Seventy-two price reductions since 2006, nearly 2,000 services and new features launched in 2018, and millions of monthly active users. Amazon Web Services, Amazon’s most lucrative business nowadays, is one of the empires of Jeff Bezo‘s giant, leading the cloud infrastructure market ahead of its main competitors – Microsoft, Google, and IBM.
AWS generated $2.12 billion in gross profit and grew 37% in the last quarter – but what is behind such impressive results? To answer this question, Natalia Girolamo, AWS Technical Program Manager and Marcelo Cunha, Solutions Architect at the company, took the stage of Conecta, the startups and innovation-focused event held in the Brazilian city of Curitiba, on July 26-27.
“We had three great ideas at Amazon that remained for these 20+ years and are the reason for our success: put the client first, innovate, and be patient”.Jeff Bezos, Founder and CEO at Amazon
Back in 2006, when AWS emerged after a few redesigns, the scenario was the following: a very good idea and an ambitious request for an investment of $400 million.
Although, back then, the idea seemed risky, explains Marcelo, they didn’t come up with a financial projection and said “let’s deliver a product of such and such million dollars in profit per year” but they went through the whole construction chain, earning trust in the first place. A service offered to other developers, web sites, client-side applications, and companies, the AWS emerged in 2006 as an integrated suite of core online services.
A firm that works on a virtuous cycle – low-cost structure, more customer usage, and more investment injection, AWS is an input-oriented company. “We developed an IT resource management expertise for high demands such as Christmas and Black Friday,” stresses Natalia.
AWS innovation culture
It comes as no surprise that the on-demand cloud computing firm is a highly innovative company. But how do they organize themselves to make innovation possible?
The key to the company’s structure success is something called Working backwards, a process to first reach clarity, instead of directly documenting what you’ve already decided to do. It works as a 5 question-based process:
- Who’s your client?
- What’s the client’s problem or opportunity?
- Is the client’s most important benefit clear?
- How do you know what the client wants or needs?
- What does the client’s experience look like?
When launching a new product or service, the method starts from the client’s needs, goes through a press release, then with the FAQ, only to then build a manual, documenting what was decided through this whole process.
“Most companies write the software and put everything to work, so then they address the Marketing’s team saying ‘This is what we’ve built, now spread the word to the press.’ We believe that this process is backwards.”
But doing this is no easy task, and it requires a high-confidence threeshold. Natalia explained that, to reach this spot, AWS put a favorable innovation environment in place: an environment where you don’t have to worry with self-safety – meaning? You can make mistakes without having this affect your entire operation – something that is only possible due to a capacity of risk-calculation.
Coming up with something new requires two things: ability to perform multiple tests and not having to live with collateral damage from failureAndy Jassy, CEO at AWS
AWS four principles for innovation
Mechanisms: Behaviors that enable innovative thinking
“Good intentions are not enough, you need to create mechanisms to implement.”
The first principle deployed by AWS, explains Natalia, is translated into a two-page document narrating the ideas behind the new feature, product, or upgrade, while also answering the 5 key questions regarding the client. It has to be simple and short.
Natalia further explains that, if you have trouble answering any of these questions, that means you are not ready to implement your product or service yet. From then on, they create a press release, summarizing the 5 questions of the Working backwards process and “trying to cover all the benefits I want to deliver to my client.”
Afterward, during the FAQ’s step, the speaker highlights that they go beyond the easy questions: “The idea is to have those difficult questions and answers with us during the phase of presenting the product/solution to the client. We read, discuss, debate and ask.”
Architecture: Structure that supports fast growth and changes
Full-service vs. Self-service: With over 160 products at the company, Marcelo explains that in AWS, they believe in a self-service culture that breaks barriers.
“We create a powerful self-service platform that enables thousands of people to perform bold experiments and achieve things that would otherwise be impractical.”
Culture: Client obsession, hire builders, let them build, support them
The speakers emphasized that out of the 14 leadership principles, the last one is to deliver results. What does that mean? At AWS, they must follow the entire path, first building and earning trust, to only then be able to set accurate results.
Everyone is a leader
Amazon hires builders and let them build, explains Natalia. “We are all leaders in our missions, and with technology that allows the mechanisms to be applied, adding to the supporting culture, the ground is fertile to make mistakes, test and eventually hit results,” she concludes.
Organization: small, self-managing teams that are owners
Natalia explains the concept of the two-pizza teams: If you have a team that can’t be fed with two pizzas, it’s time to split them apart. With small and autonomous units, at AWS they can make faster decisions. By testing it early and often, they are able to fail faster, assuring that won’t affect other areas. In a nutshell: the risk is calculated.
The traditional model is that you take your software to the wall separating development and operations, and throw it over and then forget about it. Not at Amazon. You build it; you run it.Werner Vogels, VP and CTO at Amazon
Learn from the mistakes
“Be persistent in vision, flexible in detail, and run tests.”The world’s largest e-commerce marketplace, AI assistant provider, and cloud computing platform. Behind the massive success of its several products, the company has a deeply rooted culture of learning from failures, highlighted the speakers.
One such case was Amazon Auction. Long story short, it was the early 2000s, eBay was booming and Amazon launched an auction site called Amazon Auction, which went head-to-head with eBay. Auction shut down eventually, but it helped Amazon to release its own online marketplace for third-party vendors called Amazon Marketplace, which is now a big part of its overall business.
Marcelo and Natalia also talked about another big flop of Jeff Bezo’s tech giant: Amazon’s first smartphone. Called the Fire Phone, the product didn’t become a hit at all – but helped another product to thrive: the new kindle with led screen uses technology from the unsucceeded Fire Phone. Bottom-line: The important thing is to learn from the mistakes.
Marcelo and Natalia also talked about another big flop of Jeff Bezo’s tech giant: Amazon’s first smartphone. Called the Fire Phone, the product didn’t become a hit at all – but helped another product to thrive: the new Kindle with LED screen uses technology from the unsuccessful Fire Phone. Bottom-line: The important thing is to learn from mistakes.
“Some companies are oriented to the competitor, other ones to the product. At AWS, we are client-oriented.” Not surprisingly, their popular virtual assistant, Alexa, is an outcome of this mindset: more than setting alarms, streaming podcasts, and providing real-time information, the assistant can be boosted by users being able to install skills and broaden its capabilities. “Alexa’s main idea is to enhance the way you interact with your customers,” Marcelo pointed out.
“I believe we are the best place in the world to fail – we have a lot of practice. Failures and innovations are inseparable twins. To innovate you need to experiment. If you know in advance that it will work, then it is not an experiment.”
Nothing works if you have a lot of technology – but no mechanism to apply innovation, concluded the speakers. The largest global Internet firm by revenue – considered one of the Big Four technology companies along with Google, Apple, and Facebook – Amazon’s success formula definitely seems to be paying off.