The Everything Store: Jeff Bezos and the Age of Amazon

by Brad Stone

Millions of people regularly direct their Web browsers to its eponymous website or its satellite sites, like Zappos.com and Diapers.com, acting on the most basic impulse in any capitalist society: to consume.

“We are genuinely customer-centric, we are genuinely long-term oriented and we genuinely like to invent. Most companies are not those things. They are focused on the competitor, rather than the customer. They want to work on things that will pay dividends in two or three years, and if they don’t work in two or three years they will move on to something else. And they prefer to be close-followers rather than inventors, because it’s safer. So if you want to capture the truth about Amazon, that is why we are different. Very few companies have all of those three elements.”

everyone who had participated in the hiring process gathered and expressed one of four opinions about each individual: strong no hire; inclined not to hire; inclined to hire; or strong hire. One holdout could sink an applicant.

Bezos wasn’t looking for the correct answer, only for the individual to demonstrate creativity by coming up with a sound way to derive a possible solution. And if the potential employees made the mistake of talking about wanting a harmonious balance between work and home life, Bezos rejected them.

“Great merchants have never had the opportunity to understand their customers in a truly individualized way,” he said. “E-commerce is going to make that possible.”

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.

“Jeff didn’t believe in work-life balance,” says Kim Rachmeler. “He believed in work-life harmony. I guess the idea is you might be able to do everything all at once.”

“Jeff, one day you’ll understand that it’s harder to be kind than clever.”

Not sure that Jeff ever figured this one out.

“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.”

Sounds like the author has been in one of our daily status meetings.

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.

In the seminal high-tech book The Mythical Man-Month, IBM veteran and computer science professor Frederick Brooks argued that adding manpower to complex software projects actually delayed progress. One reason was that the time and money spent on communication increased in proportion to the number of people on a project.

Wilke subscribed to the principles laid out in a seminal book about constraints in manufacturing, Eliyahu M. Goldratt’s The Goal, published in 1984. The book, cloaked in the guise of an entertaining novel, instructs manufacturers to focus on maximizing the efficiency of their biggest bottlenecks.

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.”

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.

Bezos didn’t believe anyone could make a good decision about a feature or a product without knowing precisely how it would be communicated to the world—and what the hallowed customer would make of it.

Being an unstore meant, in Bezos’s view, that Amazon was not bound by the traditional rules of retail. It had limitless shelf space and personalized itself for every customer. It allowed negative reviews in addition to positive ones, and it placed used products directly next to new ones so that customers could make informed choices.

“You have to start somewhere,” he said. “You climb the top of the first tiny hill and from there you see the next hill.”3

Like a lot of other technology companies at the time, Amazon got an education in the wisdom of moving to a simpler and more flexible technology infrastructure, called service-oriented architecture. In this kind of framework, every feature and service is treated as an independent piece and each can easily be updated or replaced without breaking the whole.

Though 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.

If Amazon wanted to stimulate creativity among its developers, it shouldn’t try to guess what kind of services they might want; such guesses would be based on patterns of the past. Instead, it should be creating primitives—the building blocks of computing—and then getting out of the way.

Companies like IBM, Microsoft, and Google, he suspected, would hesitate to get into such markets because it would depress their overall profit margins.

Bezos believed that high margins justified rivals’ investments in research and development and attracted more competition, while low margins attracted customers and were more defensible.

Microsoft announced a similar cloud initiative called Azure in 2010. In 2012, Google announced its own Compute Engine.

is not hyperbole to say that AWS, particularly the original services like S3 and EC2, helped lift the entire technology industry out of a prolonged post-dot-com malaise.

“It is far better to cannibalize yourself than have someone else do it,” said Diego Piacentini in a speech at Stanford’s Graduate School of Business a few years later.

The Innovator’s Dilemma, by Harvard professor Clayton Christensen. Christensen wrote that great companies fail not because they want to avoid disruptive change but because they are reluctant to embrace promising new markets that might undermine their traditional businesses and that do not appear to satisfy their short-term growth requirements.

IBM couldn’t shift from mainframe to minicomputers.

or the cloud?

“Jeff does a couple of things better than anyone I’ve ever worked for,” Dalzell says. “He embraces the truth. A lot of people talk about the truth, but they don’t engage their decision-making around the best truth at the time. “The second thing is that he is not tethered by conventional thinking. What is amazing to me is that he is bound only by the laws of physics. He can’t change those. Everything else he views as open to discussion.”

audio-book company Audible (bought in 2008 for $300 million).

Bezos had absorbed the lessons of the business bible Good to Great, whose author, Jim Collins, counseled companies to acquire other firms only when they had fully mastered their virtuous circles, and then “as an accelerator of flywheel momentum, not a creator of it.”

The retailer’s new website, built and managed with the help of IBM and Oracle, went down a half a dozen times during the 2011 holiday season, and the president of its online division resigned.

Retailer was Target

There was another reason for publishers’ mounting anxieties at the time. That year Amazon introduced the Kindle Digital Text Platform (later renamed KDP), a program that allowed authors to self-publish their works in the U.S. Kindle store. The company would soon expand the effort overseas and grant authors a 70 percent royalty on their sales. The service was widely interpreted as Amazon’s first step into publishing; for the moment, it was just unknown writers.

That dichotomy originated with now former board member John Doerr, who formulated it after reading his partner Randy Komisar’s 2001 business-philosophy book The Monk and the Riddle. Missionaries have righteous goals and are trying to make the world a better place. Mercenaries are out for money and power and will run over anyone who gets in the way. To Bezos, at least, there was no doubt where Amazon fell. “I would take a missionary over a mercenary any day,” he liked to say. “One of those great paradoxes is that it’s usually the missionaries who end up making more money anyway.”2

I found this interesting since I would consider Amazon the mercenary.

In Texas in 2011, the legislature passed a bill that would force online retailers with distribution facilities in the state to collect sales tax, and Amazon threatened to close its fulfillment center outside Dallas, fire hundreds of local workers, and scrap plans to build other facilities in the state. Texas governor Rick Perry promptly vetoed the bill.

“Amazon’s attempt to avoid sales tax is one more sad example of the short-term thinking that rules American business,” blogged Web evangelist Tim O’Reilly, knowing just how to push the buttons of Bezos, who prided himself on long-term thinking.

And insiders were once again left with their mouths agape, 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.”

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.

“In a world where consumers had limited choice, you needed to compete for locations,” says Ross, who went on to cofound eCommera, a British e-commerce advisory firm. “But in a world where consumers have unlimited choice, you need to compete for attention. And this requires something more than selling other people’s products.”

Book publishers needed only to listen to Jeff Bezos himself to have their fears stoked. Amazon’s founder repeatedly suggested he had little reverence for the old “gatekeepers” of the media, whose business models were forged during the analogue age and whose function it was to review content and then subjectively decide what the public got to consume.

Would Amazon continue to be viewed as an innovative and value-creating company that existed to serve and delight its customers, or would it increasingly be seen as a monolith that merely transferred dollars out of the accounts of other companies and local communities and into its own gilded coffers?

Amazon styles itself as highly decentralized and promises that new employees can make decisions independently. But Bezos is capable of stopping any process dead in its tracks if it creates a problem for even a single customer.

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.

Frugality We try not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency and invention. There are no extra points for headcount, budget size or fixed expense.

“This is what, for employees, is so absolutely scary and impressive about the executive team. They force you to look at the numbers and answer every single question about why specific things happened,”

Any process can be improved. Defects that are invisible to the knowledgeable may be obvious to newcomers. The simplest solutions are the best.