Amazon 9th Principle: Frugality

The ninth Leadership Principle of the Amazon Way is:

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.

Amazon work to charge less. Many companies try to charge as much as they can, when they can — Amazon’s culture emphasizes frugality. “There are two kinds of companies: those that try to charge more and those that work to charge less. We will be the second.” – Jeff Bezos.

For instance, being frugal means that Amazon will only pay for economy air travel, even for senior execs. 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,” says Amazon Web Services Senior VP Andy Jassy to CRN Australia.

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

Jassy said this focus on costs is what will make it very difficult for existing IT vendors to reinvent themselves into price-competitive cloud service providers and take AWS head-on. As Amazon has a mindset of being a high-volume, low-margin provider, they just think about everything differently.

This focus on frugality means that the company has to be highly innovative. It is always trying to find new ways to do things more cheaply and efficiently in every aspect of the business. Amazon is a well-oiled machine in that regard. They never stop exploring and never settle for the status quo as the only way to do things.

Summing-up: For Amazon, savings are more than a competitive matter. They try not to spend money on things that their customers don’t value. That’s been a key part of Amazon DNA.
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3 Comments

  1. Hameed Mirza

    This principle can be applied in many areas. The one area I have in mind is to eliminate oversize and non-degradable packaging and discourage manufacturers/sellers who has this kind of packaging. It will save shelf space in first place, save space in delivery vehicles/customer mailboxes/Amazon lockers and most importantly less waste will end-up in landfills.

  2. Cameron Clark

    Excellent principle that is so important on so many levels from the R&D phase of the life cycle to the delivery means of products and services. When frugality and value engineering are the expectation, it can trickle down into other ares of the life cycle that can ultimately benefit the customer. A sense of frugality is a great quality for any organization to encourage since it can naturally lead to reducing waste in other areas such as the environment, time, resources, and productivity which can in turn lead to an improved culture, reduced attrition, and sustainability.

  3. Chris N

    “ Jassy said this focus on costs is what will make it very difficult for existing IT vendors to reinvent themselves into price-competitive cloud service providers and take AWS head-on.”
    But Azure is cheaper than AWS.

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