Subscribe to BusinessWeek

After going from Internet poster boy in the late 1990s to Internet pinata by 2000, Amazon.com founder and Chief Executive Officer Jeffrey Bezos has survived, and then some. Despite second-quarter earnings that came in a penny per share shy of analysts' expectations -- tanking its stock -- Amazon (AMZN) continues to log the steady quarterly profits that some once predicted it would never make.
That's thanks in large part to the e-tailer's constant innovations, from permanent free-shipping offers that recharged sales growth to features such as Search Inside the Book, which lets people do Google-like searches of the full texts of thousands of books. And customers like the changes. On Aug. 17, a survey of 20 e-commerce sites by market researcher Vividence put Amazon on top in customer satisfaction.
Now, Bezos, 40, wants to accelerate Amazon's rate of innovation. BusinessWeek Silicon Valley Bureau Chief Robert D. Hof caught up with the peripatetic Bezos late one recent afternoon at Amazon's Seattle headquarters, where his famous belly laugh was in fine form as he talked about innovation at Amazon and the rest of the world. Following are edited excerpts:
Q: Recently, you've been emphasizing the importance of invention at Amazon, and you're hiring more engineers and computer scientists than ever. Why now?
A: If you look at our corporate culture, we've always had a customer obsession, and we've always been pioneering. We've always been focused on customers rather than competitors. There are very successful companies that pursue close-following strategies, and that can be a great strategy because you get to save all the money of not going down blind alleys. Innovation is part and parcel with going down blind alleys. You can't have one without the other.
But every once in a while, you go down an alley and it opens up into this huge, broad avenue. And that's so satisfying and, from a shareholder's point of view, so successful, that it makes all the blind alleys worthwhile.
Q: So you draw a distinction between a competitive culture and a pioneering culture?
A: I believe that the pioneering cultures tend to be more heads-down focused on customers. If you're watching your competitors, you're unlikely to invent a bunch of stuff on your own. There's nothing wrong with being a close follower. I don't think it's as satisfying. I actually think that in a fast-moving industry, it's also not as successful for shareholders.
Q: How do you try to ensure that Amazon continually innovates even as it grows into a large corporation?
A: I think if you want to have an innovative organization, you need to do at least a couple of things. One is it's a lot about selection of people. Some people love a rapid rate of change. They love going down alleys, many of which turn out to be dead ends. They like inventing. And other people like a more stable environment where you know more what tomorrow's going to be like. Those people, of course, flee Amazon.com in hordes.
It's just the way we started. Corporate cultures tend to be very stable over time. If you have a very competitive-focused culture, then people who like that kind of culture are attracted to that organization and they thrive there.
Q: How do you keep the ideas percolating?
A: You need to set up and organize so that you can do as many experiments per unit of time as possible. If doing an experiment costs $100 million and takes three years, well, you're not going to be able to do very much innovation. If, on the other hand, you can organize in small, lightweight teams that have certain tools so they can do a lot of experiments per week or per month or whatever the right unit of time is, then you'll get a lot more invention from that
Q: How do you do that here?
A: Online, it's easier. If we ran a big network of physical stores and we wanted to try a new department, there would be literally a physical build-out, there would be physical signs that would have to be made, there would be different kinds of furniture that would have to be installed, and so on. So some of those experiments are hard to do. You can only do a certain amount of them.
Online, we can show half of our customers one thing and half of customers another, and very quickly get some results back on how people actually behave.
It would be much harder to do if we had a less malleable medium. That's one of the reasons invention is so important in this space. It's also still so early. Most of the good things that will be invented on the Internet, in my opinion, still remain yet to be invented.
Q: Amazon uses small teams, which you call "two-pizza teams." How do you organize projects so that such teams can work?
A: The idea of using small teams is a pretty well-accepted notion. What happens is, as the teams get bigger, they have to spend more time coordinating. This is sometimes very misunderstood, but if you want to have a good work environment where people can really build, you don't want them to have to spend a lot of time coordinating.
To the degree that you can get people in a team small enough that they can be fed on two pizzas, you'll get a lot more productivity. About six people is a good size. But it depends on how hungry the people are.
Q: Do you think we'll see as much innovation in the next 75 years as the last 75?
A: I do. Basically, since we've been recording history, the rate of innovation has been accelerating. I see no reason why that acceleration should change. You've got much larger numbers of educated people. You've got great information flow. You've got these technologies that are very mutable and allow a lot of innovation.
I'd be very surprised if the rate of innovation slowed. Let's put it this way: If it does, something very bad has happened. It's like a new version of the Dark Ages or something.
Q: Do you see anything today that strikes you like the Web did 10 years ago?
A: I can't imagine. I'm fascinated by the Web and computers and how much can still be done here. I think we have so much green field. I'm passionate about computing.
Q: We're seeing innovation happen in many more places outside the U.S. Some people see that as a threat. What do you think?
A: The world is getting to be a smaller and smaller place. The world is so highly interconnected. No country has a monopoly on smart people. That's not how it works. To me, to try and pretend that there's a monopoly on smart people is fighting physics. It's just not the reality. In fact, if everybody could be prosperous and creative and trading with one another, they're much more likely to be friendly to one another, too.
Q: Has your vision of what Amazon can accomplish changed since you started?
A: The basic thing has not changed. What we've talked about for years is that we want to be like Sony (SNE) in a way. If you go back and look at the early history of Sony, one of [cofounder Akio] Morita-san's goals was he wanted to make Japan known for quality, which is a great goal, because it transcended Sony. And by the way -- he did it!
In a similar way, what we have always wanted to do -- something that transcends a company or an industry -- is we want to set new standards for what it means to provide good customer experience. Success would be other companies in completely different industries pointing to Amazon.com and saying, "There's a new bar for customer experience, for customer-centricity, and if they can do it, we can do it." That's a never-ending mission.
Q: Do you think of yourself as an innovator?
A: I absolutely think of myself as an innovator. I actually think most people, unleashed, are innovators. I think we get hamstrung, and we learn helplessness, and we learn that we can't improve things. But natively, we're all innovators. We're this great species of tool-using animal who likes to make our world better.