How Amazon Stays Frugal

Business Insider
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

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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.

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