- 04.07.14
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Chat With Austin Carr About His February Feature: The Real Story Behind Jeff Bezos's Fire Phone Debacle And What It Means For Amazon's Future
Join Austin Carr and Noah Robischon as they discuss the real story behind Jeff Bezos's Fire phone debacle--and what it means for Amazon's future. This event will begin at 1 p.m. ET on Tuesday, January 13th, but you can start submitting your questions now!
In June, after roughly four years of development, Amazon CEO Jeff Bezos unveiled the Fire Phone, arguably the most high-profile product launch in his company’s history. Bezos had personally overseen the intense effort, and on stage at an Amazon event, he heralded the device’s industrial design and novel 3-D Dynamic Perspective features.
But despite the hype and anticipation, Amazon’s phone became one of the biggest flops of 2014, after customers and critics widely panned the product. The Fire Phone’s price has since been cut to just 99 cents (with contract), and Amazon has taken a $170 million write-down largely related to unsold inventory.
The blunder shines a light not just on Amazon’s ups and downs in the consumer electronics space, but also on its struggles to unearth its next gusher of revenue as the growth of its retail business finally begins to slow. The secretive R&D group behind the phone, Amazon’s Lab126, has launched a slew of promising products—Fire TV, Echo, Dash—in addition to its popular Kindle line of tablets and e-readers.
Read The Feature Now: "The Real Story Behind Jeff Bezos's Fire Phone Debacle And What It Means For Amazon's Future"
Join Austin Carr and Noah Robischon at 1 p.m. ET today for a discussion on what’s next for Amazon as it drives more and more into competition with Apple and Google. Have any questions or comments? Start submitting them now!
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That is the million-dollar question, and the truth is, I don't have a good answer for you. Often, these businesses mesh well with each other, and many times they end up competing with each other. It might seem like the long-term aim is to get more customers signing up for Prime, but it's a super expensive way of doing it -- to make original content, and phones, and so on. Ben Thompson has an excellent post on these challenges -- he calls this strategy “double bank shot.”
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Here's a great Ben Thompson blog post about it:
stratechery.com -
Amazon has never been profitable, yet investors continued to support Bezos's vision. Why are investors hammering the stock since the #FireFlop?
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At the same time, Bezos is often playing chess when we're all playing checkers. As one source told me, there were meetings where you'd be confused by what the point of these endeavors was, but "in a meeting three years later, you'd go, 'Oh my god! Now I know why he did that!'"
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Amazon investors are hammering the stock mainly because growth of its retail business is slowing, and its other initiatives are not yet paying off (like they're investment in the Fire Phone or in China). This gets to the heart of it: Over the past five years, Amazon’s fourth-quarter growth rate has steadily declined, from 42% in 2009 to 20% in 2013—and the company was projecting between 7% to 18% for 2014. "For years, the story has been that Amazon isn’t profitable because it is growing so fast," wrote hedge-fund manager David Einhorn, in a letter to his Greenlight Capital investors. "Now growth is slowing, but rather than unleashing higher profits, the slower growth is leading to even greater losses. One of the principal bullish assumptions supporting many bubble stocks is, ‘The company is growing too fast to be very profitable.’ We think Amazon is just one of many stocks for which this narrative will ultimately prove false."
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You know what's also interesting to me is that some of Amazon's best features don't necessarily translate abroad. As Amazon analyst Scott Devitt of research firm Stifel Financial pointed out to me, Prime's two-day free shipping is awesome here stateside, but, say, in England, a much smaller country, one- to two-day shipping is simply the norm there, so there isn't much benefit to buying into an annual subscription.
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Which perhaps gives some hint why Amazon is so hell-bent on pursuing things like same-day delivery, in part.
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Investors love a CEO who takes risks, until those risks fail. But over the years it's been Bezos who has the last laugh when it comes to stock price. Here's Bezos Laughing.by Noah Robischon via YouTube 1/13/2015 6:50:12 PM
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What's happening at Lab126 since the release of the Fire phone?
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Oh, man, that laugh! You know, it's impossible to read a magazine profile of Bezos that doesn't mention his laugh...and it's no wonder why: Nearly every source mentioned it to me at one point or the other, unprompted.
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There have been a TON of changes at Lab126 since the Fire Phone flop. First, there's been a LOT of leadership changes, which you can read about here:
Following Fire Phone Flop, Big Changes At Amazon’s Lab126
Fast CompanyWhat recent departures and managerial changes mean for the secretive R&D group behind the company's most high-profile consumer products. -
Included in that re-org is tasking David Foster, who used to head up the Kindle hardware at Lab126, to oversee the company's alphabet projects. From what I've heard, he's since been at work on "three entirely new product categories."
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Meaning, hardware form factors that we haven't seen from Amazon, likely.
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Bezos has told the team there not to feel bad about the Fire Phone flop, and has said they've learned valuable lessons from the launch, which gives some indication that he still has a strong appetite to continue pursuing more wild ideas.
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I'm assuming Bezos is a reader - if so, who does he read and how do his readings influence his thinking/behaving?
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Yes, Bezos is definitely a big reader. Brad Stone’s fascinating book The Everything Store features a great run-down of his favorite books, non-fiction and fiction (we actually share a favorite book: “Remains of the Day” by Kazuo Ishiguro).
But the book that most stands out is The Innovator's Dilemma and The Innovator's Solution. These are books that Bezos lives by, I'm told -- one source called The Innovator's Dilemma "his Bible." -
Interestingly, at one point during the development of the Fire Phone, Bezos spent roughly a month working out of Lab126. During this time, he apparently set up a book club, during which he required -- you guessed it -- employees there to read The Innovator's Dilemma.
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This has long been required reading for Amazon leaders, but I just think it's fascinating he had a reading club during the brief time he had an extended stay at Lab126...I couldn't imagine Bezos as my English teacher!
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Amazon's own leadership principles include "customer obsession" and "Have backbone, disagree and commit." What happens to Amazon company culture moving forward when these principles so obviously weren't followed?
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I'm so glad you brought this up, Alex. This was something that was top of mind for me throughout reporting this story. I mean, so many of Amazon's core principles were essentially ignored during this process: The company wasn't frugal; it didn't focus on the customer; and you're right, employees didn't have enough backbone to pushback.
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With customer obsession, particularly, Amazon has struggled with this. I've been told a common refrain at Bezos's senior leadership (or S-team) meetings is: Jeff won't like this; Jeff will hate this; Jeff will love this; etc. When it really ought to be the "customer" will like/love/hate this, you know?
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Obviously that's just bound to happen at any organization (it certainly happened at Apple under Jobs), but there were clear examples where what Jeff wanted nearly superseded the customer. For example, in the local commerce division, I've been told that Jeff heavily pushed back on ever producing Amazon gift cards. He simply just couldn't understand why customers would ever want to carry around an Amazon gift card (which by now, are incredibly ubiquitous). Employees pushed back, and got him to agree eventually, but perhaps being a billionaire does mean you're slightly disconnected from what average customers want and need.
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In terms of what happens next, I really do hope Amazon gets back to its core principles and reevaluates how they're carried out. One value is being "vocally self critical," so perhaps there are lessons to learn from this Fire Phone flop that the company can internalize.
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How deeply involved in the design process was Bezos? You mentioned he worked out of Lab126 for a month -- pretty unusual.
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It was actually surprising to learn how much Bezos was involved with every detail, on nearly every team. I mean, normally, when you're writing about the company, you hear that so-and-so CEO really loves design! And really cares about product! To be honest, most of the time, this turns out to be bullshit or just good PR.
But with Bezos, it's so very true, to a fault. As we mentioned in our story, a source told me, "I would see [Bezos] brainstorming wild ideas with the industrial design team, or discussing font sizes and interaction flows with the UI team." -
I heard examples like this ENDLESSLY, whether with Dynamic Perspective, or FireFly, or Echo. I mean, even the smallest details: “He would say, ‘I don’t like that orange arrow—I want to see green arrows, and I want them by Monday,'" one source told me.
This, of course, became a problem. “We would do these reviews if something was eventually going to Jeff, and half the conversation was, ‘Hey, what are we actually trying to build?’, and the other half was trying to game the system like, ‘How do we get Jeff to sign off on this?’” a former senior software manager told me. “It was so backward: Jeff-focused, rather than customer-focused. I have no idea if Jeff is even aware of the degree to which this happens.” -
That's all the time we have today. Thanks everyone for joining us, and offering up some excellent questions for Austin.
Be sure to read the story if you haven't already. THE REAL STORY BEHIND JEFF BEZOS'S FIRE PHONE DEBACLE AND WHAT IT MEANS FOR AMAZON'S FUTURE
