The Everything Store: Jeff Bezos and the Age of Amazon

by Brad Stone

J. K. Rowling published the fourth book in the series, Harry Potter and the Goblet of Fire. Amazon offered a 40 percent discount on the book and express delivery so customers would get it on Saturday, July 8—the day the book was released—for the cost of regular delivery.

But Bezos refused to see it as anything other than a move to build customer loyalty. “That either-or mentality, that if you are doing something good for customers it must be bad for shareholders, is very amateurish,” he said in our interview that summer.

The Harry Potter promotion unsettled even the executives working on it. “I was thinking, Holy shit, this is a lot of money,” says Lyn Blake, the Amazon executive in charge of books at the time. She was later inclined to admit that Bezos was right. “We were able to assess all the good press and heard all these stories from people who were meeting their deliverymen at their front doors. And we got these testimonials back from drivers. It was the best day of their lives.” Amazon was mentioned in some seven hundred stories about the new Harry Potter novel in June and July that year. Bezos was obsessed with the customer experience, and anyone who didn’t have the same single-minded focus or who he felt wasn’t demonstrating a capacity for thinking big bore the brunt of his considerable temper. One person who became a frequent target during this time was the vice president in charge of customer service, Bill Price.

His customer-service department tracked two important metrics: average talk time (the amount of time an employee spent on the phone with a customer) and contacts per order (the number of times a purchase necessitated a customer phone call or e-mail). Bezos demanded that Price reduce both, but that was fundamentally impractical. If a customer-service rep stayed on the phone long enough to fully solve each customer’s problem, the number of contacts per order might go down, but the average talk time would go up. If the customer-service rep tried to jump off each call quickly, average talk times would decline, but customers would be more likely to call back.

Bezos didn’t care about that simple calculus. He hated when customers called at all, seeing it as a defect in the system, and he believed that customers should be able to solve their problems themselves with the aid of self-help tools.5 When they did call, Bezos wanted their queries answered promptly and their issues settled conclusively. There were no excuses. Price’s only solution was to push his team harder, but since he had limited resources to add new people, employees were burning out.

Price then violated a cardinal rule at Amazon: he assured Bezos that they were well under a minute but without offering much in the way of proof.

“Really?” Bezos said. “Let’s see.” On the speakerphone in the middle of the conference table, he called Amazon’s 800 number. Incongruously cheerful hold music filled the room. Bezos took his watch off and made a deliberate show of tracking the time. A brutal minute passed, then two. Other execs fidgeted uncomfortably while Price furtively picked up his cell phone and quietly tried to summon his subordinates. Bezos’s face grew red; the vein in his forehead, a hurricane warning system, popped out and introduced itself to the room. Around four and a half minutes passed, but according to multiple people at the meeting who related the story, the wait seemed interminable.

Eventually a cheerful voice blurted out, “Hello, Amazon.com!” Bezos said, “I’m just calling to check,” and slammed down the phone. Then he tore into Price, accusing him of incompetence...

The fact that third-party selling on Amazon wasn’t working meant, to Bezos, only that it wasn’t working at that particular moment.

If a customer searched for the book on Amazon, there was one single page, with a definitive description of the novel, and that’s where customers flocked.

If they chose the latter, either because the seller had a lower price or because the product was out of stock at Amazon, the company would lose the sale but collect a small commission. “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.”

Marketplace launched in November 2000 in the books category and immediately drew protests. Two trade groups, the Association of American Publishers and the Authors Guild, each posted a public letter on its website complaining that Amazon was undermining the sale of new books in favor of used books and in the process taking royalties out of the pockets of authors.

Even worse, a customer might have a bad experience with that seller and end up leaving a negative review. And the company’s buyers now had to contend with irate publishers and other manufacturers who wanted to know why used products from small, often unauthorized sellers were being sold directly next to their new wares. This debate would play out gradually over the next few years as Amazon expanded the effort and added both new and used products from third-party sellers to each category. Marketplace, in effect, made it more difficult for the retailers inside Amazon to accomplish the lofty goals Bezos himself had set for them.

The new strategy would result in years of tension between various divisions, between Amazon and its suppliers, and between industry trade groups and the company. Bezos didn’t care about any of that, as long as it offered more choices to customers and, in the process, gave Amazon a greater selection of products.

managed to upset almost everybody, even his own colleagues. “As usual,” says Mark Britto, “it was Jeff against the world.”

That evening, the Amazon executives met in Bentonville, where they got a taste of Walmart’s brand of frugality. Walmart booked them rooms at a local Days Inn.

They talked about the companies’ shared culture and the principles Bezos had taken from Sam Walton’s autobiography.

Bezos spoke generally about Amazon’s attempts at personalization and the technology behind collaborative filtering—the algorithms that determined that people who bought one particular kind of product were inclined to purchase another specific set of products.

Scott noted that Walmart had similar techniques. It could measure whether a certain item, such as a globe for children, could lift the sale of another item, like a coloring book, if they were placed next to each other on a store display. B...

“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.”

Of course Bezos wasn’t interested in selling his company to Walmart, and Scott ultimately rejected the idea of outsourcing a crucial part of Walmart’s online operation to Amazon.

The two companies would continue on separate paths, which, years later, would converge to produce a fierce rivalry.

don’t care who you are or how much chutzpah you have,” says Warren Jenson. “It’s not fun picking up the Times and seeing your picture above the fold accused of insider trading. We are all products of what we’ve been through. This is one of the things that made Jeff the person he is. That scar does not heal easily.”

Amazon also announced plans to cut thirteen hundred employees, or about 15 percent of its workforce. The company was accustomed to adding people, not losing them, and the layoffs were brutal.

People who had been hired just months before were summarily fired, their careers and personal lives left in tatters. Mitch Berman, a merchandising manager in the DVD group, had previously worked at Coca-Cola in Atlanta and had moved to Seattle for the job. He was employed by Amazon for all of four months and never understood why it didn’t work out.

The center had been open only a few months when Piacentini arrived to shut it down. With a few colleagues from Seattle, he collected the two hundred and fifty or so employees in the large marble lobby and made a brief speech in English telling everyone the bad news. Employees started howling and shouting, according to one Amazon employee who was there. One woman began sobbing and rolling on the floor.

When I visited Amazon for another Newsweek story that March, the stock was hovering around $10 and the city inspector had closed the main lobby.

In early 2001, Amazon’s position and future prospects remained dubious. The problem wasn’t only its diminishing market capitalization or its overlarded staffing and expansion efforts. Growth, particularly in the oldest category, books—still more than half its business at the time—appeared to be slowing after years of annual double-digit increases.

“We were scared to death,” says Erich Ringewald, a vice president in charge of Marketplace. “Books were decelerating, and everyone thought that Walmart.com would start selling books at a loss to keep us from growing.”

Amazon then did something rare in its history. Warren Jenson, pushing to improve margins to meet the company’s self-imposed profitability deadline, convinced Bezos to quietly raise prices in the older media categories. Amazon reduced its discounts on bestselling books and started charging more to overseas customers who were buying from the domestic website. Bezos signed off on the increases, but another important meeting quickly made him change his mind.

Like Bezos, Sinegal had rejected multiple acquisition offers over the years, including one from Sam Walton, and he liked to say he didn’t have an exit strategy—he was building a company for the long term.

That idea never went anywhere, but over the next hour, Bezos listened carefully and once again drew key lessons from a more experienced retail veteran.

“The membership fee is a onetime pain, but it’s reinforced every time customers walk in and see forty-seven-inch televisions that are two hundred dollars less than anyplace else,” Sinegal said. “It reinforces the value of the concept. Customers know they will find really cheap stuff at Costco.”10

Costco’s low prices generated heavy sales volume, and the company then used its significant size to demand the best possible deals from suppliers and raise its per-unit gross profit dollars.

“I think Jeff looked at it and thought that was something that would apply to his business as well,”

Perhaps Amazon’s founder realized he owed Sinegal a debt of gratitude, because he took the lessons he learned during that coffee in 2001 and applied them with a vengeance.

Like Walmart and Costco, Bezos said, Amazon should have “everyday low prices.” The company should look at other large retailers and match their lowest prices, all the time. If Amazon could stay competitive on price, it could win the day on unlimited selection and on the convenience afforded to customers who didn’t have to get in the car to go to a store and wait in line.

That July, as a result of the Sinegal meeting, Amazon announced it was cutting prices of books, music, and videos by 20 to 30 percent. “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,” he said in that month’s quarterly conference call with analysts, coining a new Jeffism to be repeated over and over ad nauseam for years.

Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop.

The skies were closed to commercial flights for the next seventy-two hours, so the Amazon group couldn’t fly back to Seattle.

While Britto drove, Bezos used his phone and helped to organize a donation drive on the Amazon home page, which in two weeks would raise seven million dollars for the Red Cross.

a year into the bust, Bezos was desperately trying to figure out how he could stop advertising altogether. As usual, Bezos battled his marketing executives.

Amazon wouldn’t advertise on television again for another seven years, not until the introduction of the Kindle. “There can be only one head of marketing at Amazon, and his name is Jeff,” says Diane Lye, a British senior manager who led Amazon’s data-mining department and helped run the advertising tests.

Bezos felt that word of mouth could deliver customers to Amazon. He wanted to funnel the saved marketing dollars into improving the customer experience and accelerating the flywheel.

During the 2000 and 2001 holidays, Amazon offered free shipping to customers who placed orders of a hundred dollars or more. The promotion was expensive but clearly boosted sales. Customer surveys showed that shipping costs were one of the biggest hurdles to ordering online.

The CFO worried that free shipping would be expensive and wasteful, since Amazon would be giving discounts to all comers, including those customers who were inclined to place large orders anyway.

They would make the free-shipping offer permanent, but only for customers who were willing to wait a few extra days for their order.

Not everyone was happy with this outcome. After that meeting, Warren Jenson took Greeley aside and berated him, in that moment seeing free shipping as nothing but another potential balance-sheet buster.

Others felt Bezos didn’t listen to them and that he wasn’t about to start. Almost all figured that Amazon’s best days were behind it. The company reached incredible levels of attrition in 2002 and 2003. “The number of employees at that point other than Jeff who thought he could turn it into an eighty-billion-dollar company—that’s a short list,” says Doug Boake, who departed for the Silicon Valley startup OpenTable. “He just never stopped believing. He never blinked once.”

Though they didn’t share it openly, many just couldn’t take working for Bezos any longer. He demanded more than they could possibly deliver and was extremely stingy with praise. At the same time, many felt a tremendous loyalty to Bezos and would later marvel at how much they accomplished at Amazon.