Amazon is generally regarded as one of the most innovative companies in the world (Reed, 2017). In considering how Amazon approaches innovation within the knowledge economy we’ll frame the analysis of new technologies by looking at McKinsey’s research on disruptive technologies that have potential for economic impact, how Amazon has approached innovation in each of these new technologies, and consider how innovation has impacted Amazon’s revenue growth.
Since beginning in 1995 as an online bookstore Amazon has expanded into ecommerce marketplace, digital advertising, cloud computing, groceries and apparel, and artificial intelligence industries. Amazon’s investment strategy for innovation is to act like a growth investor, spreading it’s investments across a diverse range of sectors and industries. This is a markedly different strategy to other tech giants who choose to focus the majority of their innovation efforts within their core competencies e.g. Facebook with social networks and Apple with consumer electronic devices (Bowman, 2017).
Jeff Bezo, CEO of Amazon, explains, "Because of our emphasis on the long-term, we may make decisions and weigh tradeoffs differently than some companies... We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations” (Bezos, 1997). It is through this approach to innovation that Amazon seeks to develop monopolies in all of the sectors that it enters.
McKinsey Global Institute’s report (Fig. 1) on disruptive technologies identifies “12 technologies that could drive truly massive economic transformations and disruptions in the coming years” (Manyika et al, 2013). Amazon is publicly investing in at least eight of the twelve technologies, through investing in companies that are working on new technologies, utilising the new technology to build organisational capacity and improve productivity, and through commercialising the new technologies in ways that enable Amazon’s business customers to implement within their companies.
Figure 1. Source: McKinsey Global Institute
Amazon is known for its secrecy around innovation, necessarily so in order to protect its trade secrets, but by looking at how Amazon approaches the six most impactful disruptive technologies we can gain an understanding of how Amazon approaches innovation.
“Increasingly inexpensive and capable mobile computing devices and Internet connectivity”
Amazon's Kindle eReader, which launched in 2007, wasn’t the first eReader on the market but with it’s innovative WiFi hardware and Kindle Direct Publishing, the self-publishing platform, it enabled customers to have thousands of books available within seconds and authors to publish their writing without relying on the publishing industry (Fox Rubin, 2017). Whilst the design of the device was very similar to other eReaders, it was Amazon’s move to create its own ebook format and the Kindle Direct Publishing Network to allow ebooks to be published in its own format that fits with Amazon’s approach to innovation.
Whilst the majority of manufacturers were focused on developing eReader devices that could support .epub as the main format for ebooks, Amazon was instead establishing a core competency around its own format and publishing network. Developing the device was a complementary competency for Amazon, although one important enough for Amazon to ensure it controlled the device as part of the value chain for ebooks.
The digitization of books was a technological breakthrough which following Anderson and Tuishman’s evolutionary model of technological change, resulted in lots of technical variation in the formats available. Over the first decade the variations in formats reduced until the current situation of having two formats, epub and Amazon KIndle format, available. The ebook market hasn’t yet arrived at a single dominant design (Anderson & Tushman, 1990. Suárez & Utterback, 1995) however as Amazon currently dominates the eReader market with 60% of worldwide device sales in 2017 (Fox Rubin, 2017), only time will tell if the Amazon format for ebooks becomes the dominant design.
“Intelligent software systems that can perform knowledge-work tasks”
In 2018 Amazon “reorganised around Artificial Intelligence” (Morgan, 2018). This reorganisation focused other teams and departments at Amazon to utilise AI in their products and services, including warehouse management, recommendations on Amazon Music, Prime Video and on the ecommerce marketplace, Alexa and the Amazon Go store (Levy, 2018). This demonstrates Amazon’s approach to automating knowledge work. AI isn’t considered a single product that remains within a single team, it is a technology and capability that Amazon clearly regards as a core competency that should be utilised in as many ways as possible in order to give Amazon a competitive advantage in all of the sectors it operates in.
This is an example of what Tushman and Anderson explain when they say, "Technological innovation affects not only a given population, but also those populations within technologically interdependent communities" (Tushman & Anderson, 1986). Amazon leveraged the technological innovation of AI to gain benefits across all areas of its business, however it remains unclear whether this new technology was a competence-destroying because it required completely different skills and knowledge to operate or competence-enhancing because it built “on existing know how yet did not render skills obsolete” (Tushman and Anderson 1986).
Having realised the benefits Amazon went on to commercialise it’s AI by creating AutoGluon, a service that enables developers to build applications involving machine learning on top of AWS (Hepburn, 2020). “Commercial AI has enjoyed what we at Amazon call the flywheel effect: customer interactions with AI systems generate data; with more data, machine learning algorithms perform better, which leads to better customer experiences; better customer experiences drive more usage and engagement, which in turn generate more data.” (Sarikaya, 2019).