been about our stock price and never about our customer experience. After the bubble burst, I would sit down with our harshest critics, and at the end of the meeting they would say, "I'm a huge customer." You know that when your harshest critics are among your best customers, you can't be doing that badly.

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