This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

Willful Disruption: Amazon Disrupts Through

Scale, Richness and Reach
Published: 18 May 2017 ID: G00327542

Analyst(s): David Mitchell Smith, Daryl C. Plummer

Amazon has long been synonymous with digital disruption, as it understood

three often-undervalued aspects of extensive disruption: scale, richness and
reach. CIOs should work with their chief strategy officers to look at
Amazon's intentions in order to best leverage lessons learned.

Key Findings
■ Innovation and self-disruption have driven much of Amazon's disruptive efforts. Disruptive
strategies do not need to be purely based on innovation. Amazon's self-disrupting approaches
are successful as well.
■ The proper use of scale, richness and reach will be a huge determinant of a disruptor's ability to
rise to the level of a digital giant. Amazon continues to leverage these aspects of disruption to
redefine markets and their support components.
■ Amazon Web Services (AWS) is now beginning to behave more like an established infrastructure
provider.
■ Amazon's small teams contribute to a focused and aggressive startup-oriented culture that
provides an environment conducive to innovation and disruption.

Recommendations
CIOs who are building or expanding digital businesses should work with their chief strategy officers
(CSOs) to:

■ Move beyond innovation, self-disruption and other strategies to leverage disruption in their
organization and business.
■ Examine Amazon's forays into all types of services enabled by its platforms such as Amazon
Prime and AWS. Amazon's potential for disruption is almost unlimited given the strength of its
platforms and their ubiquity.

This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

 This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

■ Use new approaches, including bimodal to create the time and space required to unlock
innovation insights. Take advantage of service offerings from Amazon and other providers that
facilitate operating in Mode 2.
■ Apply the lessons learned from Amazon, albeit on a smaller "scale," to learn to structure and
invest for long-term disruption.

Table of Contents

Analysis.................................................................................................................................................. 2
Amazon Disrupts in Many Ways........................................................................................................3
Books (Selling, Reading, Writing and Publishing) (Offensive)........................................................4
E-Commerce Model (Offensive).................................................................................................. 5
Amazon Web Services (Offensive)...............................................................................................5
Logistics/Fulfillment (Offensive)....................................................................................................5
Amazon Business (Offensive)...................................................................................................... 6
Content, Apps and Services (Offensive)...................................................................................... 6
Machine Learning (Defensive)..................................................................................................... 6
AWS Lambda (Self-Disruptive).................................................................................................... 6
Alexa (Self-Disruptive)................................................................................................................. 7
Amazon's Pricing and Other Efforts............................................................................................ 7
Scale, Richness and Reach: "The Secret Sauce" of Extensive Disruption..........................................7
Amazon's Culture Leads Primarily to Innovative and Self-Disrupting Approaches..............................8
How You Can Leverage Amazon's Disruptive Strategies...................................................................8
Gartner Recommended Reading............................................................................................................ 9

List of Figures

Figure 1. The Many Ways Amazon Disrupts............................................................................................4

Analysis
Amazon has long been known as a company focused on innovation and disruption. In fact, a new
word — "Amazon'ed" — was ushered into the lexicon of business to describe the phenomenon of
being disrupted by Amazon. While most organizations have very different backgrounds, histories
and capabilities from Amazon, understanding the intents and multiple disruptive strategies of
companies such as Amazon can help organizations better identify what can be leveraged for their
own strategies.

Page 2 of 10 Gartner, Inc. | G00327542

This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

 This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

Amazon is now almost 23 years old and one of the most valuable U.S.-listed companies. It has
begun regularly showing profits, led in part by the profitability of Amazon Web Services. Amazon is
building its global presence and is growing. Amazon takes a long-term visionary approach and uses
unconventional mechanisms to achieve its goals.

Amazon Disrupts in Many Ways

Amazon originated in retail, which remains its largest revenue source and the jumping-off point for
Amazon Prime. It continues to leverage its high-cash-flow retail business to fund investments in
disruptive areas.

One of the most disruptive endeavors from Amazon is Amazon Web Services (AWS), its pioneering
of cloud computing's infrastructure as a service (IaaS) approach more than 10 years ago. Today,
AWS is a thriving business within Amazon and shows higher profit margins and greater potential
than any of its other businesses.

Despite its size, Amazon feels like a startup in many ways. Much of its innovation and disruption
originates in consumer efforts and in leveraging its approach of focusing on customers.

Amazon is known for being disruptive from its e-commerce origins. Today, it is still considered one
of the most disruptive companies in the world. Amazon does not disrupt in only one way, but rather
it behaves in different ways — not disrupting consistently.

In "Willful Disruption: An Intent-Based Model for Analyzing Digital Disruption," we outline the five
major types of disruption: offensive, defensive, serendipitous, destructive and self-disruptive.

Amazon has developed many innovations, and these have led to disruptions. Figure 1 shows the
categorizations of many of Amazon's intents. Note that the emphasis indicators are an assessment
of intent, not outcomes. The approaches related to a specific offering also may change over time.

Gartner, Inc. | G00327542 Page 3 of 10

This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

 This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

Figure 1. The Many Ways Amazon Disrupts

AWS = Amazon Web Services; IaaS = infrastructure as a service

Source: Gartner (May 2017)

Amazon's strategies and disruptive intents are very broad. The list presented is in no way
comprehensive but rather represents some prominent examples.

Books (Selling, Reading, Writing and Publishing) (Offensive)

Amazon's original disruption was around selling books over the internet, which was a very forward-
looking activity back in the mid-1990s when the internet was just beginning its rise and e-commerce
was not yet established. In order to do this disruption, Amazon took many leaps and turned
assumptions upside down. It was in many ways the inspiration for what Gartner called "global-
class" approaches (as opposed to enterprise-class) and paved the way for bimodal IT and other
modern constructs. (See "Global Class: The Inspiration for Cloud Computing.")

Amazon's disruptions regarding books did not end with selling books. The introduction of its Kindle
e-readers has had a disruptive impact on how people read books. Amazon's self-publishing efforts
have disrupted traditional publishing as well.

Page 4 of 10 Gartner, Inc. | G00327542

This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

 This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

E-Commerce Model (Offensive)

Amazon quickly leveraged its bookselling success into the broader e-commerce market, pioneering
the concept of online storefronts and hosting e-commerce sites for many companies, including
competitors. It expanded into marketplaces and very aggressive partnering strategies that have had
huge impacts on commerce and retail worldwide.

Centered on the Amazon Prime ecosystem (primarily a retail-oriented program), many of Amazon's
forays into areas (such as devices) are more focused on building on Prime, rather than on becoming
stand-alone businesses. While Amazon's devices are useful and competitive in their own right, its
stated goal is to break even on hardware. However, the upside (and main reason for this business) is
to generate profits when the devices are used (such as the Prime connection).

Amazon Dash Buttons and the Amazon Go store concept are also very disruptive. Dash Buttons
and the Dash Replenishment Service drive immediate, frictionless purchasing. Amazon Go has the
potential to disrupt both online and brick-and-mortar commerce.

Amazon Web Services (Offensive)

AWS is a market leader in cloud computing. It is the dominant market share leader in IaaS and
platform as a service (PaaS). It serves the most customers across the broadest range of use cases
— from cloud-native startups, to midmarket businesses wanting to lift and shift traditional
applications, to enterprises executing transformational migrations to the cloud. It has also entered
the software as a service (SaaS) market for productivity solutions.

AWS is a thought leader with a strong record of innovation. It rapidly introduces new services and
continuously improves existing services. We expect it will introduce more than 1,000 new
capabilities during 2017. AWS exhibits continued determination to try to meet customer needs even
when new capabilities are not successful in the market; it continues to iterate on such services, or
launch variants of those services, until it achieves success.

Like cloud itself, AWS is evolving from being primarily the disruptor to becoming a catalyst for
further disruption. AWS has become the leading cloud platform, where much innovation and
disruption from many sources occurs.

Amazon's disruptive nature and its difference from traditional IT vendors make it particularly
dangerous to established IT vendors. See "Positioning Is Essential for Any Disruptive Business
Move" for more details.

Amazon continues to lead the cloud revolution, at least from the infrastructure perspective, which is
itself disrupting enterprise IT. As the company's capabilities increase and its enterprise focus grows,
Amazon's role in enterprise computing will continue to expand.

Logistics/Fulfillment (Offensive)
A big part of Amazon's success has long been a result of its continuous improvements and
investments in logistics. From fulfillment centers to robotics to the pending introduction of drone

Gartner, Inc. | G00327542 Page 5 of 10

This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

 This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

delivery, Amazon's innovations continue to provide vision, leadership, efficiency and value to
customers. Amazon shifted the economics of small and midsize business shipping logistics with
Fulfillment by Amazon. We expect to continue to see much investment in logistics from Amazon. It
has shown willingness to spend significantly in this area. While there is a self-disrupting component
of the company's strategies in logistics, it is primarily an offensive strategy.

Amazon Business (Offensive)

Amazon has extended the consumer-facing marketplace model it pioneered on Amazon.com to
serve businesses and government agencies. Formerly known as AmazonSupply, Amazon Business
was relaunched in 2015 and provides a marketplace for businesses to sell to other businesses.
Amazon Business offers millions of products and a broad range of categories that are business-
specific, including maintenance, repair and operations, IT, and office supplies. Much like on
Amazon.com, Amazon Business sellers can sign up and sell to other businesses, but with additional
functionality that is common for B2B transactions.

Content, Apps and Services (Offensive)

Original content developed by Amazon now includes TV shows, movies, mobile and TV games,
which helps better position its devices as alternatives to Android or iOS. It is part of an overall
strategy that, in conjunction with other new media organizations, is disrupting how TV, movies and
other media are developed, distributed and consumed. While primarily offensive in nature, there are
aspects of this intent that are self-disrupting. Amazon already has a very successful business selling
books, CDs and DVDs.

Machine Learning (Defensive)

While Amazon has made use of machine learning and artificial intelligence (AI) in many of its internal
use cases, it has largely been defensive and behind others such as Google and IBM. It has utilized
innovation in its Amazon Echo/Alexa offerings and has been a visionary in that segment, but
primarily exhibits defensive characteristics overall in machine learning.

AWS has channeled Amazon's expertise in artificial intelligence, with an approach that puts the
services, tools and infrastructure in place to enable developers (from beginners to data scientists to
advanced AI specialists) to add intelligence to their application or business.

AWS Lambda (Self-Disruptive)

AWS Lambda bears specific attention. While part of AWS, its serverless approach is disruptive to
development, and its pricing model (by the millisecond) is potentially very disruptive to cloud IaaS
(AWS's primary business). By introducing this disruption before competitors, AWS has been able to
be out in front of this disruption and have more influence over the changes to development and its
core business. It is also a strategy to disrupt potential threats from focusing on PaaS layers above
its core IaaS. It is also an indicator that AWS is now beginning to behave more like an established
infrastructure provider.

Page 6 of 10 Gartner, Inc. | G00327542

This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

 This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

Alexa (Self-Disruptive)
While Alexa and its associated devices exhibit innovation and other characteristics, an overlooked
impact is Alexa's potential self-disrupting nature. Amazon dominates e-commerce via a traditional
(today) web browser interface. While the web channel is not going away anytime soon, disrupting
this with a voice-activated, no-monitor approach does introduce risks to that dominance.

Amazon's Pricing and Other Efforts

Amazon's pricing overall is a mainstay of the company's strategy. It has from the beginning
employed aggressive, regular efforts to lower prices — not only in retail, but also AWS and other
businesses. This pricing effort can be described as a disruption in itself. While primarily offensive,
Amazon's pricing exhibits self-disrupting characteristics as well.

While there are not significant serendipitous or destructive strategies employed by Amazon, we do
see some secondary effects as a result of some of its efforts. In particular, the availability of
counterfeit goods (evidenced by Apple's lawsuit against the company) is an unintended
consequence of Amazon's disruption of retail.

Scale, Richness and Reach: "The Secret Sauce" of Extensive Disruption

From the beginning, Amazon has had a deep understanding of three often-undervalued aspects of
extensive disruption: scale, richness (or variety) and reach (or ubiquity).

■ Amazon's scale in both AWS and commerce has helped redefine the nature of horizontal scale
and even has spawned new terminology such as "hyperscale" in reference to its cloud offerings.
Millions of AWS virtual machines operate to support cloud efforts across the world, and more
are spawned each day. In commerce, the consumer scale of online shopping is growing 23%
year over year, and Amazon accounts for 43% of online shopping revenue generated in the U.S.
Scale can be inherited from digital giants like Amazon, so enterprises seeking to scale should
embrace public services that offer scale without massive upfront investments.
■ Amazon has built richness, or variety, into its strategies as a core component of success. Even
the logo for Amazon (an arrow pointing from the A to the Z in the company name, indicating
"everything from A to Z") suggests the company has an ambition to provide a very wide variety
of products, services and support to its customers. Richness is a key differentiator for any
disruptor wanting to achieve the goal of becoming a digital giant. Likewise, enterprises seeking
a path to disruption will find involvement in multiple options for disruption will serve them well
as they cycle through options rapidly to discover which ones are the most appropriate.
■ Amazon's reach spawns from a relentless pursuit of ubiquity. Ubiquity, in this case, is about the
availability of Amazon's capabilities in a wide variety of scenarios. For example, the Alexa Voice
Service, intended to appear in many human-centric situations, is how Amazon will advance
engagement with its machine-learning and AI initiatives, as well as with its commerce, cloud
and fulfillment capabilities, among others. The ubiquity of Amazon's services means that
Amazon will not rely solely on one device such as the Echo. Likewise, Amazon's fulfillment
centers, Fulfillment by Amazon, Amazon Business and AWS all are intended to become

Gartner, Inc. | G00327542 Page 7 of 10

This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

 This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

ubiquitous components of a growing platform strategy that extends into many business and
consumer scenarios.

The proper use of scale, richness and reach will be a huge determinant of a disruptor's ability to rise
to the level of a digital giant. Amazon continues to leverage these aspects of disruption to redefine
markets and their support components.

The lessons learned should be employed by enterprises, albeit on a smaller "scale," to learn to
structure and invest for long-term disruption.

Amazon's Culture Leads Primarily to Innovative and Self-Disrupting Approaches

Amazon's culture is heavily influenced by its founder Jeff Bezos and the company's retail origins. Its
focus on growth and innovation naturally leads to disruption. His now-legendary Day 1/Day 2
perspective permeates the organization. He describes the phenomenon: As maturity sets into a
company, it becomes easy to rely on process rather than results. A focus on process, rather than
looking on whether the desired outcome was achieved, is a characteristic of Day 2, when the
company becomes irrelevant. His focus on the speed of decision making and execution and his
drive to maintain Amazon in Day 1 mode are a key part of the company's success and culture.

The Amazon philosophy promotes the "two-pizza team" (meaning "keep the team size small enough
that it can be fed by two pizzas") approach to development. AWS utilizes this approach as part of
an organization that combines product managers, engineers and other people necessary to build
and operate a service and be part of the same team that is empowered to own that business.
Amazon's constant reinvention of e-commerce and cloud IaaS are examples of the culture's
embrace of self-disruption.

While the company has an aggressive startup mentality, Amazon is very focused on planning. We do
not see extensive examples of serendipitous or destructive approaches by the company. This focus
on planning has not affected the company's willingness to take risks. But even those risky
endeavors (such as Fire Phone) were not serendipitous or destructive in intent.

How You Can Leverage Amazon's Disruptive Strategies

CIOs formulating strategies for leveraging disruption can learn from practices of established
disruptors such as Amazon. Utilizing self-disrupting approaches as well as more prototypical
offensive/innovation-driven approaches have been shown to work for Amazon.

Disruptor-inspired activities can be useful not only in examining market-oriented external strategies,
but also in encouraging internally focused cultural change. Coupled with bimodal principles,
organizations can be inspired by disruptors without having to completely adopt their ways, as well
as be much better prepared for the transition to digital business. Utilization of the principles of
bimodal IT can be very helpful in this endeavor. Amazon's offerings and their overall approach are
particularly well-suited for Mode 2-type efforts.

Examine Amazon's forays into all types of services enabled by its platforms such as Amazon Prime
and AWS. Amazon's potential for disruption is almost unlimited given the strength of its platforms
and their ubiquity.

Page 8 of 10 Gartner, Inc. | G00327542

This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

 This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

CIOs should think of Amazon as an "enterprise partner," especially with regard to their
transformation and innovation strategies. Much can be learned from Amazon's approach for its own
innovation and disruption efforts.

Gartner Recommended Reading

Some documents may not be available as part of your current Gartner subscription.

"Willful Disruption: An Intent-Based Model for Analyzing Digital Disruption"

"Global Class: The Inspiration for Cloud Computing"

"Disruptions and Disruptors Are Reshaping the Digital Landscape"

"Disruptions and Disrupters: Using Digital Business Lenses to Uncover Secondary Disruptions"

"Vendor Rating: Amazon"

"Willful Disruption: The Many Ways Google Disrupts"

"Digital Disruption: Can the "Old Guard" Providers Be Disruptive (and Should They)?"

"Positioning Is Essential for Any Disruptive Business Move"

Gartner, Inc. | G00327542 Page 9 of 10

This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

 This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.

GARTNER HEADQUARTERS

Corporate Headquarters
56 Top Gallant Road
Stamford, CT 06902-7700
USA
+1 203 964 0096

Regional Headquarters
AUSTRALIA
BRAZIL
JAPAN
UNITED KINGDOM

For a complete list of worldwide locations,

visit http://www.gartner.com/technology/about.jsp

© 2017 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This
publication may not be reproduced or distributed in any form without Gartner’s prior written permission. If you are authorized to access
this publication, your use of it is subject to the Gartner Usage Policy posted on gartner.com. The information contained in this publication
has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of
such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the
opinions of Gartner’s research organization and should not be construed as statements of fact. The opinions expressed herein are subject
to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal
advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may
include firms and funds that have financial interests in entities covered in Gartner research. Gartner’s Board of Directors may include
senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or
influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see
“Guiding Principles on Independence and Objectivity.”

Page 10 of 10 Gartner, Inc. | G00327542

This research note is restricted to the personal use of nikhita.basti16@iimranchi.ac.in.