capitalism, amusingly described by Matthew Yglesias in Slate.com as “a charitable organization being run by elements of the investment community for the benefit of consumers.”8 In 2013, Amazon’s net income was a paltry $274 million on sales of $74.5 billion, or less than half of 1 percent. It’s hard to imagine investors of any traditional company tolerating such razor-thin margins. Where are the corners that can be cut, the fat that can trimmed, the unrealistic schemes that can be put off to make Amazon more profitable in the short term? Bezos will have none of it and insists that Amazon’s reinvestment in products and services that delight customers is the best way to go.
As Bezos put it in a letter to shareholders, “Our heavy investments in Prime, AWS, Kindle, digital media, and customer experience in general strike some as too generous, shareholder indifferent, or even at odds with being a for-profit company . . . To me, trying to dole out improvements in a just-in-time fashion would be too clever by half. It would be risky in a world as fast moving as the one we all live in. More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.”9
This mindset leads to a strategy that Yglesias sees as truly formidable. “Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don’t even buy anything from Amazon . . . if you own a competing firm, you should be terrified. Competition is always scary, but competition against a juggernaut that seems to have permission from its shareholders to not turn any profits is really frightening.”10
For companies like Amazon, customers are always top of mind. Products and services are created with a laser-like focus on customers’ needs and what they value. Such companies not only try to keep lock-step with their customers as needs evolve, but actually try to stay a step ahead. They’re continually solving for customer problems and opportunities rather than starting with the question of how they might open a new revenue stream. They’re infinitely curious about the consumer and what makes her tick. Their decisions never veer far from those desires or potential desires. They know that they need to move quickly to fulfill those needs because the customer can easily find a better solution or a better supplier if the business can’t deliver.
From a long-term growth perspective, Wall Street ought to be very interested in such a mindset and the strategies that result. Companies like Facebook, Amazon, and especially Google are actively transforming the economy. They’re organized embodiments of creative destruction. They’re category killers and category makers. They destroy products, services, and whole sectors that do not effectively identify and deliver value to consumers, and they reshape or invent sectors that do. Of course, they want to make money from their innovations and performance excellence, but they believe that making money and generating shareholder returns is the cart that follows the horse, not the other way around as traditional companies believe. The horse is the innovation and value. The money is in the cart. And the cart is very, very big.
Google has integrated this mindset into its purpose, operations, strategy, and workflow. According to Schmidt and Rosenberg, Brin and Page began Google with a few simple principles, “first and foremost of which was to focus on the user. They believed that if they created great services, they could figure out the money stuff later.”11 Or as Brin and Page put it themselves in their founders’ letter, “Serving our end users is at the heart of what we do and remains our number one priority.” But as Schmidt and Rosenberg add, this is because they believe that if they focus on the user, “all else will follow.”12
Google makes a great distinction between the user and the customer that’s worth noting. The customer—the entity that gives Google money—is predominantly advertisers, at least in the case of their search-engine services. The user is us—or everyone who uses those services. Google doesn’t believe in pandering to the customer, because it thinks this will deflect from the primacy of the user. The user is the target for value that makes the user Google’s true customer. What will the user want? What will the user value? What will the user be blown away by?
If Google focused only on what its advertising customers wanted, those answers would likely be very prosaic and small. Advertising customers want results in the short term and don’t really care about long-term implications. User customers, however, have a different kind of investment in Google innovation. They want constant improvement and big leaps. They want to do the stuff they do now even better and be delighted by what’s next.
That’s why Google very deliberately divides its innovation efforts along a scale that runs from incremental to big bets. Google openly focuses 70 percent of its work, attention, and resources on continuous improvement of products and services in existence. It knows that it must continue to meet and exceed expectations to fulfill the trust that customers and users have in Google, and satisfy their needs. Then, it devotes 20 percent of its work, attention, and resources to emerging products that are showing some signs of becoming successful offerings. This keeps innovations flowing in the pipeline and getting closer to release. And it devotes the remaining 10 percent of the resources, brainpower, and creativity of Google to long shots, or what Google calls “moon shots”—stuff that’s completely new, very risky, and highly likely to fail.13
How many companies ever do that? Today, innovation is a buzzword and many organizations have enlisted innovation-expert leaders to “drive innovation in the organization” or developed venture-capital wings to seed innovative startups that might strike it rich someday. But that kind of innovation, while welcome, seems divorced or separate from the inherent operations of the company. It may be the worst form of window dressing—the high-tech equivalent of diversity initiatives that don’t truly address diversity needs.
Is 10 percent really enough if Google truly believes in the possibility that moon-shot innovations could change its business and transform markets? Well, Google, as I’ve said, is not averse to using money smartly. It has no desire to throw money wastefully against the wall like a handful of wet spaghetti to see what sticks. It believes that the “cost of experimentation and failure has dropped significantly”14 but also that smaller bets combined with deliberately limited resources forces ingenuity because “creativity loves constraints.”15
At the same time, however, the Google mindset, strongly reinforced by Page and Brin at every opportunity, is always to think big. And not just big, but BIG. Google people talk routinely about “10Xing” their jobs and projects—considering how the project, idea, or launch can produce not just incremental results but results that are ten times what is currently happening. Possibility first. Profitability follows. And in a way, this mindset inures Google to the risk of failure. Because the moon shots are not enormous bets, and because they are aligned with thinking big, there is always limited harm and some good to come out of them. As Page puts it, “If you are thinking big enough, it is very hard to fail completely. There is usually something very valuable left over.” And Google makes sure that everyone knows failure is not an executable offense; failure is to be rewarded and reinforced because it is the only way that gold can be discovered.
This way of thinking is drastically different from the way organizations have traditionally operated. For decades, big companies have had a sharp focus on the bottom line. They strive to maximize quarterly profits, bump up shareholder value, exploit earnings potential, and hit targets and bonuses. Profit maximization has become so entrenched in our way of thinking that we rarely question it, let alone strive to change it. This approach sets up a debilitating construct that can cripple a culture. After all, companies reward and promote those who deliver the best results—executors who can maximize earnings and cut costs—leading to a senior team with a financial-first focus.
In contrast, an orientation
