Find this article at: http://www.business2.com/content/magazine/indepth/1999/04/01/19607
Running Scared
From the April 01, 1999 issueInterview by James Daly
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| "Every morning we should wake up
terrified and use that terror as a motivator." Tina Hager |
Back in early 1994, while doing research as a hedge fund manager at D.E. Shaw, Bezos learned that Web usage was growing at an astounding 2,300 percent a year. "I hadn't seen growth that fast outside of a petri dish," he recalls in wide-eyed astonishment.
He quickly made a list of 20 different products, looking for the best to sell online. He picked books-while the largest bookstore might hold 250,000 titles, an online site could sell 20 times that. "We could build something online that literally couldn't exist in any other way," he says. Utilizing what he calls "a regret minimization framework"-really just a nerd's way of saying that when you are 80 years old, you want to look back on your life and have as few regrets as possible-he staked his claim online.
He briefly tagged the company Cadabra.com before changing it to Amazon.com, in homage to the most voluminous river in the world. Clearly his ambitions were high.
Almost five years later, Bezos is making Amazon.com into the Net's premier shopping destination by expanding into videos, music, and gifts. The company boasts 6.2 million customers, $610 million in sales last year, and a market value of more than $17 billion. Not bad for a company that pumps so much into marketing (about 22 cents per dollar of revenue) that it has yet to show a profit. Still, the future looks good; Forrester Research sees online sales growing from an estimated $7.8 billion in 1998 to $108 billion in 2003. And Amazon.com inspires devotion-more than 64 percent of its orders are from repeat customers.
Being the brightest duck in the online pond, however, also means that shotguns are aimed at your back. Last fall, the war chest of bookseller Barnes&Noble was filled when German media giant Bertelsmann agreed to pay $200 million for a 50 percent stake in Amazon.com archrival barnesandnoble.com. Two weeks later, mega-retailer Wal-Mart sued Amazon.com for allegedly stealing executives from Wal-Mart to raid its computerized merchandising and distribution trade secrets. Undeterred, Bezos shoulders on in an easygoing fashion. Despite a personal fortune of more than $4 billion, Bezos and his wife MacKenzie live in a small Seattle apartment. At heart, he's still the goofy kid who pined to be an astronaut-he has a watch that updates itself to the atomic clock 36 times a day and a dog, Kamala, named after a Star Trek character. His uniform is remarkably constant: oxford shirt, khaki pants, and a booming laugh that can be heard up and down Amazon.com's coffee-stained halls. Clearly, Jeff Bezos has a lot to be happy about.
In many ways you, personally, have become the poster boy for both the hope and the hype about ecommerce. What's it like riding this rocket?
It's intense fun, really. It's a huge, good time to be near the center of something that is going to change the world in some positive ways. Most people never have the opportunity, even in a small way, to make history, which Amazon.com is trying to do. It's work hard, have fun, make history. That's what we're trying to do.
A quick glance says you're succeeding.
But if you look back in history, companies that were the leaders just vanish one day. Remember Visicalc, the inventor of the electronic spreadsheet? What about Hayes? The fastest-growing modem market of all time and it had to declare bankruptcy twice in four years. I mean, how is this possible? I'll tell you: loss of focus on the customer. And that's the thing we're trying to be very good at. One thing I caution is that we still have the opportunity to be a footnote in history, and companies lose track of that.
Does that keep you up at night?
No, because I happen to sleep extremely well. But it does make me afraid during the daytime.
What could knock Amazon.com out of the sky?
It's not our competitors. In fact, it's nothing external. It's our customers. We need to be afraid of our customers, because those are the folks who give us money. I remind people here that every morning we should wake up afraid and use that terror as a motivator. The customers are the folks that at the end of the day are really in control of the horizontal and the vertical of our business. Any illusion that we're in control of it is just that, an illusion.
But it's an awfully strong illusion for some. Wal-Mart, for instance, has filed several lawsuits against Amazon.com, accusing you of raiding its trade secrets.
I think that it's not Amazon.com per se but ecommerce in general that threatens established companies. And they react the way the establishment usually does when it's threatened. Some kinds of inventions are scary. On the other hand, if we tried to open up physical stores we would botch it, because we don't know how to do that. We'd put our stores in the wrong places. We'd hire the wrong kinds of people. We'd put the sign too far from the road or too close to the road. Running physical stores is a very hard competency to have. The kinds of people we hire are computer scientists and people who are knowledgeable about one-to-one marketing and these kinds of things. Our whole company, our whole culture, is optimized for ecommerce. I'm just saying that some of our competitors who have been traditional stores would have had better luck going into other physical store categories, where they have strong confidence. Have you ever considered a halfway measure? Say, Amazon.com kiosks in bookstores. The buyer punches in a book title. If the store has the book it tells them where in the store it's located. If not, they can order it from Amazon.com and the bookstore takes a cut.
Interesting. Yes, it's a possibility, but it's not something we're focused on.
What are your greatest challenges?
People, people, and, oh yeah, people. Our opportunity is only limited by the rate at which we can attract super-talented, hard-working, passionate, smart folks. We've got 2,100 employees right now and one of the best management teams I've ever encountered. Even though we've got lots of opportunity to bring people in, we hold the bar incredibly high. We would rather sacrifice that opportunity than lower the bar.
Any corporate strategic regrets so far?
Not really, or else I wouldn't be sitting here talking to you. Fragile startup companies can't really afford major screw-ups. But we've had a lot of good brutal triage. Early on we were going to do two parallel development tracks: one on the Web and another allowing people to buy things by email, a completely automated email interface to an ecommerce engine that we were developing. We did a few weeks of work on the email interface and then we sort of said, 'Look, we really don't have resources to pursue both of these.' At that time, there were very few Web users and lots of email users. But the Web was growing very fast and we decided the Web was the place to put our bet.
Retailing is a business with razor-thin margins, prompting some to question whether Amazon.com will ever be profitable as you continually enter new markets. You've said it's not important for Amazon.com to be profitable right now, because you're directing those dollars into marketing, establishing brand presence....
Actually, what I said is it would be a mistake to be profitable right now.
At what point is it time to be profitable?
Well, that sort of depends on what happens with Internet adoption.
Are there specific numbers you need to meet?
No. I believe that if we're investing in something and it works, then we should invest more. Profitability is important to us, but it's long-term profitability that's important, not short-term profitability. I don't want to leave anyone with the impression that we don't care about it. But if what you're trying to optimize for is long-term success, then that causes you to make different decisions in the short term. It would be a mistake to optimize for profitability in the short term, because that would mean you weren't investing aggressively enough in the things that were working and the things that we really, really believe in. Will you ever accept advertising? [Ed.: This interview took place before Amazon.com revealed that it charges book publishers up to $10,000 for prime placement on its site.]
It's something we considered ages ago, and we don't have any religious precepts against it. Right now, we use all the pixels to promote ourselves and our new businesses, rather than collect advertising dollars from it. But if you have the eyeballs, then you always have the possibility of collecting advertising dollars. It's not something that goes away.
How are you going to continue to innovate, now that there are a lot of big guns targeting the online retail space?
Hard work. There is no rest for the weary. There is no magic formula. You know, you stay ahead. If we have a two-year lead over our competitors at this point, a year from now, we want it to be a 2.1-year lead, and the year after that, we want it to be a 2.2-year lead. I think in the space of ecommerce, we know 2 percent today of what we will know 10 years from now, so we're still at the very beginning. There is still a huge amount of room for innovation and improvement and making customers' lives better. This is still day one, in terms of what you can create online.
What industries are ripe for the same dramatic, elemental change that the book industry is experiencing?
Many industries, really. We have tried to enter into the categories that we think will have the most dramatic impact the soonest. So music and video, in addition to books, are excellent categories. There are other categories that I think are going to be revolutionized that we're not involved in. Travel is clearly going to be completely revolutionized by the Web. Ticketing is going to be completely revolutionized by the Web, in general, not just travel tickets, but with any kind of tickets. A lot of the stuff that's going to be the most revolutionary on the Web is the simplest stuff. Things like just being able to find movie times more easily.
You have a reputation for being a very persistent guy. Where does that drive come from?
I didn't know I had that reputation.
I'm afraid it's true.
Persistence and perspiration are very, very closely linked. Was it Edison who said genius was 1 percent inspiration and 99 percent perspiration? Ideas are easy, but most of what inventing the future about is execution. We come up with good ideas, but all those things-1-Click shopping, for instance-would have been for naught if we hadn't also executed them. You know, I've always been very focused, sometimes to the point of obliviousness. Just recently I was at Disney World with my family and we saw a show about Beauty and the Beast. It's a 25-minute show. I don't know what I was focused on, but toward the end of the show they evidently had this incredibly dramatic climax where they released 100 doves from somewhere behind the stage. And the doves fly out over the audience. And after the end of the show everyone is walking out of the show and saying how great it was, and I said I really loved it, too. Then someone said the coolest part of the show was the doves, and I said, 'What doves?' My family won't let me forget that. Let me read you a quote. This is Rick Berry, stock analyst at J.P. Turner & Co., who says, "The investors in Amazon.com will make the tulip investors of the 17th century look like value investors." Reaction?
Look, what we are trying to do is invent something that's useful to people. The analogy of tulips is wrong, because the Internet is very different from tulips. One thing that I think all reasonable observers agree on is that the Internet is a big deal and ecommerce is a big deal. These are not tulips.
You recently purchased Junglee, a comparison-shopping technology that's used by a lot of companies. How will you differentiate your experience?
Differentiation is in the details. It's subtle details of execution. And most of that comes from asking customers what they want, giving it to them, seeing if it is what they really wanted. You'll notice we have put something up on our Website called Shop the Web, and that is the first incarnation of the Junglee technology from Amazon.com. We ask our customers to help us build our site. Now, we're doing the same thing with Shop the Web. So we've got it up and running. It's actually useful but it's not perfect.
What technologies hold the most promise for Amazon.com?
Broadband, no doubt. Broadband is going to be extremely helpful in making the shopping experience online even more useful and more engaging. If you could do a video demonstration of a complex product, that would be very helpful. If you could have authors give two-minute snippets of why you should buy this book or why this is interesting and show a little MTV video selling music CDs, things like that. I mean, if you combine sort of broadband video-type applications with interactivity, commerce online becomes even more attractive to customers.
The Amazon is the greatest river in the world. It seems like on a subconscious level you always wanted to go beyond books.
The Amazon is the biggest river by volume. It has 10 times the volume of water that flows through the Mississippi, which is the second most voluminous river, by the way. So, going beyond books was always a possibility, but it was always unlikely. First of all, it was unlikely that we would succeed, even in books. I told all of our earliest investors that they would lose their money, for sure, because the market for what we were doing was completely unproven. And that if it did work, we thought it would develop much more slowly than it actually did. So if things had developed much more slowly, we perhaps wouldn't have had the opportunity to do some of the things that we can do today.
What was the first thing you bought online? I believe it was a network router. I think I bought it from the Internet Shopping Network while they were being bought by the Home Shopping Network. This was September 1994, so there wasn't much to buy online. What are the smartest companies out there?
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| Tina Hager |
When you see the stock of Amazon.com soaring and your own personal wealth soaring, does it all seem slightly surreal?
Well, it's not unbelievable, in the sense that it actually is happening. But it is an outcome that no one could have predicted. If anyone had asked four years ago, three years ago, or two years ago about this outcome, I think no one would have predicted it. Anyone who had predicted our success would have been checked into a padded room and issued a straightjacket.
I find it interesting that although you're a high-flying company, your offices don't reflect it. Coffee-stained carpets. Crowded. Grubby walls. Desks made of old doors. An unassuming, downtown location.
We're also across the street from the Needle Exchange...and Wigland! You know, we have a strong focus on trying to spend money on things that matter to customers and not spend money on us. Our wealth vanishes the instant we stop doing a good job for our customers, and that's real. That has happened to companies in the past. That's not a theoretically possible outcome. That really has happened. It's very important to have a culture that focuses on spending money only on things that matter to customers. You do not want a culture where people value whether or not they have mahogany furniture or how many ceiling tiles they have, or whether they get the corner office. If you have a lawyer's office, maybe the surroundings should be nice for your clients. But in our case, what our furniture looks like does not matter one whit to our customers. Instead, we spend money on things that matter to customers, like having the best servers, having the best T3 lines, having the best people, because our people really matter to our customers. Those things count, but almost nothing else does. There is huge opportunity for us-if we execute well and if we stay heads down, focused on our customers, we can succeed. If we become complacent, then all this goes away. How about on the personal side? You're worth $4 billion. Any indulgences?
I'm planning on moving into a house. I've been living in an apartment for a few years and I want to have a very nice place where I can have my family come to visit and not stay in a hotel. I think most people imagine if you win the lottery or something that you would go crazy and do stuff. I actually think if you did a quantitative study of people who have won the lottery, you'd probably find that's not true. I bet most people don't change. They may do some things. They'll change how they optimize certain things. Time probably becomes more valuable, and searching for a bargain becomes less valuable, but aside from some optimizations like that, I'll bet they don't change anything core or fundamental.
Have your day-to-day responsibilities changed at all in, say, the past two years?
Oh, sure. We have built this extraordinary management team, which allows me to spend more time working on recruiting, which I devote a lot of time to. Mondays and Thursdays I try to keep clear of prescheduled meetings so I can wander around and talk with people; just basically be proactive on those days. So, yeah, there are some fundamental ways you can start to change your time when you have a very strong management team.
If you were going to write a book now on starting, managing, and growing a business online, what would you focus on?
Customer, customer, customer. I think everything falls out of that. It's especially true online, because the balance of power shifts away from the company and toward the customer. Customers have a bigger voice online. If we make a customer unhappy, they can tell thousands of people. Likewise, if you make a customer happy, they can also tell thousands of people. With that kind of a megaphone in the hands of every individual customer, you had better be a customer-centric company.
Look out five years from now. Do you still see yourself in the same position within the company? Are you mentoring people to be the next Jeff Bezos?
No, I'm here for a long time. If there were a faster-changing place somewhere, maybe I would be tempted, but that doesn't seem likely. I can't imagine anything more fun to do.
James Daly (forwardslash@business2.com) is Editor in Chief for Business 2.0
Content copyright © 2000 Imagine Media Inc.
Find this article at: http://www.business2.com/content/magazine/indepth/1999/04/01/19607