See show notes for this episode: S 02 | Ep 24 From Wharton to Amazon: Business Model Innovation in Action
Alex: Welcome to Experience-focused Leaders. I’m delighted to introduce Sergey Netessine, Senior Vice Dean of Innovation and Global Initiatives at the Wharton School, and Durbani Armani Professor of Innovation and Entrepreneurship. But more importantly, he’s not just a professor—he’s an AI expert at Amazon and an investor. Sergey, welcome to the podcast.
Sergey Netessine: Thank you for having me, Alex. Great to be here.
Alex: Well, I have to start with two disclosures. I’m a proud Wharton alum, and recently I got to know Sergey through his investment in RELAYTO AI. I wanted to share the wonder and excitement I felt from having him on board and engaging with him. For me, this represents what I see as one of the ultimate roles of business faculty today: to be on the bleeding edge of innovation, to actually apply scholarship, and to reinvent themselves under pressure. Sergey will tell us how he is bringing Wharton into the future while also putting their money where their mouth is—backing innovations and contributing real value.
So, Sergey, you have a very unique role. Can you tell us a little about how you assembled it and how it came about that you wear so many hats?
Sergey Netessine: Certainly, yeah.
Alex: Ah.
Sergey Netessine: As professors at top business schools, we’re in a fortunate position with a lot of flexibility in what we do. Some colleagues start companies; some invest in companies. Others edit academic journals, write books, or pursue speaking careers. I even have several faculty members who do litigation consulting or serve as expert witnesses.
I have a big administrative role at Wharton as Senior Vice Dean. I lead our global strategy and also oversee innovation—trying to figure out what new business models our school should have 10–20 years from now, because we see trends and shifts in customer and student needs that we need to react to.
Outside of Wharton, I’m an investor and actively participate in a couple of venture capital funds. I also work at Amazon as an Amazon Scholar, a unique position created for academics like me, where I spend one day a week helping Amazon with strategy, data, and occasionally public policy. I’ve even managed to write a paper based on my work at Amazon. So, that’s a number of things I’m trying to juggle at the same time.
Alex: Let’s start with some of the most intriguing roles. We’ll come back to Amazon, because I think it’s fascinating how you apply academic expertise there. But the idea of Wharton—the original business school, highly successful in undergraduate, MBA, executive, and PhD programs—is interesting. I know one of your projects is starting earlier with students. Can you tell us about that? I think I would have loved that program when I was younger, discovering what business is all about.
Sergey Netessine: Yeah. One program I lead is the Wharton Global Youth Program. You can see it right at the top of Wharton’s website. The idea is to educate children aged 15–19 on business topics, entrepreneurship, finance, and more. We launched it about five years ago, and it doubles in size every year—it’s growing very quickly.
What’s remarkable is that we’re the only business school that seriously addresses this market. Other schools may offer a course or two in the summer, but we have massive high school programs, including online courses, in-person courses, investment competitions, data science competitions, and philanthropy programs. So we offer a wide scope of programs for high school students.
This is a highly underappreciated market. About 60 million kids every year apply to undergraduate business programs. What prepares them? Nothing. Schools don’t really teach business, so kids have a very one-sided view. When they come to us, we show them that there is marketing, accounting, finance, entrepreneurship—many different areas and industries. We bring in industry speakers and faculty speakers, and students stay in dorms alongside our undergraduates, giving them a preview of college life.
It’s a massive market with huge demand, far more applications than we can accommodate. We believe in starting early. I’m looking at middle school and even elementary school programs—teaching kids about money management, loans, mortgages, and planning for college. It can start very early.
Alex: I couldn’t agree more with what you’re doing. For example, my son likes financial games, like a version of The Game of Life, and he gets excited about playing and learning how the economy works. That’s a wonderful gift a parent can provide. When I was in high school, there was a program called Junior Achievement teaching entrepreneurship, which was useful but very narrow. There’s huge potential—and Wharton’s trusted expertise can provide a much broader, richer experience. High school programming often leaves much to be desired in this area.
Sergey Netessine: Absolutely. You’re right. Organizations like DECA teach business-adjacent subjects, and many U.S. schools participate. But there are no big brands like Wharton, Stanford, or Harvard working with high school students. Most schools barely touch undergraduate-level business. We have an undergraduate program, and other Ivy League schools don’t. So when high school students think about business education, they often think about the best undergraduate business school—which is us. In any ranking, our undergraduate program has consistently been ranked number one and will continue to be.
Alex: It lowered the year I graduated a little bit, but then it recovered. I’m glad to see that.
Sergey Netessine: I hope not, I hope not. They naturally gravitate to us—they come to our website, explore, and so on. We actually get a lot of organic traffic; we don’t even need to advertise that much. Our high school programs have now enrolled several thousand students, both online and in person.
We started in San Francisco because the Bay Area is a huge market. Now we have high school programs in Cambridge, UK, and we are starting in Oxford as well. We’re also launching a program in Dubai this January. So we’re starting to grow worldwide because demand is unprecedented, especially in emerging economies like China, India, South America—you name it.
Alex: That’s brilliant. I think it’s a real gift. You’re absolutely right—there’s no rival to Wharton in the undergraduate space. Somebody once told me, “I kind of want to do business, and I heard this Ivy League thing is good, so where do I go?” And the obvious answer was Wharton. I was one of those early decision Wharton people.
What you’re offering is a great platform, especially in the entrepreneurial world. There’s more and more appetite for people to start their entrepreneurial journeys earlier. Acquiring some basic economic and financial acumen is only going to help founders—whether they’re creating great technology companies or other ventures—to start sooner.
So what other initiatives are you pushing besides that, which you think will change the game for business education going forward?
Sergey Netessine: Another initiative we launched just last year is what we call Wharton Academy. The idea is to offer short, non-degree, non-credit business classes to undergraduate students from other institutions—or even University of Pennsylvania students who are not Wharton majors.
These could be two- or three-week courses on AI in business, entrepreneurship, finance, data science, and more. We’re targeting a trend we see: decreasing demand for full degrees and increasing demand for non-degree education. People now prefer short courses they can take throughout their lives.
Alex: So it’s not a full-on degree.
Sergey Netessine: Exactly. Hopefully, it can be stackable credentials—badges, certificates, and so on. The logic is that degree education is expensive and somewhat static. What if you learn something, and a few years later it’s no longer marketable—or something new, like AI, emerges? We hope to attract non-business majors who realize they need marketable business skills—or people who graduated a few years ago from another country and want a taste of what the best business school feels like.
We also put students in dorms in the summer and deliver these classes in person. Our hypothesis is that this will become a new space with growing demand.
Alex: It’s kind of like what used to be a study trip to Oxford or Paris, now becoming a study trip to Penn’s campus—you get life experience and accreditation as a result.
Sergey Netessine: Yeah, that’s the hope.
Alex: Another one. So applying that innovation straight into industry: you’ve done consulting with several great companies, and now Amazon. How does that work? What attracts organizations like Amazon to create a special role for part-time academics, besides access to your brainpower?
Sergey Netessine: This is very unique to Amazon. I haven’t seen similar programs elsewhere. Many companies hire academics—Microsoft, Airbnb, Uber—but usually full time. Some professors take sabbaticals, some quit their academic jobs to join these companies.
Amazon needed academics but found it difficult because most are risk-averse and prefer tenured positions. Pat Bakari, Amazon’s chief economist at the time, realized that to recruit academics, you need to start slow: hire them one day a week, then maybe full-time in the summer, then sabbaticals, and eventually some might join full time.
That approach worked really well. Now, Amazon has hundreds of scholars. I was one of the first six years ago. Many of my colleagues converted to full-time roles and are now directors or VPs. I enjoy my daytime job at Wharton a lot, so I have no plans to do that—but I find it fascinating to work in a highly diverse team of academics.
In my team, we have a Nobel laureate in economics, machine learning inventors, physicists, computer scientists, statisticians—it’s really exciting to see how they tackle Amazon’s everyday problems.
Alex: Can you share anything that illustrates the connection between your academic work and the practical challenges at Amazon?
Sergey Netessine: Certainly. One public paper I co-authored evaluated the economic impact of Amazon warehouses on local communities. We found that when a warehouse is built, employment goes up, poverty goes down, and median incomes increase. There’s a significant job multiplier effect: not just warehouse jobs, but also construction, maintenance, logistics, and local services like restaurants.
We’ve also conducted research on Amazon’s impact in disaster relief and other areas. This work helps the public understand how major companies contribute to the economy, which is often underappreciated or misperceived.
Alex: So by essentially taking over some functions historically handled by postal services, there’s also a public benefit that comes with that. It sounds like Amazon is taking that responsibility seriously. I was actually impressed by some statements from Bezos a while back—about how yes, we’re responsible, we need to be evaluated, monitored, and measured. I always felt that the opportunity to disrupt comes with a lot of responsibility, and the smarter businesses take that very seriously.
Sergey Netessine: Yeah, absolutely. There are so many ways Amazon has changed the economy. It essentially created a completely new type of job—distribution center and logistics jobs. These jobs existed before, but they were few. When Amazon started building warehouses, the number of these jobs skyrocketed. Many people hired in these centers have no prior experience—they’re young, often in their first job, coming out of school. Many were previously unemployed.
Amazon established a minimum wage well above the federal minimum—double, actually, a long time ago. It provides benefits, and even pays for education and tuition.
Alex: That’s a really relevant point. When I heard about the tuition benefits, they were tremendous—similar to what the Army or Navy has offered as part of their value proposition. I couldn’t agree more.
Sergey Netessine: And there are health benefits, insurance, and more. These are good jobs, and there are millions of them. Amazon is the second-largest employer in the U.S., after Walmart. The public should know about these benefits.
Alex: Obviously, there’s a counter-narrative today about AI taking jobs—not necessarily Amazon jobs, but across many fields where automation is increasing. What’s your take on that, being close to the community impacts and approaching it with academic rigor, whether through Amazon or Wharton?
Sergey Netessine: From an academic perspective, we’ve had many waves of technological innovation that sparked fear about job loss. My favorite example is ATMs. When they were introduced in the 70s and 80s, newspapers predicted 25,000 bank teller jobs would disappear. Today, there are 75,000 tellers. They no longer give out cash—they’ve moved into higher-level work like loans, CDs, and refinancing. These jobs are more interesting and productive, and banks benefit from the technology.
I think the same will happen with AI. Some routine tasks will be automated, but new, more interesting jobs will be created. For Amazon, for example, warehouse locations are limited by where you can find thousands of employees. Robotic warehouses may help solve that challenge. And there are more sophisticated roles, like delivery drivers, which are interesting and higher-paid. This is the kind of rebalancing that will likely happen.
Alex: That rebalancing speaks to the tension between technological innovation and business model innovation—Amazon combined both. You’re a leading authority on business model innovation. I want to read a few quotes I love from your speeches and books: “Companies must be willing to selectively forget the past and even destroy their own icons.” Why are you confident that business model innovation is less risky than new product development, and what skepticism do you hear most about this topic?
Sergey Netessine: Business model innovation has emerged as a major topic over the last 10–15 years. Clayton Christensen at Harvard wrote about it, and it gained traction from there. I published one of the earlier books on business model innovation in 2014 with Harvard Business Press.
To me, it’s an often underappreciated topic. Most big companies have an R&D department focused on technology or product innovation, but rarely a structured process for business model innovation. That’s a big gap.
Alex: Oliver Wyman and similar firms get paid to do projects like this. But outsourcing something that’s hyper-strategic—does that really work?
Sergey Netessine: Every company needs a process for business model innovation. It has to be done internally, with people from different lines of business. A business model combines operations, sales, marketing, and more. Teams need to analyze the current business model, identify its weaknesses, and imagine the next one. Outsiders rarely know the everyday details necessary to create a new business model.
In my experience, consulting firms often deliver one-off innovation projects, but you need a process. Every year, just like you review financial statements, you should review your business model and develop the next one. This should start at the top: the board should tell the CEO, “You have two jobs: run the current business model and design the next one.” That’s how it should work in my view.
Alex: Are you finding that the companies most successful at this have skunkworks departments or almost independent business units to try to reinvent things? Or do they manage to integrate it as a process inside their core operations, despite the incentives these organizations have to maintain the status quo and grow at a steady rate?
Sergey Netessine: I don’t think there’s a single approach that fits everyone. I’ve seen companies with a separate business model innovation department. For example, I worked with Medtronic’s business model innovation unit at one point. Medtronic is a healthcare company with very complex products, like pacemakers, which are very expensive. They realized that for each product, you need a different business model to commercialize it effectively.
But I think most companies don’t need a fixed department. Most can operate with fluid teams formed each year to review the current business model, generate ideas for a new one, and run experiments. These teams can operate independently within business units or have a designated person oversee the experiments. In my view, a permanent department is rarely necessary.
Alex: When I was at SuccessFactors, part of SAP, I tried to wear that hat—launching new businesses that were either supplementary or allowed us to mix things up. I found the skill set required was unusual.
Sergey Netessine: Right.
Alex: You needed to be a coalition builder, trusted within existing infrastructure, but also have a bit of an entrepreneurial, “break some rules and ask for forgiveness later” mindset. What traits do you see in people who succeed at pulling these projects off within large organizations? Are they former founders, aspiring founders, or something else?
Sergey Netessine: Most large organizations have innovative thinkers—Chief Innovation Officers or CIOs. Increasingly, companies collaborate with startups, which I find very fruitful. I recently wrote a report on corporate-startup collaboration, and we see it growing: OpenAI and Microsoft, Anthropic and Amazon, and so on.
There’s a realization that you can bring the energy and creativity of startup founders from outside. One emerging practice is corporate venture clienting: a corporation becomes a client for a startup. For example, if I’m a bank and want to offer an innovative AI service, I can provide a subset of customers for the startup to experiment with. If it works, we roll it out to all customers. If it doesn’t, we can apologize and say, “This was an experiment.” This approach works well and is increasingly common.
Alex: You mentioned AI, and obviously there are all sorts of questions around business model innovation in the software industry itself. There have been legacy waves of innovation: on-premise software, cloud, mobile, social, and now AI. AI is the new wave, and pricing and business models are shifting.
On one hand, it’s easy to charge per person with software subscriptions. On the other, the value unlocked for companies varies. Some, like Snowflake, already use utility-based pricing. What are the biggest risks in this transition—for legacy vendors and new vendors—when a product is innovative but potentially confusing, and people don’t fully use it? How do you balance those trade-offs?
Sergey Netessine: Two thoughts. First, we’re still in the very early stages. Nobody knows which business models for AI truly work. Much media attention is on large language models, like OpenAI and Anthropic, which is natural. But I hypothesize that more innovation will happen at the edge: IoT, robotics, and connected devices.
Currently, AI in these areas is inefficient. For example, a thermostat sends a signal to the cloud, computation happens there, and a command is sent back. Same with robotic arms—huge latency, power consumption, and data transfer. The future will be small-scale AI at the edge: in your car, thermostat, fridge, or robotic arm. They can perform fast, efficient computation with smaller models.
Amazon is doing this with Alexa, but currently, data still flows back and forth, which isn’t optimal. Ideally, you’d have low-power chips at the edge, preserving privacy and reducing cloud dependency.
How will business models emerge for these applications? It’s hard to tell. Likely a mix: monthly subscriptions for basic access, and feature-based pricing for more compute-intensive or cloud-dependent features. Unlike traditional software, AI isn’t costless. You have to account for compute costs and monetize accordingly. Small edge models, however, could simply come with a monthly device subscription.
Alex: I love these insights. I’m curious—how do you introduce these ideas into your own investment decisions? How do you decide where to put your hard-earned Wharton and consulting income—whether backing startups like ours or funds with a broader portfolio strategy? What informs your decisions and choices—from academic work, practical experience, or even your inner instincts? And how do you decide where to invest your resources and time?
Sergey Netessine: Yeah, I’m a very unusual investor because I actually don’t care much about returns on my investments. For me, it’s more about learning, seeing interesting examples, and incorporating them into my teaching or writing about them in books and articles. I might even bring these examples to my classes or to the business units I run.
I have all kinds of ulterior motives. I don’t do due diligence the way most investors do—evaluating ROI or market size. For me, it’s about enhancing what I do in teaching and research. For example, I’ve written several papers using data from startups. Startups are great as data sources because big companies are difficult to work with—they bring lawyers, NDAs, and bureaucracy. Five years later, you’re still signing NDAs. But when I invest in a startup, nobody questions me: why would I do anything harmful to a startup I’m invested in? You want data? Here’s the data.
Sure, some of my investments have gone bankrupt, but I’ve written papers based on them. To me, that’s a small price to pay.
Alex: Honestly, that’s a fresh perspective. It’s a real angel investor viewpoint—you’re investing for the joy of learning. And unlike some angel investing, this isn’t just cocktail conversation—it’s something you deliver in your executive MBA classes and through research.
Sergey Netessine: Absolutely.
Alex: The last couple of times we talked, you were out in the San Francisco office, teaching executive MBAs at Wharton. Imagine we have an audience of successful professionals wanting a flavor of Wharton, whether through a full executive MBA program or a specialist course. What are some of the nuggets you think they would take away? What would make them lean in and explore these programs further?
Sergey Netessine: I teach in a variety of programs. One is a non-degree, short executive class I run called Business Model Innovation in the Age of AI. Typical participants are senior executives at large companies struggling to reinvent themselves. If your company is “old” and no one remembers when its business model was invented, that’s usually a red flag.
Alex: Red flag, red flag.
Sergey Netessine: Exactly. These programs usually have 25–35 participants discussing the challenges they face in innovating their companies. That’s the goal: figuring out how to move forward with innovation.
I also teach a program called Venture Capital, which is more geared toward family offices or individuals starting or managing venture capital firms. This program focuses on structuring your funnel, screening deals, investing, and so on.
Alex: What are some of the biggest surprises participants take away? Do you get feedback on that?
Sergey Netessine: For the business model innovation program, one common surprise is that the biggest barrier in large companies is not technical—it’s culture. Creating innovation in a big company often runs against a culture that doesn’t support experimentation, doesn’t promote innovation, and doesn’t reward failure. Most innovations fail, so you need to work on the organizational behavior to succeed.
For startups, it’s different. Experimentation is part of the culture. What fails in startups versus big companies is very different.
Alex: Not product-market fit? That’s what VCs usually talk about.
Sergey Netessine: Right, not that. Big companies already have millions of customers and billions in revenue. It’s relatively easy for them to identify gaps and create new offerings their existing customers will adopt. The challenge is cultural: no one is rewarded for failure, and experimentation is rare. Amazon is an exception—they focus on designing experiments, analyzing results, and comparing business models. Most big companies don’t do that, which is why they often fail in innovation.
Alex: And for aspiring investors and asset allocators in the entrepreneurial world, what are the key challenges or discoveries?
Sergey Netessine: In venture capital programs, one important lesson is that investing in innovation can be highly structured and mathematical. Historically, VC was often about gut feeling or intuition. Today, you need a process to evaluate thousands of investments in a short time. Relying on gut instinct alone, given human biases and anchorings, isn’t sufficient. You need a disciplined process—and sticking to it is essential for a successful investment strategy.
Here’s a polished version of your text with grammar, punctuation, and sentence flow corrected while keeping the conversational tone intact:
Alex: And do you find that psychologically very challenging for people? Because many investors are really influenced by FOMO—the fear of missing out. There’s still this mindset: if I didn’t get a warm introduction, maybe these people aren’t capable of doing something in the market. All the “rules” of investor mentality come into play. Do you find that you’re countering some of these biases?
Sergey Netessine: Absolutely. That said, venture capital is still very much a people’s business. It’s about who you know, how well you know them, and the references you get for your deal flow. But there should also be a structured, process-driven part—where you look at many companies and systematically narrow them down. Building and following that process is important.
Nowadays, AI also has an impact in venture capital. You can use AI tools to help screen companies, collect information, and evaluate them. But even with these tools, you need a clear, well-defined process. You can hire agents to help source and evaluate companies, but you still need a structured process.
Alex: So what is the process for someone—maybe mid-career—who’s going through full-time programs or specific certificates we discussed and wants to reinvent themselves? You work with both early-career professionals and senior executives. Is reinvention internally driven, or do people need to allocate time and apply a process-driven framework? And this could be as an individual, not just a company, because I think all of us want to sharpen our “sauce.”
Sergey Netessine: That’s a great question. In academia, you often find people teaching the same material for 40 years and then retiring. Academia is one of the worst places for reinvention—most people never reinvent themselves. Personally, I find that boring. I believe that every five to seven years, you need to completely change what you do—your methodology or your focus.
Reinvention is mostly internally driven. Most people stick to their path, following what’s familiar. What makes you change is usually internal drive. I haven’t collected data on this, but that’s my observation.
Alex: My take is that there are multiple drivers. Sometimes it’s failure—you think everything is working, then something goes wrong and you have to reexamine. Sometimes it’s success—when you achieve something, you realize there’s a way not just to grow a business, but to grow as a person. I hope business education increasingly addresses this aspect of career development. That’s exactly what you’re doing.
For me personally, I noticed patterns in my professional life that mirrored slip-ups in my family life. I started recognizing habits I carried as a founder or CEO that weren’t effective and tried to correct them at home. It became a form of personal reinvention.
To me, the beauty of this approach is that highly driven people eventually need to shift some of their original motivations toward service. I think Wharton continues to support that, and I’m proud to be associated with the school. I’m honored that Wharton faculty like yourself are supporting our journey at RELAYTO AI. I continue to be a fan of the program.
How can people get to know you, Serguei, your programs, and follow up after this conversation?
Sergey Netessine: Professors are easy to reach. We have websites with emails and phone numbers, and I typically respond to inquiries on a variety of topics. Many people write for investment advice, venture guidance, or to send their children to our high school programs. Executive education is another great avenue—our programs are among the best available for any topic. Education should never stop.
For MBA students, we’ve created a program where every few years they can take an executive education course for free—essentially prepaid through their MBA tuition. Many alumni return to take these programs. Everyone should consider updating their skills regularly, ideally every few years. You can do it online, but I personally prefer in-person programs for the interaction, networking, and new connections. That’s by far the best way to engage.
Alex: Brilliant. Thank you so much, Serguei—lifelong learning with Serguei at Wharton.