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Following Fire Phone Flop, Big Changes At Amazon’s Lab126

What recent departures and managerial changes mean for the secretive R&D group behind the company's most high-profile consumer products.

[Photo: Flickr user TechStage]

In recent months, a string of departures and managerial changes has hit Amazon’s Lab126, the company’s Silicon Valley-based R&D group that has developed its most high-profile consumer products, including the Fire Phone, the Siri-like Echo device, and the Kindle hardware. According to multiple sources familiar with the reshuffling at Lab126, the changes were long overdue, a response to an organizational structure that some contend had grown "bloated" if not "inexplicable," as one former high-level employee describes it.

The insights were garnered during reporting for Fast Company’s new cover story on Amazon and its CEO, Jeff Bezos, which is online now and hits newsstands next week. The feature is an inside look at the troubled development of the Fire Phone at Lab126, which has evolved from a small skunkworks subsidiary started years ago by Amazon into a hardware maker with nearly 3,000 employees. As the secretive operation grew, so too did redundancies and inefficiencies in its organizational structure. But while some argue the recent executive departures and organizational restructuring are a result of poor company performance or the Fire Phone debacle, others paint a picture that is more nuanced. They say the re-org actually represents a doubling down by Bezos on his company’s efforts in the consumer electronics space—a vote of confidence in the R&D group's direction—and serves as a sign that Lab126 is maturing as it takes on Apple and Google in more and more areas.

The internal changes began a number of months ago, following the departure of Malachy Moynihan, Lab126’s VP of digital products and the leader of its Fire TV and Echo projects, who left to pursue an outside opportunity. Multiple sources indicate Ian Freed, Amazon’s VP of devices who essentially oversaw the marketing of the Fire Phone, is now taking a sabbatical from the company following disappointing sales of the device and responsibility changes with Amazon vice presidents Greg Hart and Peter Larsen; it's unclear what his future role at Amazon will be. During this time frame, Lab126 president Gregg Zehr, with support from Bezos and devices SVP David Limp, initiated a re-org of the company’s hardware unit, which preceded a realignment of the software teams in Seattle last month. Now, David Foster, who previously oversaw the company’s range of Kindle products, is in charge of Lab126's advanced technologies group and responsible for exploring new products. Engineering VP Lindo St. Angel now leads the org tasked with shipping and developing existing products at Lab126. (Jon McCormack, Amazon’s VP of Kindle software at Lab126, also left, in December, to pursue an opportunity at Yahoo, but several sources indicate this is not related to Amazon's reshuffling.) Amazon declined to comment for this story.

That’s a lot of changes to swallow—especially for employees at Amazon. Unsurprisingly, many wonder why these changes are coming about, and what they mean for the company's culture and road map; as one insider told me, it feels like "Lab126 is in the doghouse" and that "Jeff is taking out his frustration with the failure of the Fire Phone" on upper management.

It's tempting to view these managerial changes in this light—an attempt by Bezos to somehow rein in Lab126. Wall Street has criticized the hardware group's recent performance, following a $170 million write-down for unsold inventory related to the Fire Phone. But despite the bad press and shareholder agita, the truth, according to multiple top current and former employees, is that Bezos was actually impressed with how the phone's hardware team delivered with the Fire Phone, regardless of its reception in the market. He's since told employees at Lab126 not to feel bad about the Fire Phone's performance, because the company has learned valuable lessons from the launch, sentiments that reflect his public comments about Amazon's phone. Rather than a harsh reaction to the device's failure, these sources say, Amazon's recent re-org was actually designed to enable more hardware development at Lab126. As Bezos has told employees there in the past, his goal is to make it so Lab126 can take a hardware product from ideation to market in just months, a cycle as ruthlessly efficient as the company's retail operations.

Just five years ago, Lab126 boasted only about 100 employees, and Amazon offered just a handful of Kindle e-reader devices. Since then, Lab126 has grown quickly, and embarked on a slew of hardware projects, including Kindle tablets, Echo, Fire Phone, Fire TV, and Dash, a device for scanning and ordering groceries at home. Each time the group started work in a new product category, it would hire a product leader, who would in turn hire a team for that project. The programs were basically run like startups. That process may have worked in the early days, when Lab126 was small and growing organically, but as Lab126 scaled, sources say the various programs became more siloed, a challenge for Amazon as it tries to create a hardware ecosystem as seamlessly integrated as Apple’s and Google’s. (Lab126's groups were siloed mainly to keep projects secret and prevent leaks.) In certain instances, it wasn’t always clear who was running a particular program as each evolved and experienced turnover, especially on the Kindle team, which at one point, says a Lab126 source, had "four to five directors, who all felt like they ran it, when none really did." This dynamic led to execution delays, as well as operational inefficiencies.

The hardware re-org stemmed from executives recognizing that Lab126 had reached a point of maturity where it could no longer run like a startup, or multiple separate startups. As a slew of sources explain, a different skill set is required to build version 1.0 of a product versus version 4.0, which is why the re-org included two separate groups: one for longer-term skunkworks innovation (organized under David Foster), and the other for shipping new iterations of existing products at high volumes (led by Lindo St. Angel). Additionally, the re-org established a clear engineering lead for each program, and pulled all functional groups into a relevant vertical. Before, for example, there were audio engineers across four different groups, including on the Echo and Fire TV teams. Now, they’re all organized functionally into one audio engineering team, under one leader.

The re-org, insiders argue, will allow Lab126 to scale more efficiently, better harness resources, and move faster. Foster’s group, for instance, is already at work on three entirely new product categories, all utilizing the same head count as before.

In other words, the re-org is not happening because of the Fire Phone flop, but in spite of it, these sources say. Bezos believes in his company’s future in consumer electronics. Amazon plans to invest $55 million in its Lab126 operations in Silicon Valley, and ramp up hiring to at least 3,757 employees by 2019, according to a recent report.

The question, then, is why the the hardware re-org would come about now. According to four Lab126 sources knowledgable of the company's planning, Gregg Zehr, the Lab126 president, had been discussing this with Bezos and others for several years. But Zehr, who many describe as exceptionally nice and intensely loyal, knew it would create only two new head roles, when he had three VPs close to him: David Foster, Lindo St. Angel, and Malachy Moynihan. When Moynihan left (voluntarily) months ago, several sources confirm, it finally made sense for Zehr to take advantage of the opportunity and initiate the re-org, without stripping one of his top allies of his responsibilities.

Of course, that's not to say everything is peachy at Lab126. As our cover story coming out tomorrow details, the Fire Phone development was far from smooth, and the connotations of the product's poor performance in the market are significant. Morale on the phone teams is low (during at least one recent all-hands meeting for the digital products group, worried employees asked executives if there could be layoffs), and many employees have jumped to different projects. Reaction is split on Ian Freed, the devices VP involved with the Fire Phone whose role at Amazon recently diminished; some argue he's taking time off and may return in a new role, while other sources who are close with Freed say it's just as likely that he was "put out to pasture" following the failure of Amazon's Fire Phone. (Freed declined to comment.) And even the re-org itself has caused a stir.

"For years, people had been saying, 'God, I wish they would re-org!'" the former high-level employee explains. "Now everybody whines, 'Oh, I don't like this re-org. I like the way it was before!'"

Stay tuned for more stories in the coming days and weeks about Amazon's Lab126, Jeff Bezos, and the future of its product portfolio, in addition to our cover story on the company.

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