The Everything Store: Jeff Bezos and the Age of Amazon

by Brad Stone

The demands were introduced quite persuasively in the form of benefits to be passed on to Amazon’s customers, but even that could sound ominous. When Amazon passed on savings to customers in the form of shipping deals or lower prices, it had the effect of increasing the pressure on physical bookstores, including independent bookshops, and adding to Amazon’s growing market power.

Bezos had been on the short end of this Darwinian dynamic. He had learned the game firsthand. Now the balance of power was shifting. Now suppliers needed Amazon more than Amazon needed them.

By early 2007, Amazon could demonstrate the Kindle’s wireless access, and, finally, some publishers understood its potential. John Sargent, the CEO of Macmillan, and some other executives became converts when they recognized for the first time that giving customers instant gratification—the immediate download of any e-book at any time—might allow Amazon to succeed where Sony and others had failed.

Amazon and its publishing partners now occupied entirely different worlds. The e-book business didn’t exist in any meaningful way, so publishers couldn’t understand why they were being berated and punished for not embracing it. Amazon executives saw themselves as racing toward the future and fulfilling Bezos’s vision of making every book ever printed available for instant digital delivery, but at the same time they were trying desperately to beat Apple and Google to the next vital phase in the evolution of digital media.

Bezos decided that the digital versions of the most popular books and new releases would have a flat price of $9.99. There was no research behind that number—it was Bezos’s gut call, fashioned after Apple’s successful ninety-nine-cent price tag for a digital single in iTunes and based on the assumption that consumers would expect to pay less for an e-book than they did for a traditional book, as an e-book had none of the costs associated with printing and storage.

“Customers are smart, and we felt like they would expect and deserve digital books to be lower priced than physical books,”

The $9.99 e-books were considerably more appealing to some customers than the more expensive hardcovers, the industry’s most profitable format, and the pricing pulled the rug out from under traditional retailers, particularly independent booksellers, who would suddenly find their shelves stocked with what some book buyers might soon view as overly expensive relics.

By the fall of 2007, Amazon had ninety thousand books in the Kindle library, tantalizingly close to Bezos’s goal. Kindle owners would have the equivalent of a Barnes & Noble bookstore at their fingertips.

In retrospect, the first Kindle provided an exultant answer to Bezos’s question. In many respects, it was superior to its analog predecessor, the physical book. It weighed ten ounces and could carry two hundred titles. The E Ink screen was easy on the eyes. Whispernet, the name Amazon gave to the Kindle’s free 3G cellular network, allowed readers to painlessly download books in a flash. “I think the reason Kindle succeeded while others failed is that we were obsessive, not about trying to build the sexiest gadget in the world, but rather [about building] something that actually fulfilled what people wanted,”

The Kindle wasn’t an overnight success, of course, but an avalanche of publicity and its prominent placement at the top of the Amazon website ensured that the company would quickly run through its stock of devices.

The new low price for top-selling e-books changed everything. It tilted the playing field in the direction of digital, putting additional pressure on physical retailers, threatening independent bookstores, and giving Amazon even more market power. The publishers had seen over many years what Amazon did with this kind of additional leverage. It exacted more concessions and passed the savings on to customers in the form of lower prices and shipping discounts, which helped it amass even greater market share—and more negotiating leverage.

Amazon stocks dissimilar products next to one another to minimize the possibility of employees selecting the wrong item, but that seems unlikely to happen. Every product, shelving unit, forklift, roller cart, and employee badge has a bar code, and invisible algorithms calculate the most efficient paths for workers through the facility.

Amazon customers who joined Prime doubled, on average, their spending on the site, according to a person familiar with the company’s internal finances at the time.

Prime members bought more products across more categories, which in turn convinced sellers to let Amazon stock their merchandise and ship their orders from its fulfillment centers, since that meant their products qualified for Prime two-day shipping.

“In order to be a two-hundred-billion-dollar company, we’ve got to learn how to sell clothes and food,” Bezos said frequently to colleagues during this time. That figure was not randomly selected; it referred to the magnitude of Walmart’s sales in the middle years of the decade.

Bezos worked his subordinates to exhaustion, supplied little in the way of corporate creature comforts, and allowed many key personnel to leave without showing any remorse. But he was also capable of deeply gracious and unexpected expressions of appreciation. Dalzell had performed heroically for a decade and kept the company on track in the gloomy days when the infrastructure was a mess and Google was poaching every other engineer.

Every major company faces decisions over whether it should build or buy new capabilities. “Jeff almost always prefers to build it,” Blackburn says. 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.”

By law, manufacturers are not allowed to set retail prices, but they can decide whom they want to carry their products, and they make those decisions judiciously. Shoe brands like Nike and Merrell viewed Amazon as a dangerous discounter, a company that would very likely consign their new in-season products to the bargain bin in an effort to garner new customers and gain market share. As a result, the top brands were reluctant to supply Amazon with merchandise, and the website’s shoe selection was sparse. Amazon had other disadvantages in the shoe business. The Amazon website was not well suited to products that had lots of variations, like a shoe that comes in six colors, eighteen sizes, and several widths.

The great recession that started in December 2007 and lasted until July 2009 was in some ways a gift to Amazon. The crisis not only drove Zappos into Amazon’s arms but also significantly damaged the sales of the world’s largest offline retail chains, sending executives scurrying into survival mode. Desperate to protect their profit margins, many retailers reacted by firing employees, cutting down their product assortment, and lowering the overall quality of their service, and this just as Bezos was investing in new categories and more rapid distribution. The economic crisis served as a kind of cloaking device, hiding Amazon’s evolution into a dangerous diversified competitor. Retailers were scared, but the bogeyman was the reeling global economy and declining consumer spending, not Amazon.

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.

Ironically, the shift to the agency model made the Kindle business more profitable, since Amazon was forced to charge more for e-books, and Amazon held a near monopoly on e-book sales. That helped Amazon sustain the gradual decrease in the price of the Kindle hardware. Less than two years later, the cheapest Kindle e-reader would cost seventy-nine dollars.

‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.’

If publishers had engaged in a joint effort to make customers pay “a little more,” that was the foundation on which modern antitrust cases were built.

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.

There is a clandestine group inside Amazon with a name seemingly drawn from a James Bond film: Competitive Intelligence. The group, which since 2007 has operated within the finance department under longtime executives Tim Stone and Jason Warnick, buys large volumes of products from competitors and measures the quality and speed of their services. Its mandate is to investigate whether any rival is doing a better job than Amazon and then present the data to a committee

Amazon was on track to lose $100 million over three months in the diapers category alone. Inside Amazon, Bezos had rationalized these moves as being in the company’s long-term interest of delighting its customers and building its consumables business.

Wilke acknowledges that not everyone is happy with this approach but says Amazon is consistent about it and that manufacturers should understand that it is the nature of the Internet itself—not just Amazon—that allows customers to easily find the lowest price.

But Prime Instant Video played another role. Amazon was now providing, as a supplementary perk, something Reed Hastings and his colleagues at Netflix priced at five to eight dollars a month. The service exerted direct pressure on a key rival and worked to prevent it from appropriating an important section of the everything store. Amazon too would offer films and TV shows in any form that customers could possibly want—all with the click of a button.

With no stark price advantage and increased competition from Barnes & Noble’s Nook, Apple’s iBookstore, and the Toronto-based startup Kobo, Amazon’s e-book market share fell from 90 percent in 2010 to around 60 percent in 2012.

Book publishers were refusing to play by Amazon’s rules. So Amazon decided to reinvent the rulebook. It started a New York–based publishing imprint with the lofty ambition to publish bestselling books by big-name authors—the bread-and-butter of New York’s two-century-old book industry.

“When a platform is self-service, even the improbable ideas can get tried, because there’s no expert gatekeeper ready to say ‘that will never work!’ And guess what—many of those improbable ideas do work, and society is the beneficiary of that diversity.”

“Time horizons matter, they matter a lot. The other thing I would point out is that we humans are getting awfully sophisticated in technological ways and have a lot of potential to be very dangerous to ourselves. It seems to me that we, as a species, have to start thinking longer term.