The Everything Store - Brad Stone

Amazon link

Jeff Bezos’ wife, MacKenzie, ironically gave this book a one-star rating on Amazon. She starts her review by casting doubt on the accuracy of the entire book – which was billed by The Times as ‘a masterclass in deeply researched investigative financial journalism’ – by citing a factual inaccuracy: the author writes that Bezos read and reflected on lessons from Ishiguro’s “Remains of the Day” before deciding to leave DESCO and found Amazon, when in fact he read it one year after founding Amazon. 

However, I found Brad Stone’s account of Amazon’s story from 1994-2013 compelling and exceedingly well-researched. The index is useful and the footnotes are interesting follow-ups. To obtain unreleased Blue Origin press release drafts, Mr. Stone sifted through the trash can outside of its office, and to write this book, he conducted over 300 interviews, many of which were done on the basis of anonymity: there is an abundance of disgruntled ex-employees, many of whom still fear reprisal.

Stone’s book is refreshing because it has no comparison. With unparalleled access and limited bias* (the only other person who might be able to talk definitively of Amazon’s story is co-founder Shel Kaphan who was sidelined by Bezos in Amazon’s later years), Stone offers an in-depth look into the story of Amazon and the character of Jeff Bezos. Perhaps, MacKenzie, simply didn’t like the truth. 

*although Stone’s own possible bias can’t be discounted: the disgust he incites in the reader regarding Amazon’s high-pressure, quasi-unscrupulous business tactics are what make this book un-put-down-able.

Bezos is a unique character. He has a famously characteristic laugh (referenced in the index 15 times) and is gifted with singular focus and long-term vision. Amazon is the physical manifestation of both his vision and philosophy, painstakingly assembled since 1994 with little regard for shareholders – the customer is king. Jeffisms, well-worn personal maxims, are indicative of Bezos’ thinking and are scripture to the Bezos cult of Amazon management.

“There are two kinds of retailers: there are those folks who work to figure how to charge more, and there are companies that work to figure how to charge less, and we are going to be the second, full-stop.

Former board member John Doerr’s distinction between mercenaries who are out for money and power and will run over anyone who gets in the way and missionaries who have righteous goals are trying to make the world a better place appeals to Bezos: “I would take a missionary over a mercenary any day. One of those great paradoxes is that it’s usually the missionaries who end up making more money anyway.”

Amazon – the story

  • Amazon named after the world’s biggest river, a river that blows all other rivers away
  • first retailer to break $100b (107 in 2015)
  • survived the dot-com crash and subsequently forced many retailers Americans couldn’t imagine disappearing into bankruptcy: Circuit City and Borders (for whom it actually distributed for)
  • While working at DESCO, a quantitative hedge fund, Bezos observed the explosion in Web activity growth (2300x 1993-1994) and asked himself what kind of business plan would make sense in the context of this growth...
  • Started with books, initially avoided sales tax by having no physical presence in populated states
  • Created new industry of affiliate marketing with Affiliates, paying other websites commission for referring readers to Amazon
  • Similarities (’96) recommended books based on purchasing history 
  • Luckily floated a successful $672m bond offering just before dot-com crash
  • Released free shipping, Super Saver Shipping (’02), widely considered a financial black hole, to great success
  • Inspired by the price discrimination model used by airplane to sell seats, Amazon introduced Amazon Prime (’04), a membership club that gave members two-day express shipping for a $79 annual fee. Together with 1-click shipping, this reduced online shopping friction and increased sales volumes 
  • Elastic Compute Cloud (EC2), launched in ’06, the heart of Amazon Web Services (AWS, $2.4b revenue Q4 2015) allows developers to run their programs (of any type) on AWS, Simple Storage System (S3) allows them to store data… Later Flexible Payment System would be added
  • Mechanical Turk (’06), presaged crowd sourcing as we would know it
  • Kindle released in ’07, Amazon’s first foray into hardware. Initially at $399 with bloated features including embedded cellular capability (for download), price has since been reduced to $79 thanks to efficiency and e-book sales; initially $9.99 pricing upset publishers, one of which, Macmillan, successfully pushed for an agency relationship (and therefore price-setting ability) which ironically improved Amazon’s margins, but a new paradigm has been set: “Even well meaning gatekeepers slow innovation. I see the elimination of gatekeepers everywhere.”
    • at one point Amazon piloted a “Kindle Library” program which allowed owners to read one book a month for free… publishers forced them to withdraw this
  • Since publication: Fresh (grocery delivery operation in metropolitan areas) expanded, Amazon Source (independent bookshops selling Kindles as agents and keeping future 10% of e-book sales revenues), and pilot drone program
  • Other acquisitions: IMDB, Alexa Ranking, BookPages, TeleBuch, Exchange.com (all ’98), LoveFilm (’11)

 

Amazon – the philosophy (of Bezos)

focused on the long-run: this permeates through all of Amazon’s business decisions, it means that they’re not focused on short-term profit or stock price, and as a result are happy to suffer losses to get what they want… “they have an absolute willingness to torch the landscape around them to emerge the winner”… loss-leading products are permissible (Super Saving Shipping) for the gaining of market share which grants greater bargaining power

  • waged expensive price war with online apparel store Zappos ($900m ’09) and diaper store Quidsi ($600m ’10) until they accepted acquisitions 
  • offered 40% discount and express shipping on 4th Harry Potter book (at a cost of a few $ on each of the 250,000 copies)… Amazon got mentioned in 700 news stories about Harry Potter in the next two months alone
  • investment in proprietary distribution centers and software (a route few others were willing to invest in) paid off with increased, industry-best, efficiency because third-party solutions simply weren’t suited for Amazon’s needs… now one of Amazon’s top revenue streams is its Fulfilled By Amazon scheme – they had built such a good system, that others were now willing to pay to use it

ruthless: 1936 Robinson-Patman Act prevented manufacturers from selling to large corporations cheaper than to their smaller competitors… Amazon’s book purchasing team pounced on this and would demand lower prices from publishers lest they shut off recommendation algorithms for the publisher’s books (which could result to a 40% fall in sales)… internally dubbed the Gazelle Project, until lawyers intervened and made it the Publisher Negotiation Program

  • Lyn Blake who was involved in this, left in 2005, admitting that she foresaw and upcoming fracture in Amazon’s relationship with publishers: “I like to do business where both parties feel like they are going to get something valuable out of it, which means future negotiations can take place in a civilized way.”

Now that suppliers needed Amazon more than Amazon needed them, profit margins were infinite. Better terms translates to a healthier bottom line and the foundation for riskier ventures and “everyday low prices.” Amazon similarly pressured UPS into accepting lower rates by threatening to switch to USPS and FedEx, and actually doing it during negotiations to Amazon’s loss. 

top-grading and ‘always raising the bar’: Amazon’s employment standards are such that each new hire is expected to raise the standards of all future hiring. Managers in departments >50 people are required to grade their employees along a curve and dismiss the least effective.

focused on the customer, and the supporting data metrics: Amazon.com in the 90’s pushed for customer reviews, (including negative ones, the idea of which initially repulsed publishers and distributors) for the sake of customers; weekly meetings are conducted and decisions made based on customer behavior data

staff are disposable: call center staff are often fired after four years (and just before promotion) for minor misdemeanors… 

other practices:

  • eschewing of PowerPoint and presentations, meetings are based around 6-page press releases
  • ‘bias for action’
  • ‘two-pizza teams’: 10-man teams

 

Who is Jeff Bezos – character analysis

general disregard and disdain for “the way things are” 

prone to outbursts: numerous instances of executives leaving due to hostile work environment and clashes with Bezos are noted, as are specific exchanges: “Why are you wasting my life?” (p. 268) “I’m sorry, did I take my stupid pills today?” “Are you lazy or just incompetent?” (p. 223)… Joy Covey (first CFO) likened Bezos to Steve Jobs in this regard, and also pondered whether such traits are necessary to success when it requires “boldness, ruthless prioritization, and risk” 

abhors management: and sees communication “as a sign of dysfunction. It means people aren’t working together in a close, organic way. We should be trying to figure out a way for teams to communicate less with each other, not more.”… which has resulted in a confused, schizophrenic company, simultaneously a large corporate that sees itself as a start-up and vice-versa

self-reliant and resourceful: values inculcated by grandfather’s DIY mentality and upbringing on Texas ranch

intellectually gifted: able to grasp highly technical concepts without prior familiarization, when he announced his intention to be valedictorian, the race for the rest of the class “then became to be number two”, straight As, Princeton, 

long-term oriented: Clock of the Long Now, invested in a 10,000 year mechanical clock project to be located on his Texas ranch