The Everything Store: Jeff Bezos and the Age of Amazon

by Brad Stone

The Amazon database insisted that the Jigglypuffs had been delivered to the facility, but if so, they were either misplaced or stolen. Although Rachmeler put together a search team, the task seemed nearly impossible. The group was looking for a single box inside an eight-hundred-thousand-square-foot facility.

When the 1999 holiday season ended, employees and executives of Amazon could finally take a breather. Sales were up 95 percent over the previous year, and the company had attracted three million new customers, exceeding twenty million registered accounts. Jeff Bezos was named Time’s Person of the Year, one of the youngest ever, and credited as “the king of cybercommerce.”9 It was an incredible validation for Amazon and its mission.

The company had stumbled and would write off $39 million in unsold toys. Still, thanks to herculean efforts up and down the ranks, there were no obvious disasters or disappointments for customers. Meanwhile, the websites of rivals like Toys “R” Us and Macy’s barely survived their first major holiday season and were plagued by customer complaints, bad press, and even an investigation by the Federal Trade Commission into unfulfilled promises made to shoppers.

rapid growth had led to misplaced and stolen inventory, which made it impossible to close the books on the company’s fourth quarter.

growth had led to misplaced and stolen inventory, which made it impossible to close the books on the company’s fourth quarter.

An amiable former Apple exec and the chief executive of Intuit in the mid-1990s, Campbell had a reputation for being an astute listener who could parachute into difficult corporate situations and get executives to confront their own shortcomings. Steve Jobs considered him a confidant and got him to join the Apple board when Jobs returned to the helm of that company in 1997. At Amazon, Campbell’s stated mission was to help Galli play nicely with others. He commuted between Silicon Valley and Seattle for a few weeks, sitting quietly in executive meetings and talking privately with Amazon managers about the metastasizing leadership problems.

The Amazon board saw Amazon’s egregious spending and widening losses and heard from other executives that Bezos was impetuous and controlling. They were naturally worried that the goose who laid the golden egg might be about to crack the egg in half.

“Jeff Bezos at Amazon—I visited them early on to see if they needed a CEO and I was like, ‘Why would you ever replace him?’ He’s out of his mind, so brilliant about what he does.”11

vision and what the company could be. I could anticipate it was not going to work. He wanted to have a more hands-on role. I’m just not a great number two. It’s not in my DNA.”

“He decided to spend the next umpteen years of his life building the company, as opposed to gradually withdrawing to pursue other interests,”

Amazon wouldn’t make another significant acquisition for years, and when it did, Bezos carefully considered the lessons from his reckless binge.

As a new millennium dawned, Amazon stood on the precipice. It was on track to lose more than a billion dollars in 2000, just as the sunny optimism over the dot-com economy morphed into dark pessimism. As he had been doing over and over since the company’s very first days, Bezos would have to persuade everyone that Amazon could survive the cyclone of debt and losses that it had created for itself during a singularly feverish time.

In 2000 and 2001, the years commonly thought of as the dot-com bust, investors, the general public, and many of his employees fell out of love with Bezos. Most observers not only dismissed the company’s prospects but also began to doubt its chances of survival.

Amazon stock, which since its IPO had moved primarily in one direction—up—topped out at $107 and would head steadily down over the next twenty-one months. It was a stunning fall from grace.

Companies without actual business models were raising hundreds of millions of dollars, rushing to go public, and seeing their stock prices roar into the stratosphere despite unsound financial footing.

In March of 2000, a critical cover story in Barron’s pointed out the self-destructive rate at which Web companies like Amazon were burning through their venture capital. The dot-com boom had been built largely on faith that the market would give these young, unprofitable companies plenty of room to mature; the Barron’s story reinforced fears that a day of reckoning was coming. The NASDAQ peaked on March 10, then wobbled and began to spiral downward. The

While other dot-coms merged or perished, Amazon survived through a combination of conviction, improvisation, and luck.

February, Amazon sold $672 million in convertible bonds to overseas investors. This time, with the stock market fluctuating and the global economy tipping into recession, the process wasn’t as easy as the previous fund-raising had been. Amazon was forced to offer a far more generous 6.9 percent interest rate and flexible conversion terms—another sign that times were changing. The deal was completed just a month before the crash of the stock market, after which it became exceedingly difficult for any company to raise money. Without that cushion, Amazon would almost certainly have faced the prospect of insolvency over the next year.

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.

The rollout of new product categories slowed, and Amazon shifted its infrastructure to technology based on the free operating system Linux. It also began a concerted effort to improve efficiency in its far-flung distribution centers. “The company got creative because it had to,” says Warren Jenson.

Many who had joined more recently held stock options that were now worthless.

Three senior executives recall meeting privately in a conference room that year to write a list of all of Bezos’s successes and failures on a whiteboard. The latter column included Auctions, zShops, the investments in other dot-coms, and most of Amazon’s acquisitions. It was far longer than the first column, which at that time appeared to be limited to books, music, and DVDs. The future of the new toys, tools, and electronics categories was still in question.

But through it all, Bezos never showed anxiety or appeared to worry about the wild swings in public sentiment. “We were all running around the halls with our hair on fire thinking, What are we going to do?” says Mark Britto, a senior vice president. But not Jeff. “I have never seen anyone s...

He would also show what was becoming a characteristic volatility, lashing out at executives who failed to meet his improbably high standards.

The Amazon we know today, with all of its attributes and idiosyncrasies, is in many ways a product of the obstacles Bezos and Amazon navigated during the dot-com crash, a response to the widespread lack of faith in the company and its leadership.

In the midst of all this, Bezos burned out many of his top executives and saw a dramatic exodus from the company. But Amazon escaped the downdraft that sucked hundreds of other similarly overcapitalized dot-coms and ...

“Most execs, particularly first-time CEOs who get good at one thing, can only dance what they know how to dance. “Frankly, I didn’t think he could do it.”

Working from Amazon’s latest quarterly earnings release, Suria analyzed the heavy losses of the previous holiday season and concluded that the company was in trouble, and in a widely disseminated research report, he predicted doom.

“From a bond perspective, we find the credit extremely weak and deteriorating,”

“We believe that the company will run out of cash within the next four quarters, unless it manages to pull another financing rabbit out of its rather magical hat.”

Suria’s analysis was, in the narrowest sense and with the benefit of hindsight, incorrect. With the additional capital from the bond raise in Europe, Amazon had nearly a billion dollars in cash and securities, enough to cover all of its outstanding accounts with suppliers. Moreover, the company’s negative-working-capital model would continue to generate cash from sales to fund its operations. Amazon was also well along in the process of cutting costs.

If Suria’s predictions spooked suppliers into going on the equivalent of a bank run and demanding immediate payment from Amazon for their products, Amazon’s expenses might rise. If Suria frightened customers and they turned away from Amazon because they believed, from the ubiquitous news coverage, that the Internet was only a fad, Amazon’s revenue growth could go down. Then it really could be in trouble.

In other words, the danger for Amazon was that in their wrongness, Suria and other Wall Street bears might prove themselves right. “The most anxiety-inducing thing about it was that the risk was a function of the perception and not the reality,” says Russ Grandinetti, Amazon’s treasurer at the time. Which is why Amazon’s damage-control response was unusually emphatic.

With Amazon’s reputation and brand getting battered in the media, Bezos began a charm offensive. Suddenly, he was every-where—on CNBC, in interviews with print journalists, talking to investors—asserting that Suria was incorrect and that Amazon’s fundamentals were fine.

He reaffirmed his commitment to building a lasting company, learning from his mistakes, and developing a brand associated not with books or media but with the “abstract concept of starting with the customer and working backward.”

interjecting cavalcades of laughter between his answers.

know we live in a period where long term is ten minutes [laugh] but if you take any historical perspective whatsoever … I mean, let me ask you this question. How much do you think our stock is up over the last three years? The stock is up by a factor of twenty! So this is normal. I always say about Amazon.com we don’t seek controversy, but we certainly find it [laugh].”

They came to the conclusion that even if the company showed reasonable growth, its fixed costs—the distribution centers and salary rolls—were simply too big. They would have to cut even more. Bezos announced in an internal memo that Amazon was “putting a stake in the ground” and would be profitable by the fourth quarter of 2001.

For the next eight months, Ravi Suria continued to pummel Amazon with negative reports.

An executive in the finance group used Suria’s name to coin a term for a significant mathematical error of a million dollars or more; Bezos loved it and started using it himself. The word was milliravi.

It is the ambition of every technology company to be worth more than the sum of its parts. It inevitably seeks to offer a set of tools that other companies can use to reach their customers. It wants to become, in the parlance of the industry, a platform.

So it was only natural that as early as 1997, executives at Amazon were thinking about how to become a platform and augment the e-commerce efforts of other retailers. Amazon Auctions was the first such attempt, followed by zShops, the service that allowed small retailers to set up their own stores on Amazon.com.

Amazon, meanwhile, had to write off $39 million in the unsold toy inventory that Bezos had so fervently vowed he would personally drive to the local dump.

It seemed like a perfect fit. Toys “R” Us was adept at choosing the right toys for each season and had the necessary clout with manufacturers to get favorable prices and sufficient supplies of the most popular toys. Amazon of course had the expertise to run an online retailing business and get products to customers on time.

Bezos made a big show of keeping one chair open at the conference-room table, “for the customer,” he explained.

Amazon signed a deal with the book chain Borders,

Amazon also signed a deal to carry the inventory of retailer Circuit City,

All of these deals improved Amazon’s balance sheet in the short term, but in the long run, they were awkward for all parties.

Bezos scrawled I am not my stock price on the whiteboard in his office and instructed everyone to ignore the mounting pessimism. “You don’t feel thirty percent smarter when the stock goes up by thirty percent, so when the stock goes down you shouldn’t feel thirty percent dumber,” he said at an all-hands meeting.

He quoted Benjamin Graham, the British-born investor who inspired Warren Buffett: “In the short term, the stock market is a voting machine. In the long run, it’s a weighing machine” that measures a company’s true value. If Amazon stayed focused on the customer, Bezos declared, the company would be fine.