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Innovation thrives on failure at tech companies

Opinions expressed in this piece are solely those of the author and do not represent the views of S&P Global Market Intelligence.

Top executives at Alphabet Inc., Amazon.com Inc., Facebook Inc. and Netflix Inc. not only accept failure in corporate experimentation, they reward it to help to promote innovation.

While some companies might run a few experimental projects annually in production or marketing, these four reportedly support thousands of them at any given time. Most companies spend less than 5% of their time and capital on experimentation, according to tech writer and consultant Ben Clarke, while serious players should be spending closer to 10%.

Although dozens of leading media and communications companies support experimentation, these four stood out to me for their long-term commitment and cultural embrace of failure as a road to success:

*Alphabet opened its neural network in the Google Cloud Platform this year to thousands of developers to work on machine learning, including artificial intelligence to help sequence DNA to help pathologists fight serious diseases like cancer.

Meanwhile, Alphabet’s Moonshot R&D division helps employees embrace failure by encouraging them kill their own best ideas if they discover unresolvable problems. Those ideas that do survive really have support top to bottom, notes a 2016 Fast Company story. Moonshot director Astro Teller says failure is valued as much as success.

And then there’s Area 120, a division dedicated to experimentation and named for the 20% of time employees are encouraged to spend on experimentation. Last year, tech writer Ben Clarke reported that Google employees were engaged in about 7,000 different experiments.

*Amazon’s CEO Jeff Bezos noted in an annual letter to shareholders that “given a ten percent chance of a 100 times payoff, you should take that bet every time.” That’s the culture that helped Amazon set the standard for online retail and to create Prime, Echo, Kindle and to pioneer experimentation with drone-assisted delivery.

Beyond that, Amazon Web Services was the fastest-growing B2B company in history between 2006 and 2016 with an estimated $10 billion of revenue, according to Bloomberg’s BusinessWeek.

Lately, Amazon is reported to be working on a new “Alexa” phone along with various cutting-edge wireless-tech experiments. The Alexa phone would be Amazon’s second crack at the smartphone market — the first one failed spectacularly.

*Facebook has been criticized lately for copying Snap Inc.'s photo-centric messaging service Snapchat, but Facebook CEO Mark Zuckerberg stands by his strategy of enhancing the social media platform for all things video. To that end, Facebook is reported to be developing a dedicated video-chat device for the home with a price point in the low $100 range.

Facebook’s central experimentation lab is called “Building 8,” the successor of its Creative Labs division, which had conducted thousands of experiments annually in 2014 and 2015. One carryover from Creative Labs to Building 8 is an effort to develop mind-reading technology, according to a recent story in The Telegraph.

Regina Dugan, Facebook’s head of Building 8 experiments, told the Telegraph that the optical neuro-imaging system would allow users to electronically input words into a search engine at 100 words per minute, or 5x the speed manual entry in a smartphone.

*Netflix supports a 300-person experimentation unit and spent $150 million in 2014 (and likely a similar amount or more in subsequent years) to improve the way it makes recommendations to customers. That investment paid off, according to Netflix, by yielding $500 million in value to Netflix in 2014.

Netflix’s company blog has posted detailed stories on The Netflix Experimentation Platform, including a recent update on how “A/B Testing” will help Netflix maximize its subscriber experience as the leading streaming service in North America.

Netflix operates in more than 130 countries, serves more than 100 million customers, including about half in U.S., and accounts for more than one-third of all internet traffic at peak demand in North America (according to the Sandvine Report in June 2016).