King of the Jungle

By Ben Thompson, Senior Editor

Amazon’s Chief Technology Officer Werner Vogels is focused on transforming the internet behemoth into the world’s most customer-centric organization – and is using innovation to help him get there.

“I think you can have brilliant ideas, but taking them from the idea phase to the stage where they really mean something for your customers is much more challenging than I anticipated”
-Werner Vogels

The Amazon rainforest contains the largest collection of living plant and animal species on the planet – and like its jungle namesake, the world’s largest ecommerce platform holds a similar wealth of weird and wonderful specimens just waiting to be discovered. As well as everyday items such as clothing, music and consumer electronics, the internet explorer can also find a huge range of rarer treasures. Want to reduce your carbon footprint? How about a 400W self-assembly wind turbine to help get you started. Looking for that unusual gift? Check out the original Andy Warhol screenprints in the ‘Everything Else’ department. Fancy getting married? Try the 10x18 wooden wedding chapel, complete with front porch and steeple (sorry, bride not included). Shopping has never been this easy.

Yet while some may still think of Amazon as simply an online retailer, the reality is very different. From its bookseller origins, the company has grown to become one of the world’s biggest technology organizations, a platform that attracted over 615 million visitors last year and on which more than one million active retail partners do business worldwide. An increasing number of diverse businesses are built on the Amazon.com platform – including the online operations for Target, Lacoste, Marks & Spencer and Timex Corporation – and the company’s relentless focus on innovation helps Amazon maintain its status as a high-tech pioneer. From new hardware development to the definition of new business models, from building ultra-reliable storage services to a massively scalable computing cloud, from pervasive monitoring and performance control to revolutionary efficient software architectures, Amazon is recognized as being on the bleeding edge of technology development.

“We have three different businesses,” explains the company’s CTO Werner Vogels. “One is the retail business, and that’s the one that people are most familiar with. Then there’s the seller business, which consists of three major streams – the seller-only Amazon website, the enterprise services business where companies launch ecommerce operations on top of our platform, and services such as Fulfillment by Amazon that enable businesses to take advantage of one of the most advanced fulfillment networks in the world. And then there’s the developer business. For all of those, we take the same approach: we want to be the world’s most customer-centric company.”

For Vogels, this means focusing on continuous interaction with the customer-base – generating what he calls a ‘feedback loop’ – to ensure that the services Amazon provides are the right fit for its customers. “We have a process that we call ‘working from the customer backwards’ to develop new technologies, where we start with what the customer needs and then work backwards from that point to make sure that the technology we implement really does what we want it to from a customer standpoint,” he explains.

Plotting a path
Take Amazon’s popular and much-copied product review system, for example. The site had reviews from the outset, and the idea of letting the market decide what’s hot and what’s not has played a key role in helping to make the company such a trusted seller – even non-customers admit to checking out the user reviews before eventually buying elsewhere. But as other retailers jumped on the user review bandwagon, Vogels and his team decided to take the concept a stage further. By adding a simple button asking ‘Was this review helpful to you?’, Amazon prioritized the most relevant reviews – those that had helped customers make a decision over whether or not to buy a particular product, both positive and negative – and provided a simple way for customers themselves to regulate the quality of the reviews. A recent article in Business Insider suggests the move has had significant business benefits. In 2008, Amazon brought in $19 billion, of which 70 percent came from media products such as books, movies and music – products that also make the best use of the reviews feature. The study suggests that promoting the most helpful reviews has increased sales in these categories by 20 percent (one out of every five customers decides to complete the purchase because of the strength of the reviews) – adding a projected $2.7 billion to Amazon’s top line.

It is often said that the best innovations are the ones that seem so obvious. And while Vogels is at pains to stress that such developments don’t just happen without a considerable degree of effort, he does concede that all Amazon’s technology improvements start from a very uncomplicated concept. “You have to find ways in which your customers can be more efficient at what they want to do,” he explains. “We have a number of high-level goals around how quickly customers can find items, how easily they can browse, how they can check out and how they can purchase things, and making that as efficient as possible for our customers is key for us.”

If you focus on the customer, continues Vogel, you take the long-term view. “You’re not looking at the next quarterly success; you’re looking at how you can make sure that Amazon is the world’s most customer-centric company over the long-term, and how you can innovate on behalf of the customer to make sure that the things you do really matter. In this sense, everything from reviews to web services can be thought of as supporting tools for doing the right thing for the customer. In terms of technology, it means seeing whether we can take a more cost-effective approach or have better scalability and better reliability, or whether can we help our customers make sure they make the right purchasing decisions.”

Of course, efficiency is one measurement of success, but there is also a more intangible quality that must be achieved for such a platform to be loved by its user-base: ultimately, it must also provide an enjoyable experience. “Customers are very vocal with what they appreciate and what they don’t,” he continues. “So while our customer service is known for being excellent, customers also have the power and the tools to actually give feedback directly to the technology teams. In terms of innovation, we make sure that all these small experiments that are going on all the time with new technologies, with new customer-facing functionality, can be continuously measured.”

Measuring value
Amazon has taken a number of steps to ensure any improvements to the platform add real, measurable customer value, and has built a large infrastructure to ensure it can monitor and assess the impact of changes to the site. For instance, all Vogel’s teams have been given the instruction to innovate continuously on behalf of the customer, constantly looking at where improvements can be made. What makes a particular service a best seller? Is it better information, better presentation or different sources? “Our goal for customers is that they can find what they are looking for as fast as possible, in the most efficient way, in the minimum number of steps,” he explains.

Vogels maintains that this is only possible via constant monitoring of the customer experience. Consider the following example. A customer wishes to download a movie to watch on the long Seattle-NYC flight, and sends Amazon an email with a question about its video-on-demand service. Not only does the service team answer within the hour, they also include a link to indicate whether the answer solves the question or not. Choosing ‘yes’ takes the customer to a ‘Thanks for your feedback’ message, which not coincidently puts them back onto the Amazon site and contains a further link to provide additional feedback. If you respond ‘no’ to the original question, you are taken to a similar page to rephrase the question. This simple feedback mechanism provides a number of important benefits. First, it demonstrates Amazon actually cares whether the user’s problem is resolved satisfactorily; it allows the customer to easily submit another question if not satisfactorily resolved; it allows you to quantify the performance of the service department; it identifies areas where better answers are needed; and finally it helps identify tricky problems that can be corrected.

Such attention to the minutiae of customer service interactions helps the company refine its offerings and continuously improve. And while conceding that the management team makes most of the long-term big technology bets, Vogels insists that many of the ideas actually come up through the organization. “Amazon is very flat in terms of its organizational structure and we have a tremendous focus on innovation, so we’ve got all sorts of paths in which key information and ideas can travel to those who actually make the decisions,” he says. “I think most of the technologies as you see them in Amazon – whether it is reviews, whether it is Listmania, whether it is Gold Box – have come out of the grassroots.”

Such a meritocratic hierarchy, where the best ideas rise to the top, is essential to the company’s reputation as an innovator. Encouraging ideas that add value is a philosophy that is nurtured right through the company culture, from the C-suite down to the recruitment of new hires, as Vogel elaborates. “In terms of our personnel, we look for a very particular individual: they need to be able to think in the way that the customer thinks,” he says. “It’s very important to have a culture where everybody understands what the core values of the company are. New starters are often surprised at how important focusing on the customer is to us and how good Amazon is at doing that. So having a core value throughout the company that everybody signs up to is essential.”

The importance of teamwork
The other essential trait that Amazon tries to instill in all staff is the ability to collaborate effectively – something that is particularly important in the technology function, which by its nature involves small teams focused on specific projects. “Our development teams talk to each other all the time,” says Vogels. “Even though we work in very small teams, Amazon itself is a very large technology operation and it is essential that everyone cooperates and collaborates all the time.”

According to Vogels, teamwork is key to delivering fully rounded ideas that really work for the customer – whether that customer is internal or external. Coming from a background in academia (prior to joining Amazon in 2004, he spent a decade as a research scientist in the Computer Science Department at Cornell University looking at scalable reliable enterprise systems), Vogels admits to being energized by the way business organizations approach the issue of R&D. “In academia there’s a real focus on individual achievement,” he says. “Although there is some collaboration among faculty and there are student teams working together, the work is still rather individual, as is the reward structure. In industry, however, building real technology is a multi-disciplinary activity. First of all, you need good engineers and program managers to build something that really works. But there are also legal implications, there’s an impact on tax, there’s impact on PR, on marketing – all of those functions make up a team, and you can only build and deliver a product to your customers as a team.”

It is a challenge Vogels relishes. “I think you can have brilliant ideas, but taking them from the idea phase to the stage where they really mean something for your customers is much more challenging than I anticipated when I was still in academia,” he continues. “I did some startup work alongside my academic work, but even so the path going from idea to actual implementation is a long journey, and when you have to operate at the scale of Amazon that’s a whole different story again. Suddenly, issues like reliability, performance, availability and cost-effectiveness play a major role in all of the decisions you make along the way.”

And in contrast to Google, which famously encourages developers to spend 20 percent of their time on individual projects outside their day-today responsibilities, the team ethos rules at Amazon. The motivation comes out of the idea that the things that you do have a direct impact on the customer. “Doing things that matter to people is tremendously motivating, and so most of our engineers and program managers – and indeed everyone else that is working on our products – find tremendous reward in making sure that our customers have a better experience. We often have meetings where we start off with a ‘customer voice’ – a success story, even sometimes a negative story, of a customer’s experience of buying on Amazon – and use those stories to drive our services to become better.”

Once again, it all comes back to the customer. “We don’t just want to be the most customer-centric company on the web; we want to be the most customer-centric company on the planet, period,” concludes Vogels. “I think that if you look 10 years from now, you’ll see that many of the innovations Amazon has implemented have had a tremendous impact on how customer-centricity is viewed.”

Head in the clouds
Werner Vogels was recently named Information Week CIO of the Year for his role in bringing Amazon to “the cusp of the computer industry’s next major architecture”. Here he explains why cloud computing is such a revolutionary development.

Cloud computing refers to the idea of making massively scalable IT capabilities available to anyone who would want to use them, on a pay-as-you-go basis. It means highly reliable IT components can be used by startups, midsized and very large enterprises alike to provide an environment in which developers or engineers no longer have to worry about managing physical resources. Instead, they can use these resources as a service over the internet, and that will have a major effect on how applications are built. Applications will become more reliable, they will become more secure, they will become more cost-effective.

There are a number of benefits. Just look at the amount of time that businesses currently waste on managing physical resources: companies both large and small invest an enormous amount of manpower on just getting their infrastructure off the ground; factor in the cost of maintaining that infrastructure so that it is highly reliable and performing in such a way that customers can actually make use of it, and that’s a big commitment.

Think about electricity. If you go back to the beginning of the last century, before public utilities, most companies actually generated their own electricity. Everybody felt that power generation was a core competency they needed to have because otherwise, they couldn’t perform basic tasks. However, as soon as public companies that provided electricity as a service came along, businesses couldn’t wait to decommission their generators and focus on the things they did well.

This is similar. Companies are investing a lot in managing a physical infrastructure when it doesn’t actually help them build a better product for their customers. So at Amazon, given that we had to invest in these technologies and build them at very large scale for our own operation, we are now looking at using them to help other companies also become more reliable, more cost-effective and more productive – without having the massive cost of actually building and maintaining those technologies themselves.

We can help companies become more reliable and more secure than they are now, at a much lower price point. Plus the pay-as-you-go model means that you only pay for those resources that you use. If you look at starting a typical new enterprise product, then often you have to get a large budget upfront to make sure you have the physical resources to execute on. By using web services, there is no upfront investment, and only if your product becomes successful will you carry the cost for the resources that you’ve been using.

So that’s a shift from a capital expense model to an operational expense model, which at the same time lowers the risks for enterprises to do new product innovation. There are no boundaries anymore for any company in any country to access these resources. In some ways, cloud computing provides the democratization of business creation. You no longer need access to huge sums of money to get access to physical computing resources in order to get your business or product off the ground.

I think technology development will shift – from actually having to manage physical resources and having multiple system administrators in order to keep your service going, towards building better applications for your customers. That’s where the focus will be. Cloud computing will trigger a whole new range of application building that wasn’t possible before because we were so focused on just getting the basics right. And we will see that applications become more available with better performance, because there will be more automation in terms of keeping these enterprise applications running – under all circumstances – in the cloud.

Amazon’s logotype is an arrow leading from A to Z, representing customer satisfaction (it forms a smile) and the goal to have every product in the alphabet. “If your catalog becomes larger, more customers will come to your site, which makes it more interesting for sellers,” explains Vogels. “That means more sellers come to your site, which means your catalog grows. It’s what we call a flywheel, and the more energy you put into innovation in the flywheel, the better you’re actually able to execute.”

Amazon.com fast facts
Founded: 1994
Headquarters:    Seattle, Washington
Area served: Worldwide
CEO/Chairman: Jeffrey Bezos
Revenue: $19.16 billion
Operating income: $842 million
Net income: $645 million
Employees: 20,500
Website: Amazon.com