There's an art to writing the business biography. This one couldn't figure out whether it was the Bezos story or the Amazon story, even though the two are intertwined, and didn't do an entirely perfect job of either. Amazon's very early startup days were short on detail, whereas the more proximal later ultra-competitive years were well described. Bezos's personality is explored but not charted. A book that opens as many questions as it answers.
What it does paint, though, is fascinating. Jeff Bezos as driven over-achiever. Amazon as dysfunctional incarnation of Jeff's own personality.
An hilarious fail: Sony Electronics explored the possibility of using Amazon to bring its Sony Style chain online. As part of the discussions, Howard Stringer, chief of Sony Corporation of America, toured the Amazon fulfillment center in Fernley and, in a memorable moment, encountered on the warehouse floor a pile of Sony merchandise, which Amazon was technically not supposed to be selling. Stringer and his colleagues started examining the labels and writing down product numbers in an attempt to determine where the merchandise had come from. That deal didn’t happen either.
On the Amazon values and culture:
They agreed on five core values and wrote them down on a whiteboard in a conference room: customer obsession, frugality, bias for action, ownership, and high bar for talent. Later Amazon would add a sixth value, innovation.
At least one anointed bar raiser would participate in every interview process and would have the power to veto a candidate who did not meet the goal of raising the company’s overall hiring bar. Even the hiring manager was unable to override a bar raiser’s veto. “Many companies as they grow begin to compromise their standards in order to fill their resource needs,” says Dalzell. “We wanted to make sure that did not happen at Amazon.”
At the same time, rising investor skepticism and the pleadings of nervous senior executives finally convinced Bezos to shift gears. Instead of Get Big Fast, the company adopted a new operating mantra: Get Our House in Order. The watchwords were discipline, efficiency, and eliminating waste.
When both teams met for the first time, Bezos made a big show of keeping one chair open at the conference-room table, “for the customer,” he explained.
Jeff slammed his hand on the table and said, ‘That is not how an owner thinks!'
Amazon executives reasoned that day that they had the Internet’s most authoritative product catalog and that they should exploit it. That, it turned out, was the central insight that not only turned Amazon into a thriving platform for small online merchants but powers a good deal of its success today.
“Jeff was super clear from the beginning,” says Neil Roseman. “If somebody else can sell it cheaper than us, we should let them and figure out how they are able to do it.”
“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,”
Bezos learned a lot from Walmart. Scott also talked about how Walmart viewed advertising and pricing as two ends on the same spectrum. “We spend only forty basis points on marketing. Go look at our shareholder statement,” he said. “Most of that goes to newspapers to inform people about what is in our stores. The rest of our marketing dollars we pour into reducing prices. Our marketing strategy is our pricing strategy, which is everyday low pricing.”
“You can fill Safeco Field with the people that don’t want to sell to us,” Sinegal said. “But over a period of time, we generate enough business and prove we are a good customer and pay our bills and keep our promises. Then they say, ‘Why the hell am I not doing business with these guys. I gotta be stupid. They are a great form of distribution.’
“My approach has always been that value trumps everything,” Sinegal continued. “The reason people are prepared to come to our strange places to shop is that we have value. We deliver on that value constantly. There are no annuities in this business.”
The entire company, he said, would restructure itself around what he called “two-pizza teams.” Employees would be organized into autonomous groups of fewer than ten people—small enough that, when working late, the team members could be fed with two pizza pies. These teams would be independently set loose on Amazon’s biggest problems. They would likely compete with one another for resources and sometimes duplicate their efforts, replicating the Darwinian realities of surviving in nature. Freed from the constraints of intracompany communication, Bezos hoped, these loosely coupled teams could move faster and get features to customers quicker.
Each team would propose its own “fitness function”—a linear equation that it could use to measure its own impact without ambiguity. For example, a two-pizza team in charge of sending advertising e-mails to customers might choose for its fitness function the rate at which these messages were opened multiplied by the average order size those e-mails generated. A group writing software code for the fulfillment centers might home in on decreasing the cost of shipping each type of product and reducing the time that elapsed between a customer’s making a purchase and the item leaving the FC in a truck. Bezos wanted to personally approve each equation and track the results over time. It would be his way of guiding a team’s evolution.
The result was somewhat disappointing. The two-pizza-team concept took root first in engineering, where it was backed by Rick Dalzell, and over the course of several years, it was somewhat inconsistently applied through the rest of the company. There was just no reason to organize some departments, such as legal and finance, in this way.
As part of his ongoing quest for a better allocation of his own time, he decreed that he would no longer have one-on-one meetings with his subordinates. These meetings tended to be filled with trivial updates and political distractions, rather than problem solving and brainstorming. Even today, Bezos rarely meets alone with an individual colleague.
“PowerPoint is a very imprecise communication mechanism,” says Jeff Holden, Bezos’s former D. E. Shaw colleague, who by that point had joined the S Team. “It is fantastically easy to hide between bullet points. You are never forced to express your thoughts completely.” Bezos announced that employees could no longer use such corporate crutches and would have to write their presentations in prose, in what he called narratives. The S Team debated with him over the wisdom of scrapping PowerPoint but Bezos insisted. He wanted people thinking deeply and taking the time to express their thoughts cogently.
Japanese consultants occasionally came to work with Amazon, and they were so unimpressed and derogatory that Amazon employees gave them a nickname: the insultants.
Perhaps the best story stems from the busy holiday season of 2006. A temporary employee in the Coffeyville, Kansas, fulfillment center showed up at the start of his shift and left at the end of it, but strangely, he was not logging any actual work in the hours in between. Amazon’s time clocks were not yet linked to the system that tracked productivity, so the discrepancy went unnoticed for at least a week. Finally someone uncovered the scheme. The worker had surreptitiously tunneled out a cavern inside an eight-foot-tall pile of empty wooden pallets in a far corner of the fulfillment center. Inside, completely blocked from view, he had created a cozy den.
But it's not all smiling HBR quotables. During one memorable meeting, a female employee pointedly asked Bezos when Amazon was going to establish a better work-life balance. He didn’t take that well. “The reason we are here is to get stuff done, that is the top priority,” he answered bluntly. “That is the DNA of Amazon. If you can’t excel and put everything into it, this might not be the place for you.”
“There can be only one head of marketing at Amazon, and his name is Jeff,”
“If you’re not good, Jeff will chew you up and spit you out. And if you’re good, he will jump on your back and ride you into the ground.”
“I spent most of my time trying to hide from Bezos,” Pinkham says. “He was a fun guy to talk to but you did not want to be his pet project. He would love it to distraction.”
For the launch of Simple Storage Service, Atlas had commemorative T-shirts made up for his colleagues; he used the design of Superman’s costume but with an S3 rather than an S on the chest. Naturally, he had to pay for the shirts himself.
Bezos never despaired over the mass exodus. One of his gifts, his colleagues said, was being able to drive and motivate his employees without getting overly attached to them personally.
Bezos did not explicitly favor one group over the other, but he looked at the results of tests. Over time it became clear that the humans couldn’t compete. PEOPLE FORGET THAT JOHN HENRY DIED IN THE END, read a sign on the wall of the P13N [Personalisation] office.
“Jeff, one day you’ll understand that it’s harder to be kind than clever.”
Google and Microsoft, which spread out their stock grants evenly, Amazon backloads the grant toward the end of the four-year period. Employees typically get 5 percent of their shares at the end of their first year, 15 percent their second year, and then 20 percent every six months over the final two years. Ensuing grants vest over two years and are also backloaded, to ensure that employees keep working hard and are never inclined to coast. Managers in departments of fifty people or more are required to “top-grade” their subordinates along a curve and must dismiss the least effective performers. As a result of this ongoing examination, many Amazon employees live in perpetual fear. A common experience among Amazon workers is a feeling of genuine surprise when one receives a good performance review.
At a management offsite in the late 1990s, a team of well-intentioned junior executives stood up before the company’s top brass and gave a presentation on a problem indigenous to all large organizations: the difficulty of coordinating far-flung divisions. The junior executives recommended a variety of different techniques to foster cross-group dialogue and afterward seemed proud of their own ingenuity. Then Jeff Bezos, his face red and the blood vessel in his forehead pulsing, spoke up. “I understand what you’re saying, but you are completely wrong,” he said. “Communication is 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.”
At that meeting and in public speeches afterward, Bezos vowed to run Amazon with an emphasis on decentralization and independent decision-making. “A hierarchy isn’t responsive enough to change,” he said. “I’m still trying to get people to do occasionally what I ask. And if I was successful, maybe we wouldn’t have the right kind of company.”
Bezos’s counterintuitive point was that coordination among employees wasted time, and that the people closest to problems were usually in the best position to solve them.
Or, as Neil Roseman also put it: “Autonomous working units are good. Things to manage working units are bad.”
The deals and negotiations and business strategies are equally fascinating. Wilke started his negotiations with UPS that summer in Louisville, ahead of a September 1 contract deadline. When UPS was predictably obstinate about deviating from its standard rate card, Wilke threatened to walk. UPS officials thought he was bluffing. Wilke called Jones in Seattle and said, “Bruce, turn them off.” “In twelve hours, they went from millions of pieces [from Amazon] a day to a couple a day,” says Jones, who flew to Fernley to watch the fallout. The standoff lasted seventy-two hours and went unnoticed by customers and other outsiders.
The Amazon jewelry executives decided on an approach similar to the one the company had recently used for its cautious first foray into apparel. They would let other, more experienced retailers sell everything on the site via Amazon’s Marketplace, and Amazon would take a commission. Meanwhile, the company could watch and learn. “That was something we did quite well,” says Randy Miller. “If you don’t know anything about the business, launch it through the Marketplace, bring retailers in, watch what they do and what they sell, understand it, and then get into it.”
Amazon devised one of the Web’s first automated search-ad-buying systems, naming it Urubamba, after a river in Peru, a tributary of the Amazon. But Bezos was wary of helping Google develop tools that it might then extend to Amazon’s rivals. “Treat Google like a mountain. You can climb the mountain, but you can’t move it,” he told Blake Scholl, the young developer in charge of Urubamba. “Use them, but don’t make them smarter.”
the institutional no, by which he meant any and all signs of internal resistance to these unorthodox moves. Even strong companies, he said, tended to reflexively push back against moves in unusual directions. At quarterly board meetings, he asked each director to share an example of the institutional no from his or her own past. Bezos was preparing his overseers to approve what would be a series of improbable, expensive, and risky bets. He simply refused to accept Amazon’s fate as an unexciting and marginally profitable online retailer. “There’s only one way out of this predicament,” he said repeatedly to employees during this time, “and that is to invent our way out.”
"You have to start somewhere,” he said. “You climb the top of the first tiny hill and from there you see the next hill.”
Amazon keeps AWS’s financial performance and profitability a secret, analysts at Morgan Stanley estimate that in 2012, it brought in $2.2 billion in revenue.
As Bezos proclaimed at the time, according to numerous employees: “Developers are alchemists and our job is to do everything we can to get them to do their alchemy.”
Bezos directed groups of engineers in brainstorming possible primitives. Storage, bandwidth, messaging, payments, and processing all made the list. In an informal way—as if the company didn’t quite know the insight around primitives was an extraordinary one—Amazon then started building teams to develop the services described on that list.
investment officer at Legg Mason Capital Management and a major Amazon shareholder, asked Bezos at the time about the profitability prospects for AWS. Bezos predicted they would be good over the long term but said that he didn’t want to repeat “Steve Jobs’s mistake” of pricing the iPhone in a way that was so fantastically profitable that the smartphone market became a magnet for competition.
Bezos unshackled Kessel from Amazon’s traditional media organization. “Your job is to kill your own business,” he told him. “I want you to proceed as if your goal is to put everyone selling physical books out of a job.” Bezos underscored the urgency of the effort. He believed that if Amazon didn’t lead the world into the age of digital reading, then Apple or Google would. When Kessel asked Bezos what his deadline was on developing the company’s first piece of hardware, an electronic reading device, Bezos told him, “You are basically already late.”
The company had finally learned the tricks of the century-old trade that is modern retail. Profit margin is finite. Better financial terms with suppliers translate directly into a healthier bottom line—and create the foundation on which everyday low prices become possible.
The next few months were tense. Amazon’s inducements to publishers were followed by threats. Publishers that didn’t digitize enough of their catalogs, or didn’t do it fast enough, were told they faced losing their prominence in Amazon’s search results and in its recommendations to customers.
marveling at how Bezos had ruthlessly engineered another acquisition by driving his target off a cliff. Says one observer who had a seat close to the battle, “They have an absolute willingness to torch the landscape around them to emerge the winner.”
Manufacturers are not allowed to enforce retail prices for their products. But they can decide which retailers to sell to, and one way they wield that power is by setting price floors with a tool called MAP, or minimum advertised price. MAP requires offline retailers like Walmart to stay above a certain price threshold in their circulars and newspaper ads. Online retailers have a higher burden. Their product pages are considered advertisements, so they have to set their promoted prices at or above MAP or else face the manufacturer’s wrath and risk the firm’s limiting the number of products allocated or withdrawing them altogether.
Like Sam Walton, Bezos sees it as his company’s mission to drive inefficiencies out of the supply chain and deliver the lowest possible price to its customers. Amazon executives view MAPs and similar techniques as the last vestiges of an old way of doing business, gimmicks that inefficient companies use to protect their bloated margins. Amazon has come up with countless workarounds, including a technique called hide the price. In some cases, when Amazon breaks MAP, it doesn’t list the price on its product page. A customer can see the low price only when he places the item in his shopping cart.
Some of the retailers who sell via the Amazon Marketplace seem to have a schizophrenic relationship with the company, particularly if they have no unique and sustainable selling point, such as an exclusive on a particular product. Amazon closely monitors what they sell, notices any briskly selling items, and often starts selling those products itself.
Amazon’s own employees have compared third-party selling on the site to heroin addiction—sellers get a sudden euphoric rush and a lingering high as sales explode, then progress to addiction and self-destruction when Amazon starts gutting the sellers’ margins and undercutting them on price.
introduced [...] the Prime Lending Library, which allowed Prime members who owned a Kindle reading device to borrow one digital book a month for free. But Amazon included the books of many mid-tier publishers in its lending catalog without asking for permission, reasoning that it had purchased those books at wholesale and thus believed it could set any retail price it wished (including, in this case, zero).
[reverse-engineering what makes cool companies] Rudeness is not cool. Defeating tiny guys is not cool. Close-following is not cool. Young is cool. Risk taking is cool. Winning is cool. Polite is cool. Defeating bigger, unsympathetic guys is cool. Inventing is cool. Explorers are cool. Conquerors are not cool. Obsessing over competitors is not cool. Empowering others is cool. Capturing all the value only for the company is not cool. Leadership is cool. Conviction is cool. Straightforwardness is cool. Pandering to the crowd is not cool. Hypocrisy is not cool. Authenticity is cool. Thinking big is cool. The unexpected is cool. Missionaries are cool. Mercenaries are not cool.
When you have fit yourself snugly into Jeff Bezos’s worldview and then evaluated both the success and failures of Amazon over the past two decades, the future of the company becomes easy to predict. The answer to almost every conceivable question is yes.