Amazon.com’s founder figured out how to sell books on the Web, and now he wants to sell you everything else. Simple, right? So why is he so far ahead of the pack?
The counter clerks at Amelia Island’s Flash Foods convenience store never saw it coming. Around Christmas 1997, a rented white Chevrolet Suburban pulled into the parking lot and disgorged three members of a commando squad on a mission. The team was disguised in the tourist garb common to the Florida resort island, and the only hint that it might be a military operation was the way the squad members whispered code words like „Whiskey, Bravo, Tango“ into their Motorola walkie-talkies. While the driver sat in the car and timed the exercise, a second soldier stood guard at the door. Another quickly grabbed a spot in line for the cashier. The fourth rushed toward the dairy case in quest of the squad’s ultimate goal: a quart of milk.
Within two minutes, the purchase was completed and the car was roaring back onto the streets.
One of these odd customers bore the code name Ffej Sozeb. If the clerks had heard this nom de guerre, they still might not have figured out that they’d been hit by a pioneering Internet entrepreneur who one year later would be worth north of $9 billion. The slightly built, 5′ 8″, brown-eyed faux Navy SEAL with thinning hair was, in reality, Jeff Bezos, founder, chair, and CEO of Amazon.com. His comrades on this mission of breakfast necessity were members of his immediate family: father Mike, brother Mark. Behind the wheel: his mother Jackie.
That Jeff Bezos is almost innately programmed to turn something as mundane as a milk run into a fantasy game should serve him well during the next few years, as he attempts to drive Amazon.com beyond its phenomenal, if so far unprofitable, early success as a book, music, and video seller. The 35-year-old Bezos must make Amazon.com, to this point little more than a convenient place to shop for a limited range of goods, the kind of environment that lures men, women, and children in from vast distances, then seduces them into acts of acquisition. As Internet commerce matures from the exotic to the everyday, as it becomes less about exploiting a position on the frontiers of technology and more about mastering the art of sales and merchandising, the challenges Bezos faces have become exactly those that confronted the great retailers who invented the mass market for consumer goods in the United States a century ago.
To reach historical heights – to become as important to 21st-century culture as Richard W. Sears, Macy’s Isidor Straus, and John Wanamaker were to the culture of the late 19th and early 20th centuries, when they fundamentally changed not only the experience of shopping but also the essential nature of American life – Bezos will need to deliver on the second promise in the oft-repeated goal he sets for his staff: „to build a valuable and lasting company.“
„It’s a question,“ says Stanley Marcus, chair emeritus of Neiman Marcus, with the simplicity of an expert in long distance seduction, „of how you get the merchandise you’re infatuated with into the hands of the people you like.“
The goal is within reach. Bezos’s vision has always been about taking advantage of a new platform and new tools to change shopping itself. Long before he launched the company, he had dreams of making Amazon.com „broader than books and music“ – a point reinforced this past Christmas season by his move into gift sales and by his December move to offer Amazon.com customers goods from other retailers. Analysts who had projected $190 million in revenue for the company during the fourth-quarter holiday period were flabbergasted when Amazon.com registered sales of approximately $250 million, news that helped send the company’s stock as high as $350 per share by early January (shortly before a three-for-one stock split) – just shy of the $400 per share CIBC Oppenheimer foresees by 2002.
If Jeff Bezos’s vision comes true, here’s how you’ll shop in 2020:
The vast bulk of store-bought goods – food staples, paper products, cleaning supplies, and the like – you will order electronically. Some physical storefronts will survive, but they’ll have to offer at least one of two things: entertainment value or immediate convenience.
Successful „shoptainers“ will be like the Gap, with its environment of music and youth culture, or Nordstrom, with its tinkling pianist and distinctive face-to-face service. They may be even more amplified, with personal service and showmanship turning every shopping trip into a Super Bowl-style destination event. „That experience is what you get when you go to movie theaters, and why you don’t always rent movies, right?“ Bezos notes.
As Internet commerce matures, Bezos faces the same challenges that confronted the great retailers who invented the mass market for consumer goods a century ago.
Convenience specialists will also have contemporary antecedents – the 7-Eleven chain, say, or Walgreen’s, where you can get a quart of milk or NyQuil geltabs at 10 p.m. – but these, too, will evolve: open 24/7, for example, so that you can take care of the last mile of delivery yourself at any time. The consultants at the Global Business Network even sketch out a scenario where, within a generation or two, vans carrying inventories of more popular necessities, such as toilet paper or diapers, may be constantly circling neighborhoods, ready to drop off an order within moments of receiving it.
The United States – whose culture has been defined by consumption since at least the 1840s, when the British consul in Boston was appalled to see servant girls „strongly infected with the national bad taste for being overdressed“ – will be utterly transformed, Bezos believes, by this bifurcation of shopping and consumer desire into shoptainment and just-in-time components. The urban downtowns, which just a few years ago planners and politicians gave up for dead, will continue to renew and thrive, thanks to the inherent entertainment value in the great retail districts like Times Square or Pine Street in Seattle. Yet within a generation’s time the kitschy and cluttered landscape of today’s suburbia will disappear, because the new retail environment won’t support „the sort of bad stores that people go to because they don’t have any alternative.“
„Strip malls,“ Bezos predicts, „are history.“
Bezos reserves an evangelical passion for the changes he expects in the most manipulative aspects of today’s consumer culture.
„What consumerism really is, at its worst,“ he adds, „is getting people to buy things that don’t actually improve their lives. The one thing that offends me the most is when I walk by a bank and see ads trying to convince people to take out second mortgages on their home so they can go on vacation. That’s approaching evil.“
When Bezos describes his primary goals for the Amazon.com interface, he becomes a whistle-stop campaigner for a new politics of consumerism. „We want to turn visitors into customers, and we want to make the experience as welcoming as possible,“ he says. He insists that the lures and aids Amazon.com provides for its online shoppers – the one-click ordering system that stores credit card and shipping information; the variety of helpful suggestions and information that seem configured to exploit a customer’s most impulsive tendencies – are far removed from the world’s entrenched consumerist come-ons.
The new merchant, he suggests, volubly and unstoppably, is a community builder, a facilitator, a networker. He cites Amazon.com’s willingness to post negative book reviews as an example of harnessing the antimanipulative truths the Internet allows consumers to root out. The Net’s famously decentralized, open flow of information, he goes on, inevitably deflates the most extravagant hype of traditional retailing. And that shifts the balance of power – which since the origins of department stores and mass merchandising has favored the merchant – back into the hands of consumers. Amazon.com’s scheme is, in effect, to form a strategic alliance with all that newly unleashed power.
„This doesn’t mean that you can’t build a valuable, lasting enterprise in the online environment,“ Bezos says, „but it does mean you better recognize the environment you’re in, and not try to build an airplane to fly underwater. Ah-ha-ha-ha-ha-ha!“ The laugh, which frequently interrupts conversation, comes out as a long, extended bray, startling the uninitiated. The laugh has become famous, too, yet it only underscores Bezos’s ardor. Almost since the beginning of Amazon.com’s remarkable rise, Bezos has been characterized as yet another fuzzy-cheeked geek who lucked into an IPO, an uninspired financial technician with a good but not very original idea about distributing goods over the Internet, who would soon be, in the ill-fated phrase of Forrester Research president George Colony, „Amazon.toast.“ It’s a characterization Bezos’s competitors have found costly. They may also have missed that, in focusing on the consumer in a way few Web entrepreneurs can match, he is actually trying to transform the world.
„Jeff always wanted to make a lot of money,“ says his high school girlfriend, Ursula „Uschi“ Werner. She herself was an overachiever – valedictorian of the Miami Palmetto Senior High School class a year ahead of Bezos, winner of a full scholarship to Duke University, and a Rhodes Scholar – but she remains awed by Bezos’s commitment. „It wasn’t about money itself. It was about what he was going to do with the money, about changing the future.“
Family is important. The Bezos family is extremely close; they actually enjoy spending the holidays together. Reflecting on the source of Jeff Bezos’s drive, his closest friends turn inevitably to the legion of family stories, all of which seem to revolve around the theme of hard work and equally hard play.
But within the well-known Bezos family story lies a remarkable story of collective strength.
Mike Bezos is not Jeff’s biological father. „I’ve never met him,“ Jeff says of the man who is. „But the reality, as far as I’m concerned, is that my Dad is my natural father. The only time I ever think about it, genuinely, is when a doctor asks me to fill out a form.“ While it’s easy enough to theorize that the circumstance of Bezos’s birth has had profound psychological repercussions, he responds to questions about it with complete equanimity – if some surprise; his family rarely discusses the matter and even close friends don’t know the truth. „It’s a fine truth to have out there,“ he says. „I’m not embarrassed by it.“
He recalls that his parents sat him down and told him when he was 10. Whatever their concerns about the possible consequences, they needn’t have worried. Jeff describes the moment as not nearly as important or memorable as learning, at around the same time, that he would need to wear glasses. „That made me cry,“ he says.
Mike Bezos (pronounced BAY-zoes) had arrived in the United States, alone, in 1962, at the age of 15. He came under the auspices of Operation Pedro Pan, an education/rescue program crafted by a south Florida Catholic priest that spirited thousands of teenagers out of Castro’s régime during the early ’60s. After learning English and graduating from high school in Delaware, where he lived in a Catholic mission with 15 other refugees, Mike Bezos moved to New Mexico to attend what was then the University of Albuquerque.
There, he met Jackie Gise, in a local bank where the two worked. In his freshman year of college – he was 18, she was 17 – they married.
Jeff was born soon after, in January 1964, and Mike Bezos legally adopted him.
With a young family – Jeff’s sister Christina and brother Mark are five and six years younger than him, respectively – Mike Bezos still managed to finish his education, then joined Exxon as a petroleum engineer. The family moved several times during Jeff’s childhood, from Albuquerque to Houston, then briefly to Pensacola, Florida.
Bezos remembers he always had the youngest parents around. But his friend Joshua Weinstein says that even during their high school years, when she was in her early 30s, Jackie Bezos commanded as much if not more authority and respect than any other mother. She says her values came from her own father, who offered another strong role model for Jeff.
Jeff spent summers working at his maternal grandfather’s ranch in Cotulla, Texas, fixing windmills, castrating cattle, laying pipes, and repairing pumps. Lawrence Preston „Pop“ Gise had held jobs that a young boy couldn’t help but find cool. Gise worked on space technology and missile defense systems at Darpa in the late 1950s; in 1964, Congress appointed him manager of the Atomic Energy Commission’s Albuquerque operations office, where he supervised 26,000 employees in the AEC’s western region, including the Sandia, Los Alamos, and Lawrence Livermore laboratories. He retired to his southwest Texas spread in 1968, and he doted on Jeff from the time his grandson was an infant. „Mr. Gise was a towering figure in Jeff’s life,“ says Weinstein.
His grandfather sparked and indulged Jeff’s fascination with educational games and toys, assisting him with the Heathkits and the other paraphernalia he constantly hauled home to the family garage. (Picture the scattered components of a robot; an open umbrella spine clad in aluminum foil for a solar cooking experiment; an ancient Hoover vacuum cleaner being transformed into a primitive hovercraft.)
Jackie Bezos’s challenge as a parent was to stay a step ahead of, or at least next to, her prodigy. „I think single-handedly we kept many Radio Shacks in business,“ she jokes. During his late grade school years, Jeff became fixated on a device called an Infinity Cube, which uses a set of motorized mirrors to allow one to stare into „infinity.“ But at $20 it was too expensive to buy, she told him. Jeff figured out that the pieces of the cube could be bought cheaply, so he did – and built it himself. „The way the world is, you know, someone could tell you to press the Button,“ he said at the time. „You have to be able to think … for yourself.“
The story of Bezos and the Infinity Cube is documented in Turning on Bright Minds: A Parent Looks at Gifted Education in Texas. Written by Julie Ray and published locally in the Houston area in 1977 – and, incidentally, not available via Amazon.com – the book follows 12-year-old Jeff (renamed Tim) through a typical day in the Vanguard program at Houston’s River Oaks Elementary School, a magnet school that was part of a voluntary integration effort in the city’s public school system. Jeff endured a 40-mile round-trip commute each day to attend. The author describes him as „friendly but serious,“ even „courtly,“ and possessed of „general intellectual excellence,“ though, according to teachers, „not particularly gifted in leadership.“
He used his brain to compensate. Jackie and Mike, concerned that Jeff wasn’t always comfortable with kids his own age, enrolled him in the high-pressure world of Texas youth football. „He barely made the weight limit, and I thought he was going to get creamed out there,“ Jackie recalls, laughing. Within two weeks, however, the coach had named him defensive captain, because Jeff was one of the few kids on the team who could remember all the plays – not only where he was supposed to be but also the assignments for the other 10 players on his squad.
He completed his personal immersion in the shared world of every American geek growing up in the ’70s and early ’80s by diving into the deep end of the sci-fi and fantasy pool. When the River Oaks school gained access to a mainframe computer in downtown Houston via a timeshare system, he and his friends spent hours on it playing a primitive Star Trek game, searching for cloaked Klingon ships in a three-by-three matrix.
By the time he reached high school in Dade County, Jeff had focused on space travel as his future. It wasn’t just that he wanted to be an astronaut, like thousands of other kids; as he told friends and acquaintances, he intended to be a space entrepreneur. „Oh, he had ideas about space promotion!“ says Bill McCreary, a Miami Palmetto science teacher. Some were drawn from real-life experiences in a high school space initiative he attended at NASA’s Huntsville, Alabama, center. But behind the young Bezos’s space-station plans was serious intent. „He said the future of mankind is not on this planet, because we might be struck by something, and we better have a spaceship out there,“ recalls Rudolf Werner, the father of Jeff’s high school girlfriend. Uschi Werner still jokes that Bezos’s real goal for Amazon.com is to amass enough of a personal fortune to build his own space station. Reminded of those concerns today, Bezos laughs but quickly turns serious. „I wouldn’t mind helping in some way,“ he says. „I do think we have all our eggs in one basket.“
Achieving his astronaut goals meant succeeding at school, and Bezos would show as a teenager that behind the easygoing façade and booming laugh was a relentless, even intimidating, work ethic, one that has become his hallmark at Amazon.com. „He was always a formidable presence,“ says Joshua Weinstein. When Bezos made clear his intention to become class valedictorian, for example, Weinstein says everyone else understood they were working for second place. Besides securing the valedictorian’s title, Bezos was also one of three members of his graduating class awarded a Silver Knight Award, a prestigious academic honor in south Florida high schools, sponsored by Knight Ridder’s Miami Herald. (Pilgrimage note: One of the few remaining talismans of Jeff Bezos’s presence at Miami Palmetto is an oak board, in a glass display case cluttered with sports memorabilia just inside the school’s front door, that holds the names of Silver Knight winners.)
Bezos got his first taste for retail during this time, spending one summer as a fry cook at McDonald’s, studying the company’s automation improvements even while he responded to the Pavlovian cues of the many and often simultaneously sounding buzzers that told him when to scramble his eggs, flip his burgers, and pull his fries out of the boiling vat. „Now, actually, the french fries raise themselves up out of the oil,“ he says, „which let me tell you is a major technological innovation! Ah-ha-ha-ha-ha-ha!“
In an attempt to avoid a second summer in the grease pit, Bezos, with Uschi Werner, embarked on his first serious entrepreneurial effort: a summer-education camp for fourth-, fifth-, and sixth-graders that the two labeled the DREAM Institute. (DREAM stood for Directed REAsoning Methods.) Six students signed up for the $600 camp; two of them were Jeff’s own brother and sister.
The program, prophetically, emphasized a mix of science and literature, the future and the past. Required reading included The Once and Future King, Stranger in a Strange Land, The Lord of the Rings, Dune, Watership Down, Black Beauty, Gulliver’s Travels, Treasure Island, and David Copperfield, along with the plays Our Town and The Matchmaker. The science curriculum ranged from fossil fuels and fission to space colonies and interstellar travel – with a dollop of television and advertising study thrown in for good measure. „Our program,“ the budding entrepreneurs wrote in a „Dear parent“ flyer generated on Jeff’s Apple II and a dot-matrix printer, „emphasizes the use of new ways of thinking in old areas.“
„When I’m 80,“ he asked himself, „am I going to regret leaving Wall Street? No. Will I regret missing the beginning of the Internet? Yes.“
Jeff and Uschi’s long distance relationship didn’t survive his matriculation at Princeton, but their entrepreneurial exploits nonetheless helped Bezos overcome his first serious intellectual disappointment. Intent on becoming a theoretical physicist and following the likes of Einstein and Hawking, he discovered that although he was one of the top 25 students in his honors physics program, he wasn’t smart enough to compete with the handful of real geniuses around him. „I looked around the room,“ Bezos recalls, „and it was clear to me that there were three people in the class who were much, much better at it than I was, and it was much, much easier for them. It was really sort of a startling insight, that there were these people whose brains were wired differently.“ The pragmatic Bezos switched his major to computer science and committed himself to starting and running his own business.
In his senior year, Bezos turned down job offers from Intel, Bell Labs, and Andersen Consulting to join a start-up called Fitel, which had run a full-page ad in The Daily Princetonian soliciting the school’s „best computer science graduates.“ The company, launched by two Columbia professors in the days when VANs and EDI were hot topics, was attempting to build an ambitious worldwide telecommunications network for trading firms that would help them clear and settle cross-border equity transactions – piggybacking atop General Electric Information Service’s network alongside GEnie, GE’s early consumer online service.
Bezos was employee number 11. His success at debugging spaghetti code earned him rapid promotion to head of development and director of customer service, which entailed a weekly commute between New York and London, where his divisions were located, aboard discount airline People’s Express. „This is not,“ he says, „the right way to organize a start-up company, just for the record. Ah-ha-ha-ha-ha-ha!“
After nearly two years of failed attempts to grow Fitel, Bezos bailed out for a more stable job as a product manager at Bankers Trust. There, he sold software tools to the company’s pension-fund clients, but he also explored outside projects. At one point, he collaborated briefly with a Merrill Lynch consultant named Halsey Minor (who would later become well known as the founder of CNET) on an abortive plan to start a company that would use then-fledgling software agents to create a personalized news fax for financial professionals. By 1990, however, after only two years at Bankers Trust, Bezos was circulating his résumé to headhunters with the express goal of escaping financial services for a technology company, where he could pursue what he had decided was his „real passion,“ using computers and so-called second-wave automation to revolutionize business.
Then a headhunter called, telling Bezos, „I know you said you would kill me if I even proposed the finance thing, but there’s this special opportunity that’s actually a very unusual financial company.“ It was the two-and-a-half-year-old hedge fund firm D. E. Shaw.
David Shaw, like Bezos, was a computer scientist. His specialty was devising new trading strategies for particular financial instruments. The two clicked immediately, with Bezos finding Shaw „one of those people who has a completely developed left brain and a completely developed right brain. He’s artistic, articulate, and analytical. It’s just a pleasure to talk to someone like that.“ Shaw, in turn, thought his 26-year-old hire „fantastic,“ a „pleasurable person to talk to“ who was „also very entrepreneurial.“
Four years later, Bezos had worked his way up to senior vice president, one of four at the firm. He’d also devised a plan for his personal life.
„At a certain point I was sort of a professional dater,“ he explains about his years in New York. His systematic approach to the quest for a permanent relationship was to develop what he labeled „women flow,“ a play on the „deal flow“ Wall Streeters try to generate to locate worthwhile investments. In managing their deal flow, bankers will set limits like „I won’t look at anything under a $10 million equity investment.“ The limitation Bezos set for friends producing candidates for his „women flow“ was more esoteric. „The number-one criterion was that I wanted a woman who could get me out of a Third World prison,“ he says.
„What I really wanted was someone resourceful. But nobody knows what you mean when you say, ‚I’m looking for a resourceful woman.‘ If I tell somebody I’m looking for a woman who can get me out of a Third World prison, they start thinking Ross Perot – Ah-ha-ha-ha-ha-ha! – they have something they can hang their hat on! Life’s too short to hang out with people who aren’t resourceful.“
His self-deprecatory explanation for asking friends to set him up on blind dates is that „I’m not the kind of person where women say, ‚Oh, look how great he is,‘ a half hour after meeting me. I’m kind of goofy, and I’m not – Ah-ha-ha-ha-ha-ha! – it’s not the kind of thing where people are going to say about me, ‚Oh my God, this is what I’ve been looking for!'“
As it happened, women flow did not produce the desired result. Instead, he fell in love with a member of his own staff. The future MacKenzie Bezos was a research associate who had been an assistant to novelist Toni Morrison while studying at Princeton. MacKenzie – whose first novel will be published by Random House later this year – and Jeff were married in 1993. A year later, Shaw put Bezos in charge of exploring new business opportunities in the burgeoning world of the Internet.
It was while brainstorming ideas in the then-unfamiliar area of electronic commerce that Bezos came to his deceptively simple conclusion: The most logical thing to sell over the Internet was books, largely because two of the country’s largest book distributors already had exhaustive electronic lists.
As Amazon.com has long since established, no single bookstore, even a superstore, can carry a comprehensive inventory of the books in print. The distributors, carrying thousands of titles, in effect act as the warehouse for most stores, particularly smaller independent booksellers. When customers ask a store for a book it doesn’t have, the first place many of them will turn to fill the customer’s order is Ingram or Baker & Taylor, the two largest distributors. These companies‘ inventory lists, once regularly circulated to bookstores on packs of microfiche, went digital in the late 1980s along with others in the book trade – an unheralded benchmark that would enable Bezos to offer books online through the virtual retailer he envisioned creating.
But David Shaw and others at the firm weren’t ready to make books a priority. After consulting initially with another partner, Bezos approached Shaw to tell him he had been bitten by the entrepreneurial bug and wanted to leave. Bezos says he kept staring at the Net’s 2,300 percent annual growth figure and placing his thoughts within what he calls a „regret-minimization framework.“ „When I’m 80,“ he asked himself, „am I going to regret leaving Wall Street? No. Will I regret missing a chance to be there at the beginning of the Internet? Yes.“
„Let’s take a walk,“ he recalls Shaw saying, and the two of them set off for Central Park. Shaw, while acknowledging that he himself had left an established business to pursue entrepreneurial dreams, tried to impress on Bezos what he would be giving up by leaving; not just financial security but a pivotal role at D. E. Shaw. „I did tell him that we might be competing with him, too,“ Shaw says. Bezos was willing to accept that risk.
When MacKenzie and Jeff Bezos made their now semifamous cross-country road trip to the Seattle area, Jeff tapping out a business plan on his computer along the way, he had already spent months laying the groundwork for Amazon.com, beginning with his Internet investigations at D. E. Shaw. Bezos had also made at least one recruiting trip to California to meet with three programmers he’d learned about through a D. E. Shaw partner. Over blueberry pancakes at the Sash Mill Cafe in Santa Cruz, Bezos managed to convince one of them, Shel Kaphan, to become employee number one.
Kaphan has a reputation among the engineering staff at Amazon.com as the prototypical pessimist, a geek convinced that the company’s systems are always on the verge of implosion. He came by his doomsaying honestly – he had worked for at least a dozen companies before Amazon.com, including failed start-ups and bureaucratically inept monsters. Shortly before he and Bezos met he had left Kaleida Labs, an ill-fated Apple spin-off, which makes it all the more remarkable that he almost immediately found Bezos trustworthy – so trustworthy, in fact, that Kaphan agreed in short order to relocate to Seattle.
Bezos returned in principle to the setting of his childhood experiments, building the prototype for Amazon.com with Kaphan and a contractor named Paul Barton-Davis in the cramped, poorly insulated converted garage of a rented home in the Seattle suburb of Bellevue. A potbellied stove commanded the middle of the room, and extension cords ran everywhere because there weren’t enough electrical outlets to power the trio’s Sun SPARCstations. Eventually the stove was ejected in a space-saving flurry and replaced by a set of ceramic space heaters, which further taxed the overburdened power supply.
Bezos has profited directly from his Amazon.com stock only once, selling 180,000 shares last November for $23 million.
In their quest to revolutionize retailing, the threesome made ample use of the unsuspecting competition’s physical resources. One can never tire of the delicious irony that Kaphan and Bezos would frequently repair to the Barnes & Noble store in downtown Bellevue to drink coffee and toss around ideas in the relative calm of the in-house Starbucks café. The superstore also served as a venue for business meetings with outsiders. MacKenzie Bezos even negotiated the company’s first freight contracts there.
The first million dollars of seed capital came from a group of 15 angel investors Bezos had persuaded to help him, including Wall Street chums, friends of his parents, buddies from Princeton, and a small group of local investors. Tom Alberg, onetime president of Lin Broadcasting, a subsidiary of McCaw Cellular, was part of the group and became Amazon.com’s first board member.
At one point, a single venture capital firm in the Seattle area wanted to take the whole million-dollar round but demanded a 50 percent discount on the valuation Bezos had offered. He refused and the VCs passed, in part because they believed Barnes & Noble would crush Amazon.com as soon as it turned its attention in Bezos’s direction. Watching that decision, Alberg says, taught him that „you need to do due diligence in this world, but at some point you need to make a judgment about the people.“
Bezos and Kaphan rigged the SPARCstations to sound a bell’s ring every time the servers recorded a sale. Amazon.com launched in July 1995, and the bell started ringing – so often that within a few weeks the noise had become unbearable and they disabled it. „Every week, the revenues went up,“ says Alberg. „By the second or third week, there was $6,000 or $10,000, and by the end of early September there was $20,000 a week. It was clear there was a trend here.“ It also helped that even in the earliest days sales were coming from around the country. „He could say, ‚I had a sale in New Hampshire,‘ and we were all impressed,“ Alberg recalls.
It wasn’t that Bezos was first out of the box with an idea for shopping, or that he had discovered some magic elixir unknown to other merchants. But he had made a series of small, smart choices that added up.
It starts with the realization that in fact not everything should be virtual – that Amazon.com should own its own warehouses, so that it can maintain quality control over the packaging and shipping of orders, which Bezos sees as an essential opportunity to enhance the Amazon.com customer experience. This allows the company to combine orders for books from multiple publishers – or orders that include a book, a CD, and a video – into single packages. It also gives Amazon.com employees who pack orders a chance to check for defective goods. In its music department, for example, the company will replace cracked or broken CD jewel cases. Locating in Seattle, therefore, wasn’t about being near a technology hub as much as it was about being near one of Ingram’s distribution facilities, which allowed for quicker turnaround on deliveries from that key supplier. And Washington had a relatively small population, which limited the pool of potential customers from whom Amazon.com would be forced to collect sales tax. (It’s no accident that the company’s second warehouse is in Delaware, which not only has no sales tax but is also an ideal base for serving East Coast customers; its third and latest warehouse is near Reno, Nevada – which lets Amazon.com originate deliveries close to the huge California population, but just outside that state’s tax-collection borders.)
Bezos combined those pragmatic choices with a relentless focus on the customer experience: tweaking the interface to make it ever easier to understand, streamlining the ordering process at every turn, responding immediately to every customer query. „We want people to feel like they’re visiting a place,“ he says, „rather than a software application.“
He also turned hiring staff into a Socratic test. „Jeff was very, very picky,“ says Nicholas Lovejoy, who joined Amazon.com as its fifth employee in June 1995. In endless hiring meetings, Bezos, after interviewing the candidate himself, would grill every other interviewer, occasionally constructing elaborate charts on a whiteboard detailing the job seeker’s qualifications. If he ferreted out the slightest doubt, rejection usually followed. „One of his mottos was that every time we hired someone, he or she should raise the bar for the next hire, so that the overall talent pool was always improving,“ Lovejoy says.
With its potential $250 million in revenues in the fourth quarter of 1998, Amazon.com is on track for at least $1 billion in annual sales this year. The company has moved its headquarters three times since starting in the Bellevue garage, and its staff is spread out in four buildings in downtown Seattle, in addition to its Northwest warehouse location, in an industrial area near the port facilities that stretch along the harbor south of downtown. This summer, the company will consolidate all but the warehouse operation in the old Pacific Medical Center building, which sits on a bluff near the intersection of I-5 and I-90 southeast of central Seattle.
But nothing about the company’s physical or revenue growth can compare to the astonishing rise in its stock price in recent months – on January 19 Amazon.com’s $22.1 billion market value exceeded that of Kmart and JCPenney combined – and the concurrent growth in Bezos’s personal net worth, over $9 billion by mid-January 1999. (A few other billionaires, including his parents, and dozens of multimillionaires have been created during the two short years of Amazon.com’s public existence.)
Bezos is thus far facing down stratospheric wealth with a modesty that outsiders to tech culture often find odd (and maybe even unnatural) but which is surprisingly common in the industry, where twentysomethings worth millions routinely rent along the freeway. When Joshua Weinstein teased Bezos about being listed on the Forbes 400 roster of the richest Americans, for example, „Jeff said the only real difference was that he doesn’t have to look at the prices on a menu anymore.“
„One thing to keep in mind,“ Bezos says, about not only his own gains but those of any Amazon.com employee who holds unvested options or hasn’t sold their stock, „is for many of these people the wealth that they have is paper wealth, and it will exist at that level only for as long as we continue to serve our customers well.“ Securities and Exchange Commission records show that Bezos himself has profited directly from his Amazon.com stock only once, when, last November, he sold 180,000 shares (of the more than 19 million he held at the time) for approximately $23 million.
Like a lot of other newly minted tech barons, Bezos’s splurges tend to involve having a good time with friends. In August, to celebrate Shel Kaphan’s fourth anniversary at Amazon.com, Bezos organized „the Shelebration,“ a four-day surprise weekend excursion to Maui. He chartered a jet to carry himself and MacKenzie, Kaphan, and members of the Amazon.com engineering staff and their spouses from Seattle to Hawaii. When the group arrived at the house Bezos had rented, Kaphan discovered a second surprise: An even larger group of Shel’s old friends from the San Francisco Bay Area had arrived there first, aboard a second plane Bezos had chartered for them from San Jose.
MacKenzie and Jeff, who’ve lived till now in a one-bedroom rental in downtown Seattle, also recently went shopping for a house, spending a reported $10 million for a rustic mansion alongside Lake Washington in a neighborhood littered with Microsoft millionaires.
It’s often forgotten how recently the mass American consumer market has evolved, how profoundly it has changed the way people shop, and how dramatically it has altered the very structure of society. Little more than 100 years ago, most Americans bought their goods – including clothes, food, furniture, even at times books – directly from the people who created them. But as the Industrial Revolution penetrated industry after industry, a gap began to open between producers and consumers until the one had little or no direct contact with the other. A new breed of middlemen arose to act as brokers between them (creating legendary opportunities for what sociologist Thorstein Veblen, in his Theory of the Leisure Class, derided as „conspicuous consumption“). In turn, routine, public display of manufactured, store-bought wares enabled the development of virtual societies (or „consumption communities,“ as historian Daniel Boorstin labeled them) in which membership and status were based not on an inborn class hierarchy but on the ownership of specific types of goods.
The most successful of the new retailing middlemen were the salesmen and magnates who understood that Americans, particularly in the rapidly urbanizing society of the late 19th and early 20th centuries, wanted their status anxieties satisfied by the shopping experience, and who built the modern department store for this express purpose. Among the most flamboyant was John Wanamaker, who sounds like a latter-day Internet entrepreneur with his boast 89 years ago that he had „revolutionized the retail business in America.“ Among the innovations Wanamaker could claim credit for developing or popularizing were escalators, the glass display cabinet, the street-level store entrance, the revolving door, free delivery anywhere in the world, and charge accounts. Wanamaker’s landmark Philadelphia store still operates at the corner of Broad and Market streets, and his New York store at Broadway and Astor Place was that city’s premier shopping destination from the 1890s until the 1920s, when it was finally surpassed by Macy’s, „The World’s Largest Store.“
But perhaps the most significant innovation by Wanamaker and his peers – who included Marshall Field, Boston’s Filene family, and Isidor Straus, who ran Macy’s – was their decision to display their mass-produced goods artfully behind plate glass, which new technologies had made easier to produce in ever larger sheets.
Before 1885, most merchants, if they chose to display anything, simply piled goods haphazardly in their front windows. It took an impresario named L. Frank Baum – who later indulged another kind of American fairy tale when he wrote The Wizard of Oz – to change that. In 1897 Baum began publishing a trade journal called The Show Window and a year later founded the National Association of Window Trimmers.
„You know, the potential exists in a broadband world for every author to have a five-minute video snippet explaining the intended audience.“
The goal of any good store-display designer, according to Baum, was to „arouse in the observer the cupidity and longing to possess the goods.“ Under his example, department store merchants began to use glass, light, and color to create street-corner crowds and stimulate their audiences in ways previously unknown. „What a stinging, quivering zest they display,“ novelist Theodore Dreiser said in 1902 about the newfangled „show windows“ he had encountered, „stirring up in onlookers a desire to secure but a part of what they see, the taste of a vibrating presence, and the pictures that it makes.“
A century later, the „show window“ is alive and well, now transferred to the modern video display, whether it’s connected to the Internet or receiving a television signal. Bezos and crew have focused as intently on trimming their video windows as Baum and Wanamaker concentrated on theirs.
Certainly, his backers insist, Amazon.com’s founder has the necessary talents. Board member Patty Stonesifer, a former Microsoft executive, points to last year’s annual meeting of Amazon.com shareholders, at the Seattle Art Museum, where Bezos held the audience spellbound in a way that reminded her of the best Hollywood executives she has met. „I don’t think he’s a showman,“ says Stonesifer, „but people are drawn to him because he seems unbelievably like a winner. And they want to help him win.“
Translating that ability from the annual meeting to the screen is, of course, another matter. Up to this point, the focus has been on minimizing flash in favor of speed, and on accepting the limitations of what it’s possible to do within the 640 x 480 pixels available inside a browser window on a computer screen. „Every business has to deal with some scarcity, and in our case it’s screen real estate,“ Bezos observes.
But even amid the tiny graphics and fast-loading pages, the entertainment value built intentionally into Amazon.com shows through. Rankings, for example – updated in real time for the company’s best-sellers – tell shoppers exactly how well each book is selling. (It’s not unheard-of for authors to purchase copies of their own books just so they can see the ticker bump up.) And dedicated collectors of rarities – the most notoriously exacting crowd around, with significant cultural trickle-down – can readily appreciate Amazon.com’s attention to detail. Using the music keyword-search function, for example, you can pull up a listing of the six CDs offered by Amazon.com that feature the oud, the traditional Middle Eastern stringed instrument. (Oud by George Mgrdichian was number 14 on Amazon.com’s Middle East music chart in early January.)
As bandwidth and speed increase, making it ever easier for consumers to browse through goods online, Bezos expects e-catalogs to finally drive their paper counterparts into extinction. The bulletin-board discussions and review areas on Amazon.com will also grow more sophisticated, he promises. „You know, the potential exists in a broadband world for every author to have a five-minute video snippet explaining who the intended audience is, why they should buy that book, or that music CD, or that video, and you’ll be able to show the trailers from the videos.“ (Asked, however, to name the one missing technology that, if it existed, would dramatically improve Amazon.com’s business prospects, he says simply, „Windows instant on“ – meaning a personal computer that boots up as quickly as a TV or a PalmPilot. „At home it’s a real pain,“ he says, „because in the 90 seconds or two minutes that it takes, I’ve forgotten what I was going to do!“)
Bezos spends hours at a time thinking about the future: trawling for ideas, exploring his own site, sometimes just surfing the Web, particularly on Mondays and Thursdays, which he tries to keep unscheduled. „I catch up on email, I wander around and talk to people, or I set up my own meetings – ones that are not part of the regular calendar.“ His surfing isn’t always confined to retail: Let the record note that on a Thursday in January he spent five hours on the Web using MacKenzie’s MSN account, plumbing the depths of his space fascination and learning more about „roton“ rockets.
He also gathers new ideas from other wanderers in the company. Amazon.com’s purchase last August of Junglee, then a Silicon Valley-based company that produces product comparison software for Web shoppers, came about when Amazon.com treasurer Randy Tinsley approached Bezos sometime in late April 1998 and lobbied for the acquisition. After a half-hour debate during which Tinsley allowed that Junglee might resist a sale, Bezos’s final word was, „We have a million other things to do – drop it.“ Two hours later, Tinsley called Bezos back to say he had called Junglee anyway and the management there was actually interested. „It shows you how much people listen to me!“ Bezos jokes.
Like an investor checking his portfolio, every three months Bezos sits down with his assistant Kim Christenson to examine and analyze his calendar for the quarter just past. He wants to know, among other things, how much time he has devoted to each of the dozen or so categories to which Christenson has assigned every meeting, phone call, or trip. (The categories include standards like recruiting, as well as onetime items like the launch plans for Amazon.com’s UK and German sites.)
Although he won’t disclose all the projects currently occupying those 12 categories, one that surely colors all of them is the need to fend off the renewed challenge by Barnes & Noble to Amazon.com’s book business – in particular, the potential threat to his supply chain in Barnes & Noble’s recent purchase of Ingram, the book distributor that has been an essential source of Amazon.com inventory. Asked whether B&N’s bid for Ingram took him by surprise, Bezos implies that he knew Ingram was for sale and passed on it, adding, „We don’t talk about what we might have looked at and not done.“ Given that getting items into customers‘ hands as quickly as possible is a key part of the Amazon.com experience, he admits that distributors are also key, at least currently. But he insists they aren’t a necessity long term. „There are so many ways to solve that problem,“ he says, one of which appears to lie in Amazon.com initiatives to build direct relationships with publishers. As for Barnes & Noble, „I bet you a year from now they will not consider us direct competitors,“ Bezos predicts. „Clearly they do today, but we’re on different paths … we’re trying to invent the future of ecommerce, and they’re just defending their turf.“
Jeff Bezos is shopping in meatspace. „I want to get a pair of cargo pants,“ he says, „although my wife says she hates them.“
We’re striding up Pine Street toward the new Nordstrom store in Seattle’s downtown shopping district, next door to the Pacific Place mall and only a couple of blocks from Amazon.com headquarters. Bezos wants cargo pants, he says, because he has too much stuff to carry in his pockets. Today he’s packing a gizmo he calls his World Trade Center Escape Kit, a combination flashlight, penknife, and key chain that he began to carry after the New York landmark was bombed. (For Christmas, he bought every member of his family their own survival kit, an off-the-shelf postmodern version of the Swiss Army knife, from Brookstone, called the Tool Logic Tool Lite Deluxe. Bezos, who has given the matter a good deal of thought, insists that the people trapped for hours in the smoky darkness of the World Trade Center’s fire escapes would have reached safety faster if they had had these simple tools.) Toy shopping, online and off, captivates him. Jeff and MacKenzie’s Christmas gift to everyone a year ago was laser-tag guns and vests, which, combined with the walkie-talkies his parents offered up, served as weapons in a nighttime game of laser-enhanced Capture the Flag on Amelia Island. The entire Bezos clan raced around in the dark zapping each other. „I never realized my mom was such a good shot!“ he says. But Jeff, as his mother recounts with a hint of disapproval, used a secret weapon to stack the deck in his favor: a pair of night-vision goggles MacKenzie had given him. „It’s not clear,“ Bezos counters, „that you’re supposed to have a level playing field when you’re marching into battle. Ah-ha-ha-ha-ha-ha!“
In Nordstrom we pick up lattes and stand in the middle of the main floor. Bezos comments idly on the down escalator: „Look, you turn immediately and go down, instead of walking from one end to the other and circulating through the merchandise.“ He pauses to consider whether the utility in facilitating quick passage from the main floor to the basement would outweigh the retail imperative.
For the kind of shopper Bezos represents, utility is, of course, a mantra. His wardrobe consists of white or blue dress shirts and a pair of khaki pants. Back in the late ’80s in New York, when he had to wear a suit every day to the office, he gained a preference for shirts with hidden snaps under the collar points for easy tie removal. He has trouble locating this style in the Pacific Northwest, so now he buys a pack of standard snapless shirts and has the snaps sewn on. When he discovers a pair of shoes he likes, he’ll buy four pairs at once and wear them in regular rotation for years.
Bezos has a full-steam-ahead, leaning-into-the-wind style of walking when he’s in a hurry, and in the Pacific Place mall he is continually veering off on some new quest for knowledge. He marches into an upscale pen shop and asks the first salesperson we encounter to show us the most expensive model in stock, which turns out to be a $975 Mont Blanc fountain pen. „That was a very good salesman,“ he announces when we leave, pleased with the young man’s knowledge of nib and ink arcana. As we pass Victoria’s Secret he says slyly, „You know, they charge you for the catalog in the stores,“ and whisks me through racks of bras and panties to a cash register in the back, where he asks the clerk to show him the goods. It turns out two catalogs are for sale, one for $5 and another for $3. „It’s the rare store that gets to charge for the catalog,“ he notes admiringly.
We bomb out of the mall and across the street to Old Navy. („You know, they treat jaywalking as seriously here as they do in Los Angeles,“ Bezos says before leaping bravely into mid-block traffic.) Once inside, he tries on a pair of light khaki cargos, size 33R. He deliberates. He decides to buy the pants. „I’m only going to buy one pair,“ he says, „because my wife hasn’t seen them yet.“
Back out in the street, the shopping throng envelopes us. Bezos waves an arm across the scene. „You see, none of this is going away,“ he says. „The Net can’t replace this experience.“
Not that it matters. Back in his office, he’s once again enumerating Amazon.com’s unlimited upside and its not insignificant advantages over the places we’ve just been – small, centralized inventory, low-cost warehouse space, one-to-one knowledge of consumer preferences. „There’s no comparison between the two models,“ he says gleefully, leaning forward and clasping his hands. „Online is so much cheaper.“
It remains to be seen what the long-term costs for Amazon.com will be. In business, of course, the conventional wisdom is that being an innovator costs a lot more than being an imitator, a fact Bezos acknowledges. But the pioneering quality of his business model is as much an aspect of his personality as the personality of Amazon.com. „You cannot,“ he says, „make a business case that you should be who you’re not.
„One of the things that I hope will distinguish Amazon.com is that we continue to be a company that defies easy analogy,“ he goes on. „This requires a lot of innovation, and innovation requires a lot of random walk“ – that is, spontaneous, open-ended search.
„There’s a strong case to be made for being a copier. It’s just not as satisfying, or as fun!“ Rule number one on how to succeed in business, from the new master of the game.
Count the Change: All $22.1 Billion of It*
Mall of America 2010