Monday, April 23, 2012

Know Your Strengths

Last week, I attended the Amazon Web Summit in New York City.  My conclusion: Amazon is taking over the world.

OK, yes, I get that this was an elaborate sales presentation, not a technical conference.  While I was being wowed by their talks, I was cognizant that I had entered Amazon's reality distortion field, and that not everything was to be taken at face value.  But even taking these factors into account, what Amazon is working on is impressive.

In case you don't follow these things, Amazon is one of the biggest players in Cloud Computing.  Suppose you need to run a large, complicated computing problem, such as a one-time conversion of a large number of video files.  It's computation intensive, so running it on your company's computers might take weeks or months.  You could bite the bullet and wait weeks or months.  You could purchase additional servers.  This would be an expensive option, to say nothing of the logistics of ordering and installing them, plus the question of what you do with these servers once the task is done.  Alternately, you could lease some online servers from Amazon.  Use as many as you like.  Pay by the hour.  Once you're done, take back your processed files and shut down your account.  All done, no mess, no hassle.

Sounds like an interesting niche business.  But it's not a niche business, not anymore.  It's huge.  Netflix relies on Amazon Web Servers to stream movies.  Instagram relies on Amazon to host it's infrastructure, which may help explain how a billion dollar company was able to get by with only twelve employees.  Schrodinger recently worked with Cycle Computing to build an Amazon Cloud supercomputer, leveraging 50,000 cores to do an exhaustive analysis of 21 million compounds to discover good drug candidates.  This virtual supercomputer was estimated to be among the top 50 supercomputers in the world, and cost just under $5000 an hour, with no setup or capital costs.  One recent analysis of web traffic estimated that 1% of all web traffic goes to a web server hosted by an Amazon cloud computer.  This business is massive.

How did Amazon get here?  To hear Amazon tell it, they're not a retail company.  They're a technology company that happens to do retail, among other things.  And they've certainly paid their dues in the process.  If you followed the tech industry back in the late nineties, then you probably remember the anecdotes that surfaced at the end of the every year like clockwork, as Amazon's systems were overloaded by a Christmas rush bigger than anything they'd ever experienced before - again.  Everybody, including the CEO, pitched in to help get packages out of the warehouses on time.  Computer systems were overloaded.  Inevitably, many packages only shipped weeks after Christmas had come and gone.  I'm sure it was a painful process to go through.

But having gone through their trial by fire, Amazon seems to have learned their lessons well.  They've developed one of the top logistical systems in the world, and more importantly, they've mastered the art of running the tens or hundreds of thousands of servers required to keep it all running.  You can't manage that type of complexity one server at a time.  You need to organize it, glue it together with seamless software that allows you to transparently shift processing activities from one part of the world to another to deal with the inevitable breakdowns and snafus.  And once you've built this impressive infrastructure, it's a very small step to sell some of this processing power to the outside world.

In short, Amazon has done exactly what business gurus like Tom Peters and Peter Drucker have been talking about for decades - building on its strengths as much as possible.  A superficial analysis of Amazon would have said that they were retail wizards, and should stick to that world.  If they want to expand, maybe they should try opening a line of physical stores.  That misses their real strength, which is managing the complexity behind their operation.  Thus they've found a huge opportunity in a business that seems highly unrelated to their origins as an online bookstore.

Here's the real question: why aren't more businesses doing this?

The answer is, they try.  For example, in 1994, Quaker Oats acquired Snapple, thinking that their experience running Gatorade would make this an easy win.  They discovered, to their great dismay, that the logistical and marketing issues made the skills needed to manage these different brands very different from each other.  Quaker finally sold the business in 1997, having lost a billion or more learning this lesson.

Quaker made a common mistake.  They assumed that two processes that produce similar products or outcomes must be similar.  What they needed to do instead was to ask what their real core competency was, and figure out how they could leverage it, even if it turned out to be in a radically different business.

Heres a thought.  Walmart is one of the best companies in the world at getting their products where they need to be.  Stories abound of how they can shift inventories from one region of the country to another in a blink of the eye, whether its old video games being purchased in Florida by grandparents for their visiting grandkids, or emergency supplies in New Orleans in the wake of Hurricane Katrina.

So why hasnt Walmart started a shipping business?  You could simply drop off your package in your local Walmart store, and the recipient could pick it up in another Walmart store anywhere in the country the next day.  Because Walmart is one of the pioneers in the use of RFIDs, there would be excellent package tracking through the entire process.  And because they already have all the fleets and computer systems developed, deployed and scaled to massive volumes, they could ship packages for a fraction of what it costs Fed Ex to or UPS to bring it to your door.  It wouldnt replace traditional shipping companies, but there would probably be significant interest, for almost no risk or additional cost.

What applies to a business applies to a person.  Whats your unique strength?  Dont assume it has to be something related to your current line of work.  An administrative assistant with a relentless eye to detail might make a great event planner, or accountant.  An interior decorator with exquisite taste and an eye for color might do well consulting on movie design, or taking photographs.

The deeper your understanding of your unique strengths, the more prosperous youll be in any type of economy.

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