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An Underwater Warehouse? Why You Should Take Big Bets

They say Atlantis doesn't exist, but Amazon does. They are expanding their operations underwater

May 15th, 2019

Published in The Amazon Playbook

An Underwater Warehouse?

Amazon has some pretty crazy ideas, including a series of patents for an underwater warehouse.

Yes - an underwater warehouse. If that doesn't sound crazy enough, it gets weirder. They want to use natural bodies of water.

The packages would work like mini submarines, floating and sinking with little balloons.

Packages could get stored at different layers based on how bouyant they are.

And use the natural currents of the water to get the packages to their destination.

This may seem like a big "WTF were they thinking" but it's an important clue into one of Amazon's core business philosophies.

Measuring a Company by the Size of their Failures

As a company grows, it's easier to get more conservative - to stick to the things that got them to that size in the first place. In Amazon's 2018 letter to shareholders, they talk about the importance of taking big risks.

If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale [and we will] occasionally have multibillion-dollar failures. - Amazon's 2018 Shareholder Letter

This may sound like business speak or an attempt to gloss over some of their more famous failures (Fire Phone anyone?), but this is a legitimate business strategy borrowed from Venture Capital culture.

Unicorns and Batting Averages

It's a trueism that most startups will fail, yet venture capital firms keep investing in them. Why? They're looking for the "unicorn" - the company that will become valued at over $1 billion dollars. For them one major success is worth any number of smaller failures.

Angel Investors are early investors in a startup. Since the startup is small, a small investment means a relatively large ownership stake in the company. If the startup fails - it's a small amount of money lost. These investors aren't looking for companies that will become somewhat successful - so called "lifestyle businesses" (a business built around the owner's lifestyle) that will 2x or 3x their investment. They're looking for companies that will win big - a 100x return on investment.

To use a tired baseball metaphor - an angel investor will take a lot of "at bats" looking for the one home run. For them, one home run is worth all the small misses.

Big Business & Big Risks

What Amazon's 2018 shareholder letter said was that as the company grows, they have more resources that they can use to take bigger bets. The downside of a bet failing is small - some wasted resources (time, money), but the people involved in those projects will be smarter for it. Their experience will help their next project avoid the same traps.

The upside, though, is potentially huge. This is why Amazon is interested in taking big bets. It can shake off the failures.

In Amazon's 2014 letter to shareholders Jeff Bezos laid out some of the big bets Amazon took, and the failures it took to get there. Amazon Marketplace, Amazon Prime and Amazon Web Services.

In retrospect, these core aspects of Amazon's business model seem inevitable, but they were far from it. While these business offerings stem from Amazon's fierce drive towards loose coupling, at the time each one was a big bet, that just so happened to win big.

Why Big Businesses Should Take Big Risks

Through the lens of venture capital, it seems obvious. Big businesses should take big bets for one very simple reason. They can afford to fail. Over and over again, until they succeed. Once they do succeed, they can leverage that success to take more bets in more areas.

Big bets don't have to be things that might risk the company (that's possibly too big a bet). But you can take bigger bets than your competitors, and by taking bigger bets, when you do hit that homerun you'll leapfrog them. If they're not taking big bets themselves, the best they can do is copy you, but you'll already be on to the next big bet.

This kind of large-scale risk taking is part of the service we as a large company can provide to our customers and to society. The good news for shareowners is that a single big winning bet can more than cover the cost of many losers. - Amazon's 2018 shareholder letter.

Amazon sees this kind of risk taking as part of their responsibility - to their customers and to their shareholders. It may seem odd that they think that they need to take big bets in order to serve their customers better. It's easier to think that just doing the same thing you've been doing all along is the best way to service your customer, but if you're not out there taking bets, you can be sure someone else is - and they'll be targeting your customers.

One Big Bet on One Day Shipping

In 2014, Amazon patented "anticipatory shipping" - they'd use your browsing behavior to detect when you were getting close to clicking that "checkout" button. This would allow them to start moving the inventory through their vast network of warehouses closer to your location - slowly, inexpensively. Once you click on "checkout" the item is 90% of the way to your door already.

This would allow Amazon to save money on shipping & allow you to get your item faster. Win-win.

In 2019 Amazon announced 1 Day Prime. I hadn't connected the two dots until I mentioned the patent to one of our programmers and he said "Wow - that patent was from 2014 and Amazon now has one day and prime now. That's amazing foresight."

In 2014 anticipatory shipping was a big idea - at the time who knew what it might have turned into. I don't know if this means Amazon will start using underwater warehouses, but if they don't dream big, they'll never achieve big dreams.


From Amazon's 2018 Shareholder letter:

As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures. Of course, we won’t undertake such experiments cavalierly. We will work hard to make them good bets, but not all good bets will ultimately pay out. This kind of large-scale risk taking is part of the service we as a large company can provide to our customers and to society. The good news for shareowners is that a single big winning bet can more than cover the cost of many losers.

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