How Amazon Stays Ahead: The 3 Horizons Framework Driving Innovation and Growth

Good morning. As you are reading this, I am likely at 30,000 feet over the Atlantic Ocean on the way to Europe. Family time in Europe is waiting, and I may even catch a Euro Cup game. ⚽

In today’s edition, we’ll learn about an interesting strategy framework that you should try to overlay to the business or products you work on. It could be an interesting lens.

Many of the big tech companies that are leading the industry today were once small startups. They used combinations of new technologies to grow into an existing market.

Some startups became big corporations, companies like Google, Amazon, Apple, etc., long past their early growth phase 20+ years ago. However, their growth seems to continue even though they have long since almost completely taken over the market they started in. How do they keep growing?

Their (not so secret) secret is that they consistently develop new ideas and technologies to expand on that growth. But how do they know what to invest in, and why aren’t all companies doing that?

Is it just a Hawk Tuah? I think there is more to it.

4-minute-read

Amazon is a company built on one of the most traditional Retail businesses: Books. In 1995, Jeff Bezos saw that the Internet was opening the doors to distributing books on a whole new level, and his goal was to create “Earth's Biggest Bookstore.”

Today, the company he created almost 30 years ago has crossed the valuation of $2 trillion. It’s clear that no level of market expansion, whether vertical, horizontal, or in circles, can get you to that with just books. Even expanding on retail won’t get you near this number.

Today, I want to examine a framework that reveals one of Amazon's business strategies for staying ahead, making new bets, and maintaining market leadership.

The Three Horizons Framework

While Amazon runs its successful retail business, it constantly explores and invests in its future.

The three-horizon framework is a good one for explaining how companies can balance existing business and future growth opportunities.

The Three Horizons model was a breakthrough when it was first described by Baghai, Coley, and White in 2000 in The Alchemy of Growth.

Tip: Bookmark this post to have it when you enter your yearly planning cycle.

The framework describes business and innovation occurring in three horizons:

Horizon 1: The Here and Now

Boardroom tone: Core Business Optimization.

This Horizon looks at how a company can extend and defend its core business and the market it is currently operating in. There is some evidence that H1 is not fit for the future, and over time, we assume it will decline.

For Amazon, that’s two things.

• Retail - You can buy a bazillion things online, and Amazon delivers them faster than you can say “Buy Now.”

• AWS - It is the digital backbone of almost all of the internet. When you (like me) constantly think of compute power, Amazon wants you to think of AWS.

The business on which Amazon was built, but we’ll see in an example below, is still a business Amazon needs to defend.

Horizon 2: The New and Shiny

Boardroom tone: Emerging Business Opportunities

For this Horizon, you should consider new business models that can extend your current offering and provide a transition into horizon three.

• Amazon Prime added a subscription service to a bundle of other benefits like Prime Video and Prime Wardrobe. Offers that make the bundle a no-brainer and lock customers in.

• Physical retail was an expansion powered by the acquisition of Whole Foods. It extends their retail offering and lets them learn more about customers’ “offline” shopping habits.

• Amazon Go stores - Amazon’s next level shopping experience. Grab your fruit and go. No lines, no checkout.

These initiatives leverage emerging technologies to innovate their main business. It’s half defense because if Amazon wouldn't do it, someone else would and they don’t want to let that happen.

An example is Uber's leverage of mobile phones to disrupt the taxi industry.

Horizon 3: The Wild Dreams - “Moonshots”

Boardroom talk: Emerging Future Growth and Disruptive Innovation

The crazy cool future. This is where we create entirely new capabilities and, with it, new businesses and even markets.

• Autonomous technology: Investments in self-driving delivery trucks, drones, or package-delivering robots.

• Of course, there is Artificial Intelligence. This is becoming a gigantic investment for Amazon, as we will explore in the next section.

The extensive bets on Amazon's Horizon 2 and 3

Amazon is likely working on a lot more in its labs. For today, we’ll look at two specific examples.

Defensive initiative to counter disruption - Horizon 2

• Amazon sees a part of its business going to low-cost e-commerce platforms like Temu and Shein. It explores ways to compete with these aggressive market entries to maintain market share.

• Amazon doesn’t have to change much in its current business to do what Temu and Shein are doing.

• Temu ranks #2 and Shein ranks #8 on the App Store under Top Free Apps in the US (as of this week) - they have been rapidly taking over and threatening Amazon

• Amazon’s reaction is offer lower prices as well. All it has to do is to change deliveries and ship products directly from China to customers. Customers show that they are okay with longer shipping times if the prices are lower. Amazon can cut prices by not bringing anything to the US-based warehouses.

• Amazon quickly reacts by extending the supply chain and lowering prices for its customers by trading off shipping times.

• It seems like a Horizon 2 activity in which Amazon spots emerging business opportunities or threats and takes them on itself to prevent them from becoming innovations that disrupt Amazon’s business from the outside.

Amazon’s bet on future gains from AI and data-center infrastructure - Horizon 3

$100 billion in investments over the next decade is a big commitment. That’s the budget Amazon wants to pour into data centers.

It’s a new era of expansion. Amazon will invest more in AI infrastructure and cloud computing than its e-commerce warehouse network. That’s quite a bet.

AWS, Amazon’s cloud platform, is well-positioned and already highly profitable. With an increased demand for AI computing power, this investment might boost Amazon into a new growth wave.

Amazon sees a huge need for computing power with increasing AI demand.

No timeframes in Horizons

Don’t get it mistaken—today, this model does NOT have a timeframe. Just because it is Horizon 3 doesn't mean this disruption lies far in the future.

One day, someone launches a product, let’s call it ChatGPT, and within the next two years, everyone is already working on Horizon 2 or 3 initiatives.

Key takeaways

Today, we learned about the 3 Horizon Framework and how it can be used. We examined Amazon as a practical example and analysed 2 of its newest initiatives.

The key takeaway is that any company, whether it just hit a $2 trillion valuation or is a market leader in one segment, needs to be aware of these 3 Horizons and what they mean for its business.

Amazon, growing from an e-commerce retail business into the $2 trillion company it is today, has truly mastered this and is actively expanding and defending its market leadership position as we speak.

Throwback: Here is a look at Jeff Bezos, giving a little office tour in 1995.

Have you noticed how dapper Jeff Bezos looks these days? Now we know he uses this framework for himself, too: Horizon 1: Keep the business running; Horizon 2: Explore new opportunities (Blue Origin); Horizon 3: Hit the gym, get yolked, and perfect the fashion.

Looks like it’s working out pretty well for him.

Do you think this is a good lens for your business or product? Do you see initiatives in all three horizons? If not, do you see a risk in that and feel inspired to dive deeper? Please let me know; I’d love to learn more about it.

What are the three horizons for my newsletter? I have no clue. But maybe I should think about it. On that note:

I want to hear from you and made it VERY simple; it just takes one click/tap below

Have a great rest of the week,