How Amazon Stays Frugal

Analyzing the top news stories across the web
April 17 2014 7:09 AM

Amazon’s Culture of Frugality

Amazon's Mike Frazzini talks about the Fire TV.
"And the Fire TV is only $99 because I flew economy to get here."

Photo by Andrew Burton/Getty Images

This post originally appeared in Business Insider.

Last month, when three major cloud-computing vendors all cut their prices—Google, Microsoft, and Amazon—the news was great for their customers but hardly news at all. That’s because this was the 42nd time that Amazon has cut prices for its cloud-computing service since 2008

Advertisement

Microsoft has vowed that it would never let Amazon be less expensive and would match every price cut with one of its own. Google, with its own massively huge data centers, is also willing and able to play the price-cutting game.

But no one does price cutting like Amazon. Its ethic of being frugal is literally one of the company’s 14 “Leadership Principles,” which it explains like this:

Frugality: We try not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency, and invention. There are no extra points for headcount, budget size, or fixed expense.

For instance, being frugal means that Amazon will only pay for economy air travel, even for senior execs, Amazon Web Services Senior VP Andy Jassy told CRN Australia. If an employee wants an upgrade to business or first class, they have to pay for that out of their own pockets.

“If you’re flying everyone Business and First Class to meet customers, it’s a pretty substantial expense, and none of that benefits customers,” Jassy said to CRN Australia.

When it comes to the cloud, Amazon has gotten creative in order to be frugal. For instance, computer storage disks have notoriously high failure rates, so vendors have to cover refunds on faulty disks. But Amazon has reportedly gotten cheaper prices on disks by promising never to return one, CRN reports.

The company also saves on hardware by designing and building things like computer servers and network routers itself. That way, it never pays for product features it doesn’t need.

For instance, instead of buying networking equipment from a company like Cisco, “We also built our own networking hardware, and have our own protocol stack, and the price point has changed phenomenally,” James Hamilton, senior VP and distinguished engineer said at a recent AWS event.

It all adds up to being focused on low margins at high volumes.

“You think about your prices, your cost models, your priorities differently. We have that DNA and operating skills,” Jassy told CRN.

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.

Julie Bort is the enterprise computing editor at Business Insider. Follow her on Twitter.

TODAY IN SLATE

Politics

The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

Congress’ Public Shaming of the Secret Service Was Political Grandstanding at Its Best

Michigan’s Tradition of Football “Toughness” Needs to Go—Starting With Coach Hoke

Windows 8 Was So Bad That Microsoft Will Skip Straight to Windows 10

A Plentiful, Renewable Resource That America Keeps Overlooking

Animal manure.

Politics

Cringing. Ducking. Mumbling.

How GOP candidates react whenever someone brings up reproductive rights or gay marriage.

Building a Better Workplace

You Deserve a Pre-cation

The smartest job perk you’ve never heard of.

The Ludicrous Claims Women Are Pitched at “Egg Freezing Parties”

Piper Kerman on Why She Dressed Like a Hitchcock Heroine for Her Prison Sentencing

Behold
Oct. 1 2014 11:48 AM An Up-Close Look at the U.S.–Mexico Border
  News & Politics
The World
Oct. 1 2014 11:48 AM Syria’s “Moderate” Rebels Are Realizing That U.S. Airstrikes Help Bashar al-Assad, Not Them
  Business
Buy a Small Business
Oct. 1 2014 11:43 AM “I Didn’t Want to Build the Next Twitter for Cats” Search funds are the quiet, dependable, risk-averse sibling to the startup. 
  Life
Outward
Oct. 1 2014 11:59 AM Ask a Homo: A Lesbian PDA FAQ
  Double X
The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
  Slate Plus
Behind the Scenes
Oct. 1 2014 10:54 AM “I Need a Pair of Pants That Won’t Bore Me to Death” Troy Patterson talks about looking sharp, flat-top fades, and being Slate’s Gentleman Scholar.
  Arts
Brow Beat
Oct. 1 2014 10:44 AM Everyone’s Favorite Bob’s Burgers Character Gets a Remix You Can Dance to
  Technology
Future Tense
Oct. 1 2014 11:48 AM Watch a Crowd Go Wild When Steve Jobs Moves a Laptop in This 1999 Demonstration of WiFi
  Health & Science
Bad Astronomy
Oct. 1 2014 12:01 PM Rocky Snow
  Sports
Sports Nut
Sept. 30 2014 5:54 PM Goodbye, Tough Guy It’s time for Michigan to fire its toughness-obsessed coach, Brady Hoke.