How Amazon's
CEO leads
strategic
change
ina culture
obsessed
with today’s
customer
Institutio
[MAZCA.CON WAS BORN OF STRATEGY The story
thas oan been told of how founder Jef esc,
‘working ina quantitative analysis group at an
Tnvesunen fem, spotted an oppertunity to
sell books on the Internet. No native of the bookc
‘elling industry, he arved ot his business model
logically: Given the artibutes of the product and
the structure ofthe supply chai, a no-brics retier
ould clearly make it~and make it big. Since its
founding, in 164s, Amazon bas contd to sao%
«knack for spotting white spaces and a willingness
‘a jump ito therm, even 35 works wo make spaces
‘Balmady occupies more productive. The company’s
Intes bold move is ts “devetoperacing” busines:
set of offerings that male took Amazon developed
Interview by Julia Kirby and Thomas A. Stewart
overa | October 2007 | Hervard usress Reven 75‘ets on se avaible to oer wot developers. Lik
so many other Amszon vente this ones asad on sunt
loge yet ts suroisng, Is not te inc of thing ene sees
many sommpanes doing.
‘ough of thee mors have paid off hat HBR decide
to look into wha’ ferent about strategy fonlton at
Amazon How dea ome uncer considera, and how
se commierents mate? fit a mane of one ingen ~
Jett Resoe-on #1 an issnaonal capability? Thomas A.
Stewart, HBR’ ecr In chieg and ula Kitbj,a seo ek
tor met wth Heras on se oveasions to leara mre. The
conversations were Wieranging and vel, punctuated
freuerty by Bezes’ famous laugh (ite 59 that hs wie,
MacKenzie, oten tel peopl, fei unhepps, wait ve
minutes) They came aay wth a sense that Amazes
Sirategs and culture ave rood ina study entrepreneur
fal gxinism, The following isan edited presentation of
thos tis
Wo ie setting strategie diestion fer Amazon? At the
very beginning i wns just you sitting ins earon the
‘way rom aw York Seattle, mang al the pane
‘ea you stil making ther lf
(hy heavens, no, We have 4 group called the S Team =
§ meaning “senioc"=that sys abreast of what the come
any it working on and delvesinto strategy Bsus I meets
for abe Four hours every Tuesday. Once or twice a year
the § Team ato ges together na twoay meeting where
diferent ess are eptred, Hombenark is assgned ahead
fof time. A et ef the things dscused in those meetings
fre nox that urgent—we'e a (ew years Out and can fe
ally thnk and talk about them at Jeng. Eventually we
have to choos fest couple of ting, Uy re By, and
mabe tes
“The Hey to ensue that his happens fecal too, ot
Justa the top. The guy wbo lads Fuflimen: by Amavor,
‘which ste web servis ne provide 1 let peope so our
futlinent center newer as big computer peripheral
imahing sure the stage shining happens for that bis
‘es ina similar way, Aelferet sae eves i happening
‘eeryhere in the company: And the mos important thing
‘that all ofitis informed by a ulturapoin of view Ther’
a great Alan Kay quote"Perspctve worth 89 10 pots”
Seme of cu rstepecapbiitycomes rom that
How would you deszribe that cultura point of view?
Fie are ing to plant seeds and wat fog time So
‘hem totum ino trees. Fm very proud ofthis pete of cu
‘atu been eink Ssomewhat rae. Were not lvays
‘Mkng ourselves what poi 1@Rapoen inthe nex uate
‘na focasng on opts, ane ding those other things thet
rake very cic fo some puielytadedeompaniesto
have tne ight stratess
176 Hid Busines Review | Ostober2007 | Meo
‘De you know whoa you're planting one of those seeds
that fs cay an acorn ane i's gona to turn nto an oak?
‘Do you heveastrona vision of how things will materil-
inn] OF does the shape omerse along the way?
‘We may nox kro that's gogo tun mt a 00k, bat a
Tetst ne Koo hat can rm out tobe that bg 1thnkyou
eed to make sur th the things you choose tat you ere
abe to yi ne cam et thst wor lb big An im
portant question to ask g"sitbig enough to bemeaningd
{othe company aa whole ete very sucess?”
Txery new business we've ever engaged in has intl
ben sen a «disracton by people extemal and some-
‘times even intemal. They’ sy,“ Why are you expanding
tide of ma products? Why are you going intema
tionl? Why areyou entering the macetplace busines with
‘hid party sll?” Wee geting now wen or neve nt
structure web sence: "Why tke on this new set of devel
per extomers" These are fir questions There’ nothing
‘arnt asng er, at the ll have atthe Neat one
Df the reasonsthat ite nfo fr ivurmberc compares
to parse new stares ts because even ifthe ae wi
sucess they have no meaningfilimpact on thecompanys
‘ccromics for eas, What have found ~and this an em
‘real observution: see no reason why itsul be theese,
Dutt tends tobe at when ns planta seed it tend to
taheiewosevenyear beforeithas a meaning impact on
the ecmaomis ofthe company.
“That dows require people inside ond ovtide to howe
‘hs faith How do you have the confidence thatthe
Investment wil utimetaly py of?
helps to Boe your steatogy on things that wort change
‘nen Im talking with poople outside the company there's
‘question that comes very commoniy- "What ong 10
ange inthe nove town yeas? Bat | very rely et
Seed "What not going to change in the net fve to ten.
yous?” At Amazon wee always tying t0 gre tha oat,
‘Benue yuan aly spn up yheelsaroand those things
All the energy you ines i them today ell sl be pas
‘pu ends ten years rom now WheTeas if yuh ou
Satay fis anc fvemeston more trarsory thines~ who
sour competion are, hat Kind oF cecinoogies ate avait
fe, ane <9 on thos things are ging 10 change soapy
that our going hve to change your say Yry Tae
sty.
wnat are some ofthe things you
shane?
For ca business, mos of them tum out to be cstomet
Insight Lok at whats important to the custome nou:
‘ccrmumerfacng business They want sleton, low price
nd fat delivery Thi canbe fret from bsinessto bus
ess There ae companies serving ether customers wheApu prc forecample ma s.r having found
thos things ac for our customer imagine
fens rom now tey are going to yt love Are
fol they could delves my progucs te nore
hey not going tp, ten years fom nov, say,
“AmBzcn Dut 3 wish ther peices were alle
hich reduces our cost sructure and thereby a
prices tha wil be paying ws divides ten years
we Kep puting enengy into that Aywhet ten
thin hat we belle Is precy fundamental s
yon setting Increasingly transparent = that In
petetoa ic the cise. you belleve that be-
aysvarto alin youse with the custome.
about marketing diferent. In the oid worl
4 of your aterxlonco bulllingayrea service
Git nthe nen word that
Jot of oar suaegy comes
fourths Me Ws elev
are ging tobe sable over
pt kl sure oar aclvkies
ip hth ete, Of couse there
Joma day when one of
uno gare out ifyoute
deeply be preer.
wo otha sets of cus-
ooods touch your site
ew et ~the developers
Benet fam the tools
rth developer community,
ugh ive sore rod eueses
ey ar. Reliab ofthe
Would be one, which is
thing are nobralnes. Ne-
gen tale fora reason:
ly ae inpontat. As
‘he number onc thing
“If we can get
this to work,
it will be
big.”
because otayaiready hada lock on the sales those
sles wanes?
‘Actually, ae aiferen rom that. hat our cus
tomois who are buyersare very convenience motivated We
‘mabe Ic eal, really easy to bay things You ean see tha
syouleokatmeurclike our revenue perclckar revenue pet
age turn. tts ver high because we efficlet or people I
‘oie 2 cisicmmer nbo wan that hind of quicker, you
rex mantto wait tilanaucton coses An auction sore
‘bout playing game There’ some fun involved. Yoae nat
eves ust ying to ge the J done. 1 a cere
in ofthing and adiferens customer segment.
That episode i acually one of the highlights of our cor
porate istry ~one that ll over and over intemal, be-
Cause ke speaks co persfence and relentless The ba
‘Sc thoaghe was: Lok, we have thls website where we sel
‘ings and we Want to have v2 selection. Ce ef the ways
toget ast selections winvleether
sellers thin patics, nto our meb-
site to partipate alongside ws, and
‘make i no awn stuation. $0
ve dd auctions, but we dt The
the results Nex We cteated 2Shops,
which was Faerie selling bat el
hacked those shi parties in separ
Jt pats ofthe soe. Ifa thinepacty
sellerhad a usedopy of Mary Pater
to sel would ave as ow deta
‘age, rather than having is avait
abiiyHsted right nest 19 the new
‘ook. We il dd ke the results
‘we go It as hem ve went to the
ingle-dctalkpage model thet cur
‘thinkparty busines realy took oft
[Now if we're offering a certain di
tal camera and you'e a seller wit
the same camera sll, yu can 9
Fight on cur cin detail por right
nex tour product sxtunderbidus,
‘Andi youde, we wil put youn the
buy" boa which bon ha page
decison ~it gets you the seller
‘customer butloses you the
yer customer, dows?
1k was avery controversial decision
lnvernally at the time. Imagine be
ing cur eigtal camera buyer and
yout just bought 2000 unk of
2 particular digital camera. Your
bes says to you, "Good news: You
Iowa those people you've beenrorecedkred section oF boats ar
Shooping every day of te your See er As
2008
caro
rnoouerune exraNcioN |
78 stored Busnes Roviow | Oatober 2007 | Nerorg_thnieng nfs your eompetior? Were going one them,
{oi their diptal cameras re nex to yours on your Ge
pugs The natural reactions “Whe” A dtl camera
pve tke anh in asupemnarket sang es. You dou
to get stk th a huge inearery of fyemeganisl
ras when eusiomers wil shortly wart siemegapise
ris out hive 0 sell hem fo pennies on the dol
0a Bue’ wee exuetely conte ~and ily.
us loaded upon aed you'e ging tole st aryody
“rie in and take Amacontefc on what sour peimary
alo kth del yaad oloe
We talod about that Ice before we dt But when
“iltellcctual conversation gets too hard because ofthese
iil cannibalzaton rush wc take sinplerinded p-
Theresa old Warren Buffer tory thar he hashes
son his des: abou outbo, and too hard, Whenever
“he icing one of those tocar problems where we get
“Troan inte loop and cant dace what todo, we ty to
“sae into a tigheorrad probe by saying, "Well,
“hits beter forthe consumer”
“The realty that we have a igh competive cost sre
ture and we very good atcompetingon things ke etal
“cameron tat pags actually workout very Wel Bt
tome ofthe mos important things weve done ove the
pars ave eon shorter ati she very eales.
he (Fm akg you mace to 1095), when We stated posting
esemer reviews, a cusarer met sash a beck and the
sblsher wudnt te. would getleters trom publishers
"WWhy nyo alow negative reviews your websle?
‘hy don ou just show the pose revlews?* One leterin
_partculr "Maybe you dost understand your busines.
“You make money Wher You self ings" But 1 thought to
‘myel We dort nae none when wesel hing emake
‘ney when we Relpcuscriers mabe purchase esis
‘So youre choosing projets based on stable customer
needs and adopting th eustome’s perspective to make
‘ical stategle decisions. Michao Perce claims that
‘srategy i shaped by five forces, but wore heering you
{atk about only ene
itinksomshow | am congentally exstomer focused. And
think that from that comes this passion to figure out
‘eatomerfocued tteges as opposed tos, competitor
Ficus sategies. Theres nothing wrong with competitor
ecw. There ate other companisthat havedelveredexcends
‘ingly good basnes ress by pusuing clveolowerstrate
_Boveting up realy good benchmashing wok. Thowsalot
to be sid for that kindof pasion, doesn happen tobe
tho we ae, We don ignore ourcompettors we ty to stay
ser to what they ae doing aed cetainy there are things
‘that ne bench very att, But ae of our nonsy
and drive asa compan, a. culture, comes fom tying to
build these cosomerfecased sate. And acwally 1 do
ink they werk beter infos changing envconments, for
two roses Fis ae Lai before, customer needs change
ore slowly assuming you pik the right ones than alot
of other thing Second cles following doesnt work aswell
fn fat changing environment Thestratege vale of lose
following is innot having go down llthe Sind alleys Yo.
[etsmaler competitors chek thete ou, 2nd when they Fe
samsthing good, yoa just quaeuple down- Wf one fellow
ing close enovgh onthe aren i slowemovingenongh the
fae thot you'te not fist don that path doesnt mrt ou
rnc But nour envircamentthesesso much rapichange
fn the ntemst,n echrogy that our castomeraisessed
spproach very atectiv.
‘Theres smother stuation, to, where | think being cus
tomer focused i here, and shes when youre a ewe
yout competitor fc eu tend 20 Sack vf when your
Iaenchmark sa tat ye the bes. But your focus ison
‘etomers sou keep improving So there ae alot falar
tages. Im not chiming we invented this approach alot
‘of companies ae custome foeased~bur it’ very deeply
Ingrafed nal the noc an crannies of oar culture.
‘could be that you have besn able to take ito anew
level. Being te instantiation ofthat model athe
‘moment when Kbecame possibie to get afloed of
‘custome feaback was happy timing
swale. Webave he opprtuity oc Amazon nots
tobe acistomercentriceompany butts «new standard
lobally for nat “customercentre” means. After World
‘War ly Mosita san {AKio Morita, Sony longtime lender
Se a gol for Sony Me wanted the company to be known
foc quel, but his bigger gpl for Sony was to make pan
norm for ually Having that kind bigger missions ery
Inspiring. Year rom now, when people Jook back at Ams
00, {wank them 12 that we uplied customencentricty
‘cos the entire bins wor IF we can do that, be
realy coos,
Inmany sompaniasite hard to keop thet customer
focus Bethe ontorprce tal grows internal agnndes
“arto drive decisions How do you detend against
‘hat? Are you constantly brosdeastng thepoints of
iow that you hop wil deeply afr te Sure?
‘We have te allnandsmestingsa yeas so thatsane mect-
as frit. Ard the, repetition se, neve beenssvnthe
fame things for mary yeas. constant talk about thine
le information perfeeten and customer obsession sate
to competitor ebsesin. ie abo doa bunch of things to
‘eep people drety in touch with customer needs Every
nor | October 2007 | Hana Bsiress Review 79ew employee, no matter how sei or furor has to 0
spend ime in Or ffm centers within he et year of
‘mplonment. Every two yeas they do tw days customer
Service. Every has o beable to work ina cal ete,
Even your
‘Oh yeas jus go secertied abou si months ago. The at
that I dd alot ofcustomer service nthe int wo years has
not exempted me. Bade, i's quite entertaining, axl you
leama ton. 1s net acho.
“These mechanical things continually ad fuel te that pre
coiting ir, but the tm is that corporate «ul
turesare incodiblysiable overtime. They areslf
perpetuating, bocause they attract new people
‘who that kindof culture, walt pope who
ort te tect themcves One ofthe tings
Theat most from new executives once they¥e
‘een here for a month, is leant believe how
‘customer focused this pace i So i you ware
someone who cell loved corpettorobeied
empany and you came t6 Amazon, one of to
things would happen Either you woul se our
approach and sy, "Wow, this actualy prety
as; my eyes have been opened” oF you wold
Say, "Ins iit for me” Yus might note the
wort “ulare? but youd be missing something
Sotheresaverystrong seentorcing loop. That
Sony cumures are very had fr competitors to
copy “and asouce of great compete advan-
tage ir you have the ant cuitine foe te rent
nisslon. They aso lt, Thee are things that
sou cannct unertake, You have tobe accepting
‘oC what your culture isn your thinking about
states
“That would meen the culture ct company
very path dependont. With the fest fe
[people you hive and your fist few experionces,
‘things strt down apath.
“They aboltey do" you ator boa a inde that
1m sur ispart ofthe easoa we are what nae, Someline
srourd May of 997 we were puton a deathwatch by a Wel
known indusry pundit His argunent was simple on:
Barnes Noble ha jst launched thei ebstand chad
‘nly 135 employees ashe time an orething lke $60
on in annua sales.
‘So his point was that you'd anakaned sleeping sient
and filled it with a fares resolve?
‘racy They had 30,000 employees at that time and 9 bi
on in sles Hs mesiage ns, Amazon hae had a god two
sear min, bu if ovr Toye to. The te of is report
‘wos acmnlly "Amazon Tass gt picked up bythe media,
an
and it was prety mach everywhere, becase we re sot
fa paster child Inteme company Toa perso, think
ry one of ont people got cae by a paren scaly ther
mother ~ashng.“Ae you oy” Whats ths abot Amazon
{ot Teas
‘We had an allbands meeting wien was very easy
{ho wit erly 25 people and sd, "Forget stot thie We
ar be tipkcg about how ames & Noble has MHC
note inthe way of rsoures than we 69" told everyone,
“fs, you should wake up every morning tered with your
sles drenched in pest, but nt becalse you afta of
‘our competion. Be fai of our customers because tose
ate the fol who have themoney.Our competitors arenerer
‘sing tosend vs money
‘Suce then wee mada numberof econ ing with
the customer that have been questioned by welheaning
‘ite journalists Wall Stet analysand indaty analysts.
‘taking about things the fee shiping. lens foe
ring prices Amazon Pine. And eve ime we make one ck
thove and get broadly cree fri abd then wes ne
petalitiemorecredbilty.
What would you sey hes boon the neturect your
biggest stratogie mistakon?
Thine most big error are eore of omission rather than
rors of commision. They ate the ones that compacicsnever gto to ascount forthe times when they were in
{ postion to notice something and sct omit had the sls
tndeompotenciss or ouldhaveacquiredtherand yt iled
te do sts the opposite of wicking to your kiting ts
en youshoaldot have tucleto your kiting bat you ci
Wahard to imegine how you could pot thoce errors of
omission in time to held a management team secount-
thle, What ere you doing to prevent therm?
(ne useful habit ft. ask the qustcn, "Why not" When
something soem like an opportunity it seems like you
thine the sl, and maybe ome kind of advantage, and
you think t+ bigarea you will aways getaled the ques
tionWy? Why do thot" Bue"Why nos an equal valid
‘question, id there may be goo Yeasons Why not-maybe
sou dot have the capital resources or pats Of yourcurent
tases requie 30 mach fous at this key juncture that
it would be iesponsole. ln that as, i somebody ashe,
Wy not you would ay Her hy et." tha ques
tion dese get asked. Ws an asyrametry thet linked 19
thas erorsef omision,
Itold everyone,
“Be afraid of our
customers, because
those are the folks who
have the money. Our
competitors are never
going to send us money.”
you ae determined 1 eid errors of omission,
‘doesnt thet put you at grt rsk taking on too much
‘and spreading resources too this?
‘Wht ou rally want to do companyysde Is maximize the
umber of experiments you can do per given unit of time,
somethings rally bigUke the bg bet weve made on
_Amizon Web Services then sure, you can do only mite
‘umber of thos, 0 you spend more time thinking about
‘hem and talking them through. Somebody wear the Bick
‘tan aes the cae for why not to doit and somebody
the pas on the white hat and says why isactually good
thing wo do. But since the cutcomes ofa these things te
uncertain you can igure out tow to conduct an exper
rent ot caa make more bets So te Leyes edacing
tecnst ofthe experiments Wehavea group called WebLab
that isconstanty experimenting wih the use Interface on
the website, geting atta data from eal usage items
about which interfaces work best That fa hue laboratory
fori, and weve pits ofnerey imo tying ogre out
howto be very ow cos with those experiments so that We
can runaarmch anger mmber ot thers.
was racic mater, sometimes is very. vey hard eda
matically reduce the cas of experimentation, There ate at
‘eswhere consacting an experiment issn ems ofc,
‘anamount to jt dong But youshouldalvays be tying
te do that. You should be making guess and then fading
bat at lowest cost whether orn hey are needle ROWE.
How often de experiments turnout mia ditorent
from what you expected?
Sometimes you make guests and you think, When We
launch thie, people are going to lve And they don't. We
launched fate Horget what weramedit- where we'd
take your purchase history anathen tnd out ofa milion
(of other customers the one eistome: whose purchase Ns
tory wes the closes match. You could pus a button, and
two shoe you al the things that your doppelganger hac
‘bought that you had not Noone used Our sor sfull ot
things he that, where we came up wth an novation that
wwe thought ws realy coo, andthe cosemers didnt cae
Fortunato there ae aso qt afew that went the other
nay Bock when we fit laxinced the AStciates program,
two thought it was2 nie thing to do but had relatively ow
apecatone for it This sor marketing program th es
‘other ste ean afliat fees by sending buyers tox. It was
the fr: progr ofits Kind and it éramatically exceeded
‘ur expectations. Very quik we dole down oni 82
favored marketing progam. Ande continang t be very
sucess yeas ater.
[Ar the sare tims, you have to recognize that there are
times when you cant puta te i the water you hae to
Isap in eth both fet. You have to sy "This going o be
‘expensive and that mene we're going to have to make it
‘wor? You allow that yourmight ake lsc tits and uns
tn the dea xt yu really commit yours tothe bjec-
tie, Ane by the way ifs vor fun to hvethe Kind of euture
where psople are ling to ake these leaps its the oppo
‘ito thet institutional no es the institutional ys People
sayWee going todo thi We're going to gure outa way”
jaro with the emphasis you placa cn
the early rtult of exparimonts?
My observation on that woul be that it’ important to be
stubborn on the vain and fledble onthe datas 1 talked
thout the evolution of eur marketplace busines ~thats a
seed example of whore we were elentiesson the vision. We
ade alt of rir and turns inthe execution. We worked
‘on it for afew youre But we didn give up on the vision.
oro | Oetobera0e7 | aiid Busross Revew 011 ink fon teteve that a paula customer st sine
portant, ike ser that ase, and you belive you lave
fdentited wat some of ther nontranient needs wil be,
And you believe the addressable market sig enough for it
tomater-f you realy believe thre thing then it pys to
bpestubbom in pursuing hat
ness grew and moved into new areas, you
rte keep up one personal evel
along the war?
Something we haven aed abou but thats per impor
‘ant in oar culture ithe feus on defect redution and ox
‘ction Itsone ofthe reais that weave been sucesfl
for customers Tet ie something hadto eam about
“Thai's not your natura trongth?
ll byslam’ mean erly farmed a bunch of ech
igus, ke Sx Sma and lan manafaciring and otter
Incrediy weal approaches. avery deta oriented by
‘ature have the gh mstincsto bean acceptable era:
torbut leit ave the ols tocreae repeatable poe.
tet know where thos processes made sense. Before |
‘arte Amazon, eas with 2 quantatve hee Cu. Tht
wok i very aitined and very analy Buti no 3
‘qvestionofcesgning a epwatable pieces. tie «ca
‘manufacturing plant wher the wor hast be done fn 3
‘defers na, inthe same way oer enlewe ander or
anyway, tat pete oF opt a important Bat ere, that
‘ecutin foc sabig factor and youcan eet ur fran
{lal metic over the pst ten years ts ery obvious when,
ferirstance, me ool thenamberofeuterer contact pet
unk Our customers doriteontactus unless someting
rong, 0 we want that umber o move down ~ ant has
fone don every yea foe 12 years Thats gis process.
Tanagemen, We ty to implement thos kinds f proces
in varus place. Theyre mest natully appied in our fl
filmentcsntoreand ineastomer service acs on bat wee
‘ctualy found tha they can be wel in a bunch of ier:
caeaing
‘Wien yoo insperenced wth scipinedproessman-
agement, yu nally think that is equvalent wo burea
‘racy. at effective procesisnotbureabcracy. batearacy
senseless processing ~and eve hi some a tha, .00.
What eee s been erento your abi to grow
‘manager and leader? Otten, entrepreneurs aren't ble
‘thik. when you stait ou, tba one person thing eee on
‘the ns yan you no onl fguxg out mat todo but
‘actualy dog At certain poe the compan ects igs,
‘nd you get obese youre mostly guring oat what todo
tot how Ws done. Eventually you ge tothe pelnt where
{2 Howard sons even | OeaderZ007 | H0:009
you're mostly fguing out wi ie ging 10 do not een
‘that todo. So one wy tothink about this bas a transition
[OF qustons from*How?"to" What" *oWho?" Is ct nec
‘cently conscious thing ceeurstances tate t-ASthNS
{et bgges, Idan think you can operate any ater way SO
the question for any tenor excerve i, esaly."Ae YOU
rogresing along that curve at the right te?"
Now ofcourse, im eversimplifyng, deca the realty
that you continue to dive deep in setcted areas. ve never
‘net what Ithnico sc agon eect wROdDes nec EOS
‘oman ight eeriged acts ~soine area hey consider
‘important that they wil inspect ial Ue way downto
the now tage.
Whats your daep-awve area?
When X ces fo the way we relentlessly drive down our
‘onsimet fact pig stl continual lander and in-
spect that and talk toe peopl noo the work all the way
through that whole cain need to be sure that we ae in
fact competitive al Foased on offering our eustomers the
Jones porte prices That's ope ofthe ting think 50
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