Working Backwards: Insights, Stories, and Secrets from Inside Amazon

by Colin Bryar

With a sizable existing business, if you only pay attention to the output metric “revenue,” you typically won’t see the effects of new customer deceleration for quite some time. However, if you look at input metrics instead—things like “new customers,” “new customer revenue,” and “existing customer revenue”—you will detect the signal much earlier, and with a much clearer call to action.

Amazon employs many techniques to ensure that anecdotes reach the teams that own and operate a service. One example is a program called the Voice of the Customer. The customer service department routinely collects and summarizes customer feedback and presents it during the WBR, though not necessarily every week. The chosen feedback does not always reflect the most commonly received complaint, and the CS department has wide latitude on what to present. When the stories are read at the WBR, they are often painful to hear because they highlight just how much we let customers down. But they always provide a learning experience and an opportunity for us to improve.

Contradictory as this may sound, variation in data is normal. And unavoidable. It’s therefore critical to differentiate normal variation (noise) from some fundamental change or defect in a process (signal).

The reason: invention works well where differentiation matters. In the company’s early days, the hardware that powered Amazon’s data centers was not the point of differentiation with the customer—creating a compelling book-buying online experience was. Whereas with Kindle, as we will describe in chapter seven, others were selling e-books, so there was real value in owning and controlling the creation of an outstanding device for our customers to read them on. Differentiation with customers is often one of the key reasons to invent.

Amazon’s Working Backwards process—starting with customer needs, not corporate needs or competencies—often demands that, in Jeff’s words, we “exercise new muscles, never mind how uncomfortable and awkward-feeling those first steps might be.”

Over our long march to building Amazon’s digital business, we proved a powerful lesson: it takes exceptionally patient and unwavering leadership to persevere through the prolonged process of building a new business and navigating through transformative times in an established industry with entrenched interests.

At some point in the debate, someone asked Jeff point blank: “How much more money are you willing to invest in Kindle?” Jeff calmly turned to our CFO, Tom Szkutak, smiled, shrugged his shoulders, and asked the rhetorical question, “How much money do we have?” That was his way of signaling the strategic importance of Kindle and assuring the team that he was not putting the company at risk with the size of the investment. In Jeff’s view, it was way too early to give up on the project.

This process was known as “sideloading.” While it was convenient to be able to take your music with you on your portable device, the sideloading process was a pain for consumers, and we learned from studies that the average consumer would only bother to connect their iPod to their PC once a year. That meant most people walked around without the latest music on their devices. It was known as the “stale iPod” syndrome.

These two features—wireless delivery and the E Ink screen—proved to be two of the keys to making the Kindle great. Wireless delivery meant that customers could search, browse, buy, download, and start reading a new book in under 60 seconds. The E Ink screen’s paper-like display meant that, unlike with an iPad, you could read by the pool, and its low power consumption meant you could read throughout a 12-hour plane flight without worrying about the device dying on you. We take these features for granted today, but in those days they were unheard of.

Option one would be the skills-forward path—that is, using the existing skills and assets of the company to drive business opportunities. Leaders at most companies would likely be praised for choosing this path. The danger is that while they stand atop this local optimum, someone else will figure out how to scale a higher peak they couldn’t see at the time due to risk aversion.

The institutional no refers to the tendency for well-meaning people within large organizations to say no to new ideas. The errors caused by the institutional no are typically errors of omission, that is, something a company doesn’t do versus something it does. Staying the current course offers managers comfort and certainty—even if the price of that short-term certainty is instability and value destruction later on.

I think at some point he had decided that it wasn’t the idea that was flawed, but the decision-making process, a process encumbered by institutional risk-aversion. The “October surprise” email arose out of his realization that you simply could not prove a priori that free shipping would work. You just had to try it.

“Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.”

In retrospect, it is easy to see the mistakes. We had rushed Unbox out the door before it was ready. In the weeks leading up to launch, rumors had been swirling around Hollywood and in the press that Apple was close to launching a digital video service. We didn’t want to come in second to Apple so we were in a frenzy to ship Unbox and ship it fast. This was directly antithetical to the notion of focusing on the customer, not the competitor. We had conducted an internal employee-only beta test, but we failed to use the results as an opportunity to slow down, carefully review the customer feedback, and take the time needed to make real changes to improve the quality of the customer experience. We were just focused on shipping. We had prioritized speed, press coverage, and competitor obsession over the customer experience. We had been decidedly un-Amazonian.

The two big, revolutionary breakthrough features of the Netflix service were subscription and streaming. Amazon and Apple were the leaders in premium movie and TV distribution, but we offered downloads only (and you had to purchase or rent each movie or show). We thought of streaming as a low-quality phenomenon—the domain of YouTube, with its videos of dancing cats that you watched on your PC for a couple of minutes between meetings. So when Netflix launched Watch Now, we took note and discussed the service in detail, but the prevailing wisdom inside our team and among others in the industry was that it was a half-baked test, not a serious offering. The other noteworthy feature of the Netflix streaming service was that it was free. Actually, as my mother used to say when trying to teach me good fiscal sense, “It isn’t free. It’s included.” It came at no extra cost with most of the Netflix DVD rental-by-mail subscription plans. In retrospect, it seems obvious that the Netflix launch was a significant threat, because streaming plus subscription would prove to be the magic combination in the digital video business.

The hair-tearers typically suffered from a phenomenon known as “rebuffering,” which is what happens when the downloading speed lags behind the viewing: the picture freezes, and you get to watch the “spinning wait cursor,” more commonly referred to as the “wheel of death.”

We build automated systems that look for occasions when we’ve provided a customer experience that isn’t up to our standards, and those systems then proactively refund customers. One industry observer recently received an automated email from us that said, “We noticed that you experienced poor video playback while watching the following rental on Amazon Video On Demand: Casablanca. We’re sorry for the inconvenience and have issued you a refund for the following amount: $2.99. We hope to see you again soon.” Surprised by the proactive refund, he ended up writing about the experience: “Amazon ‘noticed that I experienced poor video playback…’ And they decided to give me a refund because of that? Wow … Talk about putting customers first.”

In digital movies and TV, we were still stuck in the aggregation role.

There is a difficult chicken-and-egg problem with a subscription service. You need to have a great offering to attract paying subscribers. To be able to afford a great offering, you need a lot of paying subscribers. It’s a challenging cold-start problem that generally requires a large up-front investment, which you can hopefully pay back with subscriber growth in future years. Jeff argued that even if we offered streaming videos to Prime members at no additional cost, the business could still be profitable in the long run.

The “oh-by-the-way” addition would become a “gotta-have” benefit.

This experience crystallized our thinking about the value chain.

customers are divinely discontented, and “yesterday’s ‘wow’ quickly becomes today’s ‘ordinary.’”

For instance, if you want to use Amazon’s S3 storage service, all you need to do is sign up for a free account and provide a credit card. After a few lines of code to set up your own storage area (called provisioning), you can start storing and retrieving data. You then pay only for what you use, which means there is no time-consuming vendor-selection process and no cost negotiation (the list prices of many corporate software licenses were just the starting point in a negotiation). And you don’t have to secure computers and a data center to run your new database. The cloud provider, in this case Amazon, handles all that.

we went to a panel featuring Stewart Butterfield, who co-founded Flickr, the popular photo-sharing site, and later Slack. Someone asked Stewart to describe a typical day at Flickr. His answer was surprising. He said that about half the day was probably the same as it was for many of the people in the audience—scrambling to keep their technology platform one step ahead of the rapid growth of their business. They worked on scaling their databases, web servers, software, and hardware. Stewart said they did not spend as much time as he would like on innovating things that were unique to Flickr. After the meeting, Jeff and I had a brief chat about Stewart’s comments. We’d both noticed the same thing—a phenomenon that Amazon would later refer to as “undifferentiated heavy lifting,” that is, the tasks that we could do for companies that would enable them to focus on what made them unique. This was an opportunity. Server-Side Was Easy for Us and Hard for Most Everyone Else

In the 2015 shareholder letter, Jeff states, “Luck plays an outsized role in every endeavor, and I can assure you we’ve had a bountiful supply.”7 We were lucky that it took much longer than we expected for the pre-cloud incumbents or web tech companies to mobilize and start offering their own set of cloud services. By the time they realized the potential of cloud computing, Amazon had a several-year head start.

“Cost following” means that your pricing model is driven primarily by your costs, which are then passed on to your customer. This is what construction companies use, because building your customer’s gazebo out of redwood will cost you a lot more than building it out of pine. If we were to use a cost-following strategy, we’d be sacrificing the simplicity of subscription pricing, but both our customers and Amazon would benefit.

Jeff was insistent that we follow the process until we uncovered the truth and were crystal clear on what we were trying to build.

To put it another way, Working Backwards was the process that enabled us to put into action the principle of Customer Obsession.