Sunday, 4 March 2012

Taking the long view

Jeff Bezos, the founder and chief executive of Amazon, owes much of his success to his ability to look beyond the short-term view of things

Mar 3rd 2012
from the print edition  The Economist

INSIDE a remote mountain in Texas, a clock is being pieced together, capable of telling the time for the next 10,000 years. On a website set up to track the progress of this “10,000-year clock”, Jeff Bezos, who has invested $42m of his own money in the project, describes this impressive feat of engineering as “an icon for long-term thinking”.

That description applies just as much to Mr Bezos himself. The founder and chief executive of Amazon has often sacrificed short-term profits to make big bets on new technologies that, he insists, will produce richer returns for the company’s shareholders in future.

Some of these gambles have paid off handsomely, transforming Amazon from an online retailer of books and other physical products into a technology power with $48 billion of revenues in 2011 and strong positions in fields from cloud computing to tablet devices. They have also enhanced Mr Bezos’s reputation as a technological seer. “In the last few years there has been a re-acceleration of the rate of change in technology,” he says. His impressive ability to identify and profit from the resulting disruptions means he is widely seen as the person best placed to fill the shoes of the late Steve Jobs as the industry’s leading visionary.

Mr Bezos’s willingness to take a long-term view also explains his fascination with space travel, and his decision to found a secretive company called Blue Origin, one of several start-ups now building spacecraft with private funding. It might seem like a risky bet, but the same was said of many of Amazon’s unusual moves in the past. Successful firms, he says, tend to be the ones that are willing to explore uncharted territories.

Eyebrows were raised, for example, when Amazon moved into the business of providing cloud-computing services to technology firms—which seemed an odd choice for an online retailer. But the company has since established itself as a leader in the field.

Amazon’s move into hardware with the original Kindle, launched in 2007, was another unexpected move. The devices have proved wildly popular, but Mr Bezos has kept details of sales figures and profitability secret. The assumption is that Amazon is trading short-term profits in order to establish its dominance in the booming e-book market. But nobody really knows.

“There is room for many winners here,” he says. But he believes Amazon can be one of the biggest thanks to its unique culture and capacity for reinventing itself. Even in its original incarnation as an internet retailer, it pioneered features that have since become commonplace, such as allowing customers to leave reviews of books and other products, or using a customer’s past purchasing history to recommend other products.

Amazon’s culture has been deeply influenced by Mr Bezos’s own experiences. A computer-science graduate from Princeton, he returned to his alma mater last year to give a speech to students that provided some fascinating insights into his psychology as an entrepreneur. He explained that he had been a “garage inventor” from a young age. That passion for invention has not deserted Mr Bezos, who last year filed a patent for a system of tiny airbags that can be incorporated into smartphones, to prevent them from being damaged if dropped. Even so, in the 1990s he hesitated to leave a good job in the world of finance to set up Amazon after a colleague he respected advised him against it. He moved from New York to Seattle and he founded the company, in his garage.

Mr Bezos is secretive about where he might place more big bets in future, but there have been persistent rumours that Amazon might launch a smartphone, possibly as soon as this year. With Amazon’s video-streaming and music services, Mr Bezos clearly has Netflix and Apple in his sights. And in recent weeks there has been speculation that Amazon is toying with the idea of opening a bricks-and-mortar shop to promote sales of the Kindle, by letting customers try it in person. The success of Apple’s hugely profitable chain of retail stores shows that even in the era of e-commerce, there are some things people prefer to buy the old-fashioned way.

If Amazon does one day move into bricks-and-mortar retail, it would not be the first time that Mr Bezos had taken a leaf from the book of Jobs. Like Apple’s visionary leader, he has a strong sense of showmanship, which was on display at the carefully choreographed launch of the Kindle Fire last year. Mr Bezos can also be an intense and demanding manager. But most importantly, he shares with Mr Jobs an innate understanding of the importance of thinking about high-tech products from the customer’s point of view.

During the design of the original Kindle, for example, Mr Bezos insisted that the e-reader had to work without needing to be plugged into a PC. That meant giving it wireless connectivity. But he also wanted it to work everywhere, not just in Wi-Fi hotspots, and without the need for a monthly contract. This prompted the Kindle team to devise a new business model, striking deals with mobile-phone operators to allow Kindle users to download e-books without having to pay network fees. The ability to download books anywhere does not simply make life easier for users; it also encourages them to buy more books. The Kindle is an e-reader, but it is also a portable bookshop. Mr Bezos is playing a long-term game in the hope of establishing the Fire as the main rival to the iPad.

Not all of his bets succeed. Who remembers Amazon Auctions, for example, or Amapedia, Amazon’s attempt to build a Wikipedia-like user-generated product directory?

Staying on top in the fast-changing world of technology is hard, too. His next move could be into smartphones or a video-streaming service that competes with Netflix, but it is just as likely to be something entirely unexpected. By being unusually patient, he hopes to create businesses that rivals will find harder to compete with. As the investments in both Blue Origin and the 10,000-year clock show, it is the challenge of reaching for distant horizons that really makes Amazon’s boss excited.

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