Sunday, May 10, 2009

Designing away waste


Looks like incremental innovation ("continuous improvement") is back in style. The recession has hit R&D budgets and corporations are looking to scale back costs rather than introduce entirely new products, services or concepts.

While many tech companies are focused on new products, services and business models, Amazon is focused more on new ways of wringing efficiency from its operations. And in a year when consumer and business spending is slowing, focusing on new ways of improving how you do things may yield more returns than coming up with new things to sell.

Kevin Kelleher of GigaOm writes that Amazon is not only focusing on increasing internal efficiencies (which they magnify by several orders of magnitude through the large scale of their operations), but more importantly, is selling its efficient operations to others who ride piggyback on Amazon's business.
A lot of investors would prefer to see the benefits of this work boost earnings rather than lower prices. But the low prices are helping Amazon build market share. Its revenue in the past two quarters has risen 18 percent while overall online sales were flat or down. And Amazon’s obsession with waste removal has provided new sources of revenue — in essence, selling to other companies the efficiency it has built up for its own operations.
At this point, with Amazon having become the 800-pound gorilla of online b2c commerce, it makes little sense for smaller operators to build their own infrastructure -- Amazon has become the default b2c internet commerce freeway on which others can pay toll and ride. Amazon has created and is continue to evolve an ecosystem for smaller and complementary players to thrive in much the way AT&T, IBM, and Microsoft have done in the past.

There's opportunity there, but also ominous signs.

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