Why Amazon Is The World's Most Innovative Company Of 2017
A rapid expansion of
Prime plus bold bets in the physical world are allowing the retailer to offer
even more, even faster and smarter.
Picture your ideal neighborhood.
What does it look like? Is it manicured, with buildings set in a pattern so
that everything flows together, designed for perfection? Or is it gritty and
spontaneous, the kind of place where a restaurant might move into the space
that used to house a dry cleaner? Boxes bearing the Amazon logo can
arrive at doorsteps in either of these environments, of course, but Amazon’s
founder and CEO, Jeff Bezos, prefers the
second type.
"I think neighborhoods, cities, and towns that have evolved
are more interesting and delightful than ones that have been carefully top-down
planned," he tells me when I meet him at Amazon’s Seattle headquarters in
November. "There’s just something very human" about them, he says.
"Our customers are loyal to
us right up until the second somebody offers them a better service," CEO
Bezos says. "And I love that. it’s super-motivating for us."
It’s a surprising answer from a man
known for his disciplined adherence to Six Sigma–style processes and data-driven decision
making. But it’s also revealing. Over its nearly 22 years, Amazon has moved
into one sector after another and gentrified it, even if that meant tearing
down its own existing structures. Amazon’s Echo smart speaker rose on the lot
where its Fire Phone flamed out. The latest version of Amazon’s
streaming music service, Amazon Music Unlimited, was constructed on top of its
initial music store, Amazon MP3, which opened
nine years ago. Amazon Studios’ Emmy Award–winning original TV shows are built
upon a crowdsourcing platform that the company first introduced in 2010 for
aspiring scriptwriters. Even the company’s fashion business—Amazon is now the
second-largest seller of apparel in the U.S., according to Morgan
Stanley—evolved from brand experiments in outdoor furniture (2004), home goods
(2008), electronic accessories (2009), diapers (2014), and now perishables such
as organic,
fair-trade-certified coffee.
Unlike Apple, Google, and
Microsoft, Amazon is not fixated on a tightly designed ecosystem of
interlocking apps and services. Bezos instead emphasizes platforms that each
serves its own customers in the best and fastest possible way. "Our
customers are loyal to us right up until the second somebody offers them a
better service," he says. "And I love that. It’s super-motivating for
us." That impulse has spawned an awesome stream of creative firsts. Just
this past year, Prime Video became available in more than 200 countries and
territories, following the November debut of The Grand Tour,
Amazon’s most-watched premiere ever. Twitch, the streaming
video-game network that Amazon acquired in 2014, unveiled its first three
original titles from its recently formed studios. Amazon invested millions in
startups that will build voice-control apps for the intelligent assistant Alexa
and give her thousands of new skills. The company opened two dozen new
fulfillment centers, became the largest online store in India, and made its
first delivery by autonomous drone in the United Kingdom.
Bezos’s strategy of continuous
evolution has allowed the company to experiment in adjacent areas—and then
build them into franchises. The website that once sold only books now lets
anyone set up a storefront and sell just about anything. The warehouse and
logistics capabilities that Amazon built to sort, pack, and ship those books
are available, for a price, to any seller. Amazon Web Services, which grew out
of the company’s own e-commerce infrastructure needs, has become a $13 billion
business that not only powers the likes of Airbnb and Netflix, but stores your
Kindle e-book library and makes it possible for Alexa to tell you whether or
not you’ll need an umbrella today.
Amazon is a singular enterprise,
one that rises to the top of Fast Company’s Most Innovative
Companies list because it has continued to be nimble even as it has
achieved enviable scale. To truly understand how Bezos is meshing size and
agility in 2017, though, you need to look beyond sales figures ($100 billion in
2015) and the stock price (up more than 300% in the past five years) and
consider three initiatives that drive Amazon today: Prime, the company’s
rapidly proliferating $99-per-year membership program; an incursion into the
physical world with brick-and-mortar stores, something the company has long
resisted; and a restless rethinking of logistics, epitomized by a new
fulfillment center an hour outside Seattle that features high-tech robots
working alongside human workers like a factory of the future.
Our mobile-first, on-demand world
finds its roots in Amazon’s founding idea: that digital commerce will radically
reshape our marketplace. The company’s impact has already been staggering. In
January, the nonprofit Institute for Local Self-Reliance conducted a survey of nearly 3,000 independent businesses, half of them
retailers, asking them to cite the biggest threats they faced. Competition from
chains and big-box stores, health care, finding employees, and rising rents all
ranked near the bottom as modest concerns. "Way above everything was
competition from Amazon," says ILSR codirector Stacy Mitchell. (The study
also found that Amazon’s expansion in 2015 led to a net loss across all
businesses of 149,000 jobs.)
Despite all the twists and surprises in recent decades—all the
newcomers with youth, funding, and can-do enthusiasm—Amazon remains the
undisputed leader, a startup at heart still striving to remake our
expectations. And to repeatedly remake itself.
Nearly all of Amazon’s most recent innovations share a connection
to Prime, which by some estimates accounts for 60% of the total dollar value of
all merchandise sold on the site. Between 40 million and 50 million people in
the United States use Prime, and, according to Morgan Stanley, those customers
spend around $2,500 on Amazon annually, more than four times what nonmembers
spend. (Amazon refuses to offer any hard numbers related to Prime
membership—that would be competitor focused rather than customer obsessed, as
the executives there say—but it will confirm that Prime members spend more and
shop across a greater number of categories than other users.)
"The way this company [is],
it wouldn’t surprise me if we continue to keep accelerating," says Greg
Greeley, Amazon’s head of Prime.
If you somehow manage to take
advantage of every Prime membership feature, it’s undeniably a good bargain.
Along with free two-day shipping for millions of products, and tens of
thousands of items available at your door in an hour or less through Prime Now,
there is one-hour restaurant delivery, a free e-book a month (including the
entire Harry Potter series), and ad-free viewing of a
streaming video-game channel on Twitch—all included in the annual fee. You can
get early access to Amazon’s best deals, 20% off diapers, and unlimited photo
storage. For a few more dollars, Prime can be upgraded to include unlimited
audiobooks, grocery delivery, and a subscription to HBO that can be watched on
Amazon’s Fire TV streaming media player. More than 50 "benefits" were
added for members around the globe in the second half of 2016 alone, says Greg
Greeley, Amazon’s global VP in charge of Prime. "I would like to say that
the team thinks, ‘Oh, boy, we’ll take a deep breath here,’ " he says. "But the way this
company [is], it wouldn’t surprise me if we continue to keep
accelerating."
What Amazon Prime is selling most of all is time. Every executive
I spoke to, when asked about how it all fits together, cites this desire to get
you whatever you want in the shortest window possible. Stephenie Landry, the
Amazon vice president who launched Prime Now in 2014 and has overseen its
expansion into 49 cities in seven countries, explains that her business merely
has to answer two questions: "Do you have what I want, and can you get it
to me when I need it?" The rest of the customer experience is built around
answering both questions in the affirmative.
The more products and services Amazon is able to cram into Prime,
the more likely users are to renew their membership and buy more stuff, which
gives Amazon more data about their tastes and what they are likely to buy next.
That information is used to spin out new products and services, such as the
Dash button, which replenishes popular items with a tap, and Alexa, which is
built, in part, for shopping. "You can just say, ‘Alexa, reorder
toothpaste,’ " says Bezos.
"And it knows which kind of toothpaste." That’s why he has repeatedly
called Prime the company’s "flywheel": a device used in engines that
provides constant energy. It is both an accelerant to Amazon’s forward
motion and a beneficiary.
Bezos says that people have been asking him for 20 years whether
he would ever open physical stores. The answer, consistently, has been no.
"I’ve answered pretty much the same way the whole time, which is that we
will if we have a differentiated idea," Bezos tells me. Yet today,
suddenly, Amazon has four concepts in the works.
Why the shift? In part it links back to Prime; retail stores offer
a tangible lure for the uninitiated. But, as Bezos explains, Amazon’s
technological sophistication also now makes it possible for in-store shoppers
to interact with its digital platforms in all-new manners. Monitoring the
interplay is a classic Amazon way to spot new opportunities.
The first wave of Amazon stores is
somewhat traditional: More than 30 pop-up shops showcasing Amazon’s electronic
gadgets—Kindle, Echo, Fire TV, Fire tablets, and Dash buttons—dotted the
country by late last year. The next phase: expanding the highly curated Amazon
Books stores—which showcase titles with a higher-than-four-stars customer
rating alongside excerpts of reviews from the website—from three locations to
eight. But it is the third leg of the company’s retail experiment that begins
to rattle expectations. Amazon Go is a convenience-store concept the company
announced in December (it will launch publicly in Seattle in early 2017). After
a shopper swipes a code on her mobile phone at the entryway turnstile, she can
grab whatever items she likes; they are magically added to her digital cart and
automatically paid for when she leaves, through her existing account. This ability
to skip both the line and any cash register on the way out is made possible by
Amazon’s cloud computing, machine learning, voice control, and logistics
know-how. It’s also another example of Amazon creating a technology platform
that could be sold to other businesses.
Finally, and more quietly, another grocery-store concept is also
being prepped. Although no one inside Amazon is willing to talk about it,
documents filed with local buildings departments in Seattle and the San
Francisco suburbs of Sunnyvale and San Carlos show that the company is erecting
stores in all three locales. (Construction at the Seattle location—where a
Chinese restaurant once stood, on a busy commercial thoroughfare in the
fast-growing Ballard neighborhood—appears to be nearly complete.) The documents
describe a system that would seem to extend the AmazonFresh grocery service:
Customers load their digital carts remotely and pay online, then schedule a
physical pickup within a two-hour window. "When picking up purchased items,
customers either can drive into a designated parking area with eight parking
stalls where the purchased items will be delivered to their cars, or they can
walk into the retail area to pick up their items," the filings say.
These stores are not likely to change the way most Americans get
their cornflakes overnight. Still, Amazon has always been good at being
patient—and incrementally improving its offerings. Since AmazonFresh launched
in 2007, the service has slowly expanded to dozens of cities. The Amazon neighborhood
continues to change.
Planted on the edge of a military base, Amazon’s recently opened
fulfillment center, in DuPont, Washington, looks from the outside like a
generic warehouse, with a line of idling trucks snaking around the building
waiting to load and unload product. But what’s inside represents a huge advance
in the way Amazon sorts, packs, and ships orders.
It starts with a "vision tunnel," a conveyor belt tented
by a dome full of cameras and scanners. As each box comes off the truck, it is
photographed and scanned on all sides. Image-recognition algorithms then sort
each parcel based on variables such as the type of product or size and weight.
What takes humans with bar-code scanners an hour to accomplish at older
fulfillment centers can now be done in half that time.
Boxes are towed from the docks into
the million-square-foot warehouse, sometimes by driverless vehicles. This
facility handles the largest items that Amazon ships, which is why there’s also
a huge, 6-ton yellow robot on the main floor. It has a
six-axis arm that could pick up a car with ease, but today it’s mostly lifting
pallets loaded 4 feet high with diapers and Keurig cups to the second floor of
the warehouse where they will await shipping. The arm performs a constant,
mostly silent waltz with an ensemble of rolling Amazon robots, which represent
the next-generation offspring of the company’s $775 million acquisition of Kiva
Systems in 2012, and were only fully integrated into the fulfillment center
workflow last year.
Once a package leaves the
warehouse, it may end up on a Boeing 767 with the Prime Air logo emblazoned
on its side. Bezos rolled out the first in a fleet of 40 wide-bodies last
summer, which will be operated in partnership with two aircraft-leasing
companies. In January, Amazon announced that the fleet would be supported by a
new air hub in Kentucky that will employ 2,000 workers—a $1.49 billion
investment, according to a spokeswoman with the Cincinnati/Northern Kentucky
International Airport. The planes, like the thousands of cargo trailers that
already sport the Prime logo, make Amazon less dependent on its partnerships
with FedEx, DHL, and the United States Postal Service. And, pending FAA approval,
those fully operational Amazon delivery drones might one day cut delivery
time down to 30 minutes or less.
Amazon stresses that its new automated fulfillment centers
actually require more human workers than the old ones did, because the
warehouse can store a significantly larger number of products—which all still
need people for boxing and general oversight (plus, someone’s got to service
those robots when they need repairs). The plant in DuPont, active almost 24/7,
employs more than a thousand people full time. At stow station 1405, for
instance, I watch a young guy with tattoos, a man bun, and large-gauge
flesh-tunnel earrings grab item after item from orange robots, scan each one,
and, after the computer gives the green light, send it to be boxed. Over the
holiday season, Amazon hired an extra 120,000 workers at centers nationwide to
help meet demand. This is what the future of American factory work might look
like.
Amazon’s business is not without
its challenges. The company’s imperative to deliver more stuff faster has
racheted up its annual shipping costs north of $11 billion, reinforcing the
pressure to wring efficiencies out of the company’s processes and its people.
In the run-up to last year’s holiday shopping season, pilots who work for
Amazon’s Prime Air shipping contractors went on strike, demanding hiring increases to reduce their workload.
It’s no wonder that the blistering 2015 New
York Times article about bruising work environments at Amazon remains in the
popular consciousness.
Amazon is working to counteract this legacy. The company pledged
in January to create more than 100,000 full-time positions over the next 18
months, and it’s building a new headquarters complex in the heart of downtown
Seattle. Five buildings and a 2,000-seat auditorium will surround a trio of
glass-enclosed spheres that, when completed in 2018, will contain more than
3,000 species of plants and trees from around the world. There will be
flexible, couch-filled work spaces and an "Expressions Lab," where
employees can learn to knit or attend a "Bob Ross Paint Night." One
floor will include a small outdoor dog park, and there will be several markets
and cafeterias. Amazon is also funding an additional streetcar for the city, as
well as bicycle paths leading to the three-block complex, which includes 1.7
acres of public space. "The biggest thing is probably just that we’re not
in a suburban campus," says Bezos, "which I think would change the
vibrancy and energy of Amazon."
In November, Amazon released a
video ad portraying a pair of aging friends—a priest and an imam—laughing,
hugging, and then ordering the same knee braces for each other. It is a
sensitive and moving vignette, portraying Amazon as a connector of cultures,
the kind of compassionate business it has not always been given credit for
being. The ad arrived just two weeks after Donald Trump was elected president,
so I ask Bezos what the company’s role might be in bridging the divides that
exist in the U.S. After all, he bankrolls the Washington Post,
which went after Trump aggressively during the presidential campaign (and was
an early and influential opponent of Trump's immigration ban). His answer is
almost laughably narrow. "Well, I’ll tell you one way that I don’t think
anybody is divided," Bezos replies. "Everybody wants fast delivery.
Low prices. I’m serious about this. Our job is to provide a great customer
experience, and that is something that is universally desired all over the
world."
It’s tough to argue with his words. And yet this Bezosian
boilerplate is certainly less than the full story. Because Amazon is doing more
than delivering our next tube of toothpaste. By using the "divine
discontent of the customer as a North Star," as Bezos puts it, the company
is energizing a culture of relentless progress. The neighborhood may be
changing, but maybe that’s good. Maybe that’s what business in the modern era
is all about.
NOAH ROBISCHON
https://www.fastcompany.com/3067455/most-innovative-companies/why-amazon-is-the-worlds-most-innovative-company-of-2017?utm_source=mailchimp&utm_medium=email&utm_campaign=fast-company-daily-newsletter&position=1&partner=newsletter&campaign_date=02132017
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