The Everything Store

Key Takeaways

Under Consideration — to be added.

Interconnections

Under Consideration — to be added.

Highlights

• When you are eighty years old, and in a quiet moment of reflection narrating for only yourself the most personal version of your life story, the telling that will be most compact and meaningful will be the series of choices you have made. In the end, we are our choices. —Jeff Bezos,
  • How will you measure your life? - you have to want the consequences of what you want.
• the Vanguard program, which stoked creativity and independence in its students and nurtured expansive, outside-the-box thinking.
• Julie Ray wrote in her book Turning On Bright Minds: A Parent Looks at Gifted Education in Texas,
• “To me Amazon is a story of a brilliant founder who personally drove the vision,” says Eric Schmidt,
• With his consistent proclamations that he is building his company for the long term, Jeff Bezos has earned so much faith from his shareholders that investors are willing to patiently wait for the day when he decides to slow his expansion and cultivate healthy profits.
• Bezos is a micromanager with a limitless spring of new ideas, and he reacts harshly to efforts that don’t meet his rigorous standards.
• Bezos is an excruciatingly prudent communicator for his own company.
• John Doerr, the venture capitalist who backed Amazon early and was on its board of directors for a decade, has dubbed Amazon’s miserly public-relations style “the Bezos Theory of Communicating.” He says Bezos takes a red pen to press releases, product descriptions, speeches, and shareholder letters, crossing out anything that does not speak simply and positively to customers.
• There is so much stuff that has yet to be invented. There’s so much new that’s going to happen. People don’t have any idea yet how impactful the Internet is going to be and that this is still Day 1 in such a big way. Jeff Bezos
• PowerPoint decks or slide presentations are never used in meetings. Instead, employees are required to write six-page narratives laying out their points in prose, because Bezos believes doing so fosters critical thinking.
• He devotes his full attention to the conversation, and, unlike many other CEOs, he never gives you the sense that he is hurried or distracted—but he is highly circumspect about deviating from well-established, very abstract talking points.
  • Connect to Truman G. Madsen; ability to look into your soul
• “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.”
• The narrative fallacy, Bezos explained, was a term coined by Nassim Nicholas Taleb in his 2007 book The Black Swan to describe how humans are biologically inclined to turn complex realities into soothing but oversimplified stories. Taleb argued that the limitations of the human brain resulted in our species’ tendency to squeeze unrelated facts and events into cause-and-effect equations and then convert them into easily understandable narratives. These stories, Taleb wrote, shield humanity from the true randomness of the world, the chaos of human experience, and, to some extent, the unnerving element of luck that plays into all successes and failures.
• In Taleb’s book—which, incidentally, all Amazon senior executives had to read—the author stated that the way to avoid the narrative fallacy was to favor experimentation and clinical knowledge over storytelling and memory.
  • What is the difference between memory and clinical knowledge?
• Shaw felt strongly that if DESCO was going to be a firm that pioneered new approaches to investing, the only way to maintain its lead was to keep its insights secret and avoid teaching competitors how to think about these new computer-guided frontiers.
  • [[Investing 101 2.0]] exposes these competitive advantages and allows people to learn by observing experimentation
• “He was not concerned about what other people were thinking,” Chichilnisky says. “When you gave him a good solid intellectual issue, he would just chew on it and get it done.”
• Minor remembers that Bezos had closely studied several wealthy businessmen and that he particularly admired a man named Frank Meeks, a Virginia entrepreneur who had made a fortune owning Domino’s Pizza franchises.
  • #[[Live the Library]]
• Bezos also revered pioneering computer scientist Alan Kay and often quoted his observation that “point of view is worth 80 IQ points”—a reminder that looking at things in new ways can enhance one’s understanding.
• “He went to school on everybody,” Minor says. “I don’t think there was anybody Jeff knew that he didn’t walk away from with whatever lessons he could.”
  • Connect to Gordon B. Hinckley story and the Sam Walton story
• He was disciplined and precise, constantly recording ideas in a notebook he carried with him, as if they might float out of his mind if he didn’t jot them down.
  • #[[Portfolio Ideas]]
• Bezos had first encountered the Internet in an astrophysics class at Princeton in 1985 but hadn’t thought about its commercial potential until arriving at DESCO. Shaw and Bezos would meet for a few hours each week to brainstorm ideas for this coming technological wave, and then Bezos would take those ideas and investigate their feasibility.
  • You should want to work in a place that not only encourages this kind of intellectually honest brainstorming but also enables the firepower to execute the ideas that come out of it
• “Things just don’t grow that fast,” Bezos later said. “It’s highly unusual, and that started me thinking, What kind of business plan might make sense in the context of that growth?”
• He says he came up with what he called a “regret-minimization framework” to decide the next step to take at this juncture of his career. “When you are in the thick of things, you can get confused by small stuff,” Bezos said a few years later. “I knew when I was eighty that I would never, for example, think about why I walked away from my 1994 Wall Street bonus right in the middle of the year at the worst possible time. That kind of thing just isn’t something you worry about when you’re eighty years old. At the same time, I knew that I might sincerely regret not having participated in this thing called the Internet that I thought was going to be a revolutionizing event. When I thought about it that way… it was incredibly easy to make the decision.”
• “It’s easier to invent the future than to predict it.” —Alan Kay
• Bezos and his wife grew fond of another possibility: Relentless.com. Friends suggested that it sounded a bit sinister. But something about it must have captivated Bezos: he registered the URL in September 1994, and he kept it. Type Relentless.com into the Web today and it takes you to Amazon.
• Bezos believed that if Amazon.com had more user-generated book reviews than any other site, it would give the company a huge advantage; customers would be less inclined to go to other online bookstores.
  • #[[Network Effect]] #[[User Generated Content]]
• Bezos tapped Lovejoy to assist with recruiting and told him to go hire the smartest people he knew—just like David Shaw, Bezos wanted all of his employees to be high-IQ brainiacs.
  • What are you [[Hiring]] for? Smart generalists will get the job done. Is that enough? Do you want depth of thought? Chips on shoulders?
• On August 9, 1995, Netscape Communications, the corporate descendant of the pioneering Mosaic Web browser, went public. On the first day, its stock jumped from an initial price of $28 per share to $75, and the eyes of the world opened to the gathering phenomenon that was the World Wide Web.
  • IPO pops have been around for a long time. What are the trends we’re not paying as much attention to?
• Against that meager start, Bezos would tell investors he projected $74 million in sales by 2000 if things went moderately well, and $114 million in sales if they went much better than expected. (Actual net sales in 2000: $1.64 billion.) Bezos also predicted the company would be moderately profitable by that time (net loss in 2000: $1.4 billion).
  • Projections are likely meaningless - find the quote about being dangerous if specific but even worse if non-existent
• Bezos felt that hiring only the best and brightest was key to Amazon’s success. For years he interviewed all potential hires himself and asked them for their SAT scores. “Every time we hire someone, he or she should raise the bar for the next hire, so that the overall talent pool is always improving,” he said, a recurring Jeffism.
• In the old Bellevue house, Bezos had said to Kaphan and Davis, “You can work long, hard, and smart, but at Amazon.com you can pick only two out of three.” Now the young CEO liked to recite, “You can work long, you can work hard, you can work smart, but at Amazon you can’t choose two out of three.”
• That summer, the company launched what could be considered its first big innovation: allowing other websites to collect a fee when they sent customers directly to Amazon to buy a book. Amazon gave these approved sites an 8 percent commission for the referral. The Associates program wasn’t exactly the first of its kind, but it was the most prominent and it helped spawn a multibillion-dollar-a-year industry called affiliate marketing.
• He started negotiating with the Boston-based General Atlantic, whose partners discussed valuing the company at $10 million, eminently reasonable for a startup on track for $15.7 million in sales and $5.8 million in losses that year. Then John Doerr, a prominent partner at the storied Silicon Valley venture-capital firm Kleiner Perkins Caufield and Byers, heard about the company and flew up to Seattle for a visit.
• Kleiner and General Atlantic dueled for the next few weeks over the investment, driving Amazon’s valuation up to an altitude that Bezos had not imagined possible. He chose Kleiner on the strength of its reputation in the technology community. It invested $8 million, acquiring a 13 percent stake in the company, and valuing it at $60 million.
  • If you overpay and it doesn’t work it wouldn’t have mattered whether it was $10M or $60M. But the cost of losing it because it’s $60M can be near infinite. - connect to the paradox about believing in god
• In the circuitry of Bezos’s brain, something then flipped. Budding optimism about the Internet in Silicon Valley was creating a unique environment for raising money at a historically low price in ownership. Doerr’s optimism about the Web mixed with Bezos’s own bullish fervor and sparked an explosion of ambitions and expansion plans.
  • In times of plentiful capital it pays to be ambitious
• “Jeff was always an expansive thinker, but access to capital was an enabler,” Doerr says. James Marcus, an editorial employee, saw it too, writing in his 2004 memoir Amazonia that “the cash from Kleiner Perkins hit the place like a dose of entrepreneurial steroids, making Jeff more determined than ever.”
• Employees soon learned of a new motto: Get Big Fast. The bigger the company got, Bezos explained, the lower the prices it could exact from Ingram and Baker and Taylor, the book wholesalers, and the more distribution capacity it could afford.
  • How do you balance ambitions to be massive with a decentralized ethos? - connect to Conor’s 1M jobs vs. 1M employees
• “When you are small, someone else that is bigger can always come along and take away what you have,” Bezos told him. “We have to level the playing field in terms of purchasing power with the established booksellers.”
  • There is an irrefutable relationship between size and influence
• Breier’s tenure at Amazon was short and rocky. Bezos wanted to reinvent everything about marketing, suggesting, for example, that they conduct annual reviews of advertising agencies to make them constantly compete for Amazon’s business. Breier explained that the advertising industry didn’t work that way. He lasted about a year.
  • Either you’re willing to reinvent and tear reality down to first principles or you can go somewhere else
• Bezos began filling out the rest of his senior leadership ranks, building a group that would formally become known as the J Team.
  • Research this team. If, like Isaacson’s book about innovation, collaboration is often under appreciated, then these early teams are critical
• Another new arrival was Joy Covey as chief financial officer. Driven and often intimidating to underlings, Covey became an intellectual foil to Bezos and a key architect of Amazon’s early expansion.
• The Riggios wore suits and came on strong. They told Bezos and Alberg that they were going to launch a website soon and crush Amazon.
  • Blockbuster threatening Netflix. Facebook threatening Snap. - https://twitter.com/kwharrison13/status/1397609482427850758?s=21
• Quattrone’s lead analyst, a future venture capitalist named Bill Gurley, had covered Amazon for a year and presciently identified it as one of the “wave riders” that was exploiting the ascendance of the Internet.
• Bezos, characteristically secretive, divulged only the legal minimum and withheld some data, like what it cost Amazon to attract a new user and how much loyal customers typically spent on the site. He wanted capital from an IPO but didn’t want to give his rivals a road map to use to follow in his footsteps.
• Later that month, the Riggios unveiled their own website, and many seemed ready to see Amazon crushed. The CEO of Forrester Research, a widely followed technology research firm, issued a report in which he called the company “Amazon.Toast.”
• “Look, you should wake up worried, terrified every morning,” he told his employees. “But don’t be worried about our competitors because they`re never going to send us any money anyway. Let’s be worried about our customers and stay heads-down focused.”
• Bezos had predicted that the chain retailer would have trouble seriously competing online, and, in the end, he was right. The Riggios were reluctant to lose money on a relatively small part of their business and didn’t want to put their most resourceful employees behind an effort that would siphon sales away from the more profitable stores.
  • Innovators dilemma
• Dalzell regularly sat next to Bezos in meetings and was in charge of putting manpower behind the founder’s best ideas. “It was real easy for Jeff to spout off big ideas faster than anyone could practically do anything with them,” says Bruce Jones, a longtime Amazon engineer and Dalzell’s friend. “Rick made sure we got the important stuff done.”
• Two promises were in conflict with each other. Bezos had pledged to Kaphan that he could keep his job forever. But Amazon’s founder also promised the company and his investors that he would always raise the hiring bar and that Amazon would live or die based on its ability to recruit great engineers.
• Kaphan was an introverted hacker with an idealistic streak and little intuitive leadership ability; in fact, he had been hopelessly behind on hiring and growing his own department.
• With his convincing gospel, Bezos had persuaded them all to have faith, and they were richly rewarded as a result. Then the steely-eyed founder replaced them with a new and more experienced group of believers.
• “You seem like a really nice guy, so don’t take this the wrong way, but you really need to sell to Barnes and Noble and get out now,” one student bluntly informed Bezos.
• “You may be right,” Amazon’s founder told the students. “But I think you might be underestimating the degree to which established brick-and-mortar business, or any company that might be used to doing things a certain way, will find it hard to be nimble or to focus attention on a new channel. I guess we’ll see.”
  • Big company vs. startup
• Near the end of the daylong offsite, Bezos asked everyone to write down a prediction of the company’s revenues in five years. Eugene Wei, a strategic planning analyst who was there to take notes, recalls that Bezos’s guess was one of the highest in the group but suspects that no one came close to getting it right. They simply had no idea what was coming down the pike.
  • Forecasting
• In the late 1990s, the Web evolved from the province of geeks to the stuff of front-page newspaper stories, day traders, and regular folks who were venturing for the first time into what was then popularly called cyberspace.
• Amazon also veered disastrously into the venture-capital arena. In 1998 Bezos and venture capitalist John Doerr saw an opportunity for an online pharmacy and founded Drugstore.com, recruiting longtime Microsoft executive Peter Neupert to run it. Amazon owned a third of the company. The venture got off to a promising start, so for the next two years, Tinsley and Bezos invested tens of millions of Amazon’s cash in a variety of dot-com hopefuls, including Pets.com, Gear.com, Wineshopper.com, Greenlight.com, Homegrocer.com, and the urban delivery service Kozmo.com.
• But Dalzell knew that if anyone could accomplish Bezos’s ambitious vision of a rapid build-out of distribution capacity, it was Jimmy Wright. “I’m not sure anyone else in America could have done it,” Dalzell says.
  • How do I get to know more of these people?
• The Walmart transplants created plenty of uncomfortable friction. The Amazon employees were in their twenties and early thirties and full of Bezos-programmed bravado about doing everything differently. The folks from Bentonville were considerably older, in their forties and fifties, and had little patience for the brash youngsters.
• In the copy he brought to Kathryn Dalzell, he had underlined one particular passage in which Walton described borrowing the best ideas of his competitors. Bezos’s point was that every company in retail stands on the shoulders of the giants that came before it.
  • #[[Great Artists Steal]]
• Walton wrote: Could a Wal-Mart-type story still occur in this day and age? My answer is of course it could happen again. Somewhere out there right now there’s someone—probably hundreds of thousands of someones—with good enough ideas to go all the way. It will be done again, over and over, providing that someone wants it badly enough to do what it takes to get there. It’s all a matter of attitude and the capacity to constantly study and question the management of the business.
• Amazon trademarked the name 1-Click, and a multiyear debate over the wisdom of legally protecting basic business tools began.
• The venture capitalists backing eBay asked around and heard that one did not work with Jeff Bezos; one worked for him.
• The high-tech community was getting a lesson in the dynamics of network effects—products or services become increasingly valuable as more people use them. In online marketplaces, the network effect was pervasive; sellers stuck around for access to a critical mass of buyers, and vice versa. In the auctions category, eBay already had an insurmountable advantage. Amazon’s executives remember this significant failure as painful but strangely uplifting. “Those days in the nineties were the most intense, fun time I ever had at the company,” Blackburn says. “We had an insanely talented group of people trying to figure out how to launch a superior auctions site. In the end the network effect mattered. You could say we were naïve, but we built a great product.”
  • Network effects
• Nudged along by the breathless reports and rhetoric emanating from Wall Street and the press, investors were beginning to lose their minds.
• ‘This is the most critical project in Amazon’s history’ is pretty close to a direct quote.” Ultimately, the project faded amid other, more pressing priorities.
• But the customer would have to click on those links and go to another website to actually buy the items. Many Amazon executives hated the fact that customers were leaving their site to make purchases elsewhere. As a result, Shop the Web lasted on Amazon.com for just a few months and then died a quiet death. Ram Shriram, the chief operating officer of Junglee before he became a business-development executive at Amazon, calls it a “total tissue rejection. Part of the reason it didn’t succeed was that the team didn’t buy into it.”
  • Body rejects the organ
• In other words, Miller knew nothing about toy retailing, but in a pattern that would recur over and over, Bezos didn’t care. He was looking for versatile managers—he called them “athletes”—who could move fast and get big things done.
• 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.
• Bar raisers at Amazon—the program still exists today—are designated employees who have proven themselves to be intuitive recruiters of talent.
• “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.”
• During one memorable meeting, a female employee pointedly asked Bezos when Amazon was going to establish a better work-life balance. He didn’t take that well. “The reason we are here is to get stuff done, that is the top priority,” he answered bluntly. “That is the DNA of Amazon. If you can’t excel and put everything into it, this might not be the place for you.”
• Kelyn Brannon, Amazon’s chief accounting officer at the time, says that she and Joy Covey pulled Bezos into a meeting to show him a form of financial analysis called common-sizing the income statement; it expressed each part of the balance sheet as a percentage of value to sales. The calculations showed that at its current rate, Amazon wouldn’t become profitable for decades. “It was an aha moment,” Brannon says. Bezos agreed to lift his foot from the accelerator and begin to move the company toward profitability. To mark the occasion, he took a photo of the group with his ever-present point-and-shoot digital camera and later taped the picture to the door of his office.
• And after hearing persistent grumbling from the ranks that Bezos didn’t listen to his subordinates, the Amazon board initiated one of the biggest misadventures of the company’s first decade. The board members asked Bezos to search for a chief operating officer.
• Joe Galli Jr., a flamboyant and aggressive salesman from Black and Decker who had developed the popular line of DeWalt power tools.
• “There were all these brilliant kids from Stanford and Harvard running up and down the halls,” Galli says. “But we lacked operational rigor and control. It was the Wild West.”
• “Most companies have priority lists of forty-five good ideas and triage is easy,” Galli says. “At Amazon there were a hundred and fifty good ideas all the time and Jeff was capable of developing a new one every day.”
• Bezos, who many employees felt was not taking the time to cultivate other leaders, listen to their issues, or invest in their personal growth.
• Several Amazon executives from that time believe that Campbell was also given another, more secret mandate by the board: To see if Bezos should be persuaded to step aside and let Galli take over as chief executive. This was consistent with the overall philosophy in Silicon Valley at the time, which was to bring in “adult supervision” to execute the plans of a visionary founder.
• 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.
• As of this writing, the company has not given another executive the formal title of president or chief operating officer. Amazon wouldn’t make another significant acquisition for years, and when it did, Bezos carefully considered the lessons from his reckless binge.
• 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.
  • “Come to Jesus” moment - connect to call with Josh Wolfe
• The outbreak of negative sentiment toward Internet companies in general would be nudged along by other events over the course of the next two years, like the collapse of Enron and the 9/11 terrorist attacks. But the underlying reality was that many investors decided to doff their rose-colored glasses and look at Internet companies more pragmatically. And those companies included Amazon.
• Ruth Porat, co-head of Morgan Stanley’s global-technology group, advised him to tap into the European market, and so in February, Amazon sold $672 million in convertible bonds to overseas investors.
• Without that cushion, Amazon would almost certainly have faced the prospect of insolvency over the next year.
• 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.
• “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 so calm in the eye of a storm. Ice water runs through his veins,” Britto says.
• In the midst of all this, Bezos burned out many of his top executives and saw a dramatic exodus from the company.
• 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,” he wrote in what would be the first of several scathing reports on Amazon over the next eight months.
• Suria’s analysis was, in the narrowest sense and with the benefit of hindsight, incorrect.
• 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.
• In other words, the danger for Amazon was that in their wrongness, Suria and other Wall Street bears might prove themselves right.
• Ravi Suria continued to pummel Amazon with negative reports. His research became a litmus test for people’s view of the dawning new Internet age. Those who believed in the promise of the Web and who had bet their livelihoods on it were likely to be skeptical of Suria’s negative perspective. But those who felt that the coming wave of changes threatened their businesses, their sense of the natural order, even their identities, were likely to embrace the sentiments of Suria and like-minded analysts and believe that Amazon.com was nothing more than a crazy dream precariously built on an irrationally exuberant stock market.
  • Some of those dreams proved to be legitimate fabrications. What separates the fluff from the true trailblazers? It isn’t as easy as Pets.com vs. Amazon.com
• 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.
  • #[[Platform]]
• “It was dawning on us how brutal it was to pick Barbies and Digimons, and it was dawning on them how expensive it would be to build a world-class e-commerce infrastructure,” Miller says.
  • Win-win scenarios require each party to have strengths and weaknesses that can be benefitted from collaboration.
• To get the deal done, they met somewhere in the murky middle. Toys “R” Us agreed to sell the few hundred most popular toys, and Amazon reserved the right to complement the Toys “R” Us selection with less popular items. Neither company got what it wanted, but for the moment, everyone was relieved.
• 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.
• “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.
  • Shareholder value; aligning incentives
• 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.
• “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.”
  • #[[Great Artists Steal]]
• 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. With a single brilliant and nonintuitive strategic move, he managed to upset almost everybody, even his own colleagues. “As usual,” says Mark Britto, “it was Jeff against the world.”
• Scott also talked about how Walmart viewed advertising and pricing as two ends on the same spectrum. “We spend only forty basis points on marketing. Go look at our shareholder statement,” he said. “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.”
  • [[Pricing]] is a marketing strategy
• Before the meeting, Rick Dalzell had warned Bezos to be wary of the crafty and astute Walmart chief. But Bezos was sponging up everything the older man said.
• It never should have been opened in the first place, but “people at various levels were making decentralized decisions to move quickly and the process wasn’t strong,” Piacentini says.
  • In a decentralized organization how do you optimize for highest quality decision making? I think the word decentralized is actually misused here. People were making decisions in a centralized HQ mentality vs. getting the decision into the hands of the people closest to the problem. The real question around decentralization is how do you (1) get the decisions into the hands of the best people to make them and (2) incentivize them effectively to work hard and get to the right decision?
• As the earthquake progressed, Killalea poked his head out, retrieved his laptop, and checked to see if the Amazon website was still running. (He would win a Just Do It award and get to keep an old ratty sneaker for that bit of bravado.)
• For years Sinegal, like Bezos, had battled Wall Street analysts who wanted him to raise Costco’s prices on clothing, appliances, and packaged foods. 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
• 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.
• Costco buys in bulk and marks up everything at a standard, across-the-board 14 percent, even when it could charge more. It doesn’t advertise at all, and earns most of its gross profit from the annual membership fees.
• Sinegal remembers that conversation well. “I think Jeff looked at it and thought that was something that would apply to his business as well,” he says. Sinegal doesn’t regret educating an entrepreneur who would evolve into a ferocious competitor. “I’ve always had the opinion that we have shamelessly stolen any good ideas,” he says.
  • #[[Great Artists Steal]]
• “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.
  • [[Pricing]] is a marketing strategy
• At a two-day management and board offsite later that year, Amazon invited business thinker Jim Collins to present the findings from his soon-to-be-published book Good to Great. Collins had studied the company and led a series of intense discussions at the offsite. “You’ve got to decide what you’re great at,” he told the Amazon executives.
  • #[[Core Competency]]
• 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.
  • #[[Flywheel]]
• Amazon executives were elated; according to several members of the S Team at the time, they felt that, after five years, they finally understood their own business.
  • Employees, as much as customers, want to understand vision. [[Roadmaps are fake news]] but if you’re not using a road map then how are you communicating vision? #[[Roam Brainstorm]]
• But 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. They argued that Amazon had to be on the airwaves to reach new customers. As Amazon’s losses mounted, Bezos’s opposition hardened.
• “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.
  • Why is this different at Amazon than it is at other companies? What is it about Amazon that makes the head of the company so critical in its marketing? Is it the immense vision that the company has? Or was it more about the internal necessity to drive efficiency?
• 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. And as it happened, at the time, Amazon was conducting an experiment that was actually working this way—free shipping.
  • [[Marketing]] - let your product speak for itself
• Bezos called a meeting in Warren Jenson’s conference room to talk about how to turn the holiday-season free shipping into a permanent offer. This was one way he could redeploy his marketing budget.
• Then one of his deputies, a finance vice president named Greg Greeley, mentioned how airlines had segmented their customers into two groups—business people and recreational travelers—by reducing ticket prices for those customers who were willing to stay at their destination through a Saturday night. Greeley suggested doing the equivalent at Amazon. They would make the free-shipping offer permanent, but only for customers who were willing to wait a few extra days for their order. Just like the airlines, Amazon would, in effect, divide its customers into two groups: those whose needs were time sensitive, and everyone else. The company could then reduce the expense of free shipping, because workers in the fulfillment centers could pack those free-shipping orders in the trucks that Amazon sent off to express shippers and the post office whenever the trucks had excess room. Bezos loved it. “That is exactly what we are going to do,” he said.
  • Case studies are some of the most powerful ways to learn. Apply the lessons of what others have done #[[Great Artists Steal]]
• Over the next year, Amazon executives quit in droves. They left because their stock had been vested or because they no longer believed in the mission or because their comparatively low salaries and the depressed stock price guaranteed that they were not getting wealthy anytime soon. Some were tired and just wanted a change. 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.
• “He just never stopped believing. He never blinked once.”
• People left and afterward they took a breath and felt disoriented, like they had escaped a cult. 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. Kim Rachmeler shared a favorite quote she heard from a colleague around that time. “If you’re not good, Jeff will chew you up and spit you out. And if you’re good, he will jump on your back and ride you into the ground.”
• But if his legal strategy was any guide, Bezos was clearly worried about high-flying eBay, whose market capitalization now exceeded Amazon’s by a significant margin.
  • Amazon vs. eBay - the competitors you’re worried about today will not necessarily be the ones you’re worried about tomorrow.
• Jenson’s legacy at Amazon was hotly debated even a decade later. Some thought he was overly political. Others argued that he helped to direct the company away from its path of reckless growth and that he assembled an accomplished finance team that would go on to make significant contributions at Amazon and throughout the technology world.
  • Researching the greatest talent training grounds. Mulesoft and Salesforce for product marketing. Dropbox and Twitter for finance. Talk to [[Jess Oynick]] about the orgs she’s seen
• Szkutak was also the right CFO for Amazon at the right time. He would facilitate rather than challenge Bezos’s ambitious forays into various new businesses in the years ahead.
  • Connect to Roy Disney always making the money happen to build Walt’s dreams
• The juxtaposition between the two approaches was stark. Editorial was handselling products with clever writing and intuitive decisions about what to promote. (“We ain’t lion: this adorable Goliath Backpack Pal is a grrreat way to scare away those first-day-of-school jitters,” read the home page in 1999, promoting a lion-shaped backpack for kids.) Personalization was skipping the puns and building a store for every customer using cold, hard data to stock the shelves with the items that customers were statistically the most likely to buy. Bezos did not explicitly favor one group over the other, but he looked at the results of tests. Over time it became clear that the humans couldn’t compete. PEOPLE FORGET THAT JOHN HENRY DIED IN THE END, read a sign on the wall of the P13N office, a reference to the folktale of the steel driver who raced to dig a hole in competition with a steam-powered drilling machine; he won the contest but died immediately afterward.
  • The internal competition between humans and data. “Automate where you can.”
• Kathy Savitt, a new Amazon publicist, told Bezos she wanted to frame some of the positive news articles and hang them on the office walls. He told her he would rather frame the negative stories like Barron’s infamous Amazon.bomb cover. When people wrote or said positive things about Amazon, he wanted employees to remember the Barron’s article and remain scared.
  • “Remain scared.” = Always day one.
• It is of course unknowable whether the unusual circumstances of his birth helped to create that fecund entrepreneurial mix of intelligence, ambition, and a relentless need to prove himself. Two other technology icons, Steve Jobs and Larry Ellison, were adopted, and the experience is thought by some to have given each a powerful motivation to succeed.
• Jeff and his siblings grew up observing their father’s tireless work ethic and his frequent expressions of love for America and its opportunities and freedoms.
• He brought him to the local Cotulla library, where over successive summers Bezos made his way through a sizable collection of science-fiction books donated by a local resident. He read seminal works by Jules Verne, Isaac Asimov, and Robert Heinlein and fantasized about interstellar travel, deciding that he wanted to grow up to be an astronaut.
• “Jeff, one day you’ll understand that it’s harder to be kind than clever.”
• “You want to account for Jeff’s success, look at Jackie,” says Bezos’s childhood friend Joshua Weinstein. “She’s the toughest lady you’ll ever meet and also the sweetest and most loyal.”
• “Jeff decided he wanted it and he worked harder than anybody else.”
  • Connect to [[Kobe Bryant]] talking about practice being a numbers game. If you’re working 2-3 hours a day every day you’re going to be better than the people working 2-3 days a week
• After his greasy summer at McDonald’s, Bezos wanted to avoid another low-wage job, so with Werner he created the DREAM Institute, a ten-day summer school for ten-year-olds that explored such diverse topics as Gulliver’s Travels, black holes, nuclear deterrence, and the Bezos family’s Apple II computer. The class “emphasizes the use of new ways of thinking in old areas,” according to a flier the young teachers passed out to parents. Werner said that her parents were dismissive of the class and wondered who would possibly sign up. But Bezos’s parents cheered the effort and immediately enrolled Mark and Christina. “I got the sense that Jackie and Mike were the kinds of parents who always encouraged Jeff and nurtured his creativity,” Werner says.
• Bezos wrote out his valedictory speech longhand.
• She still has a copy, which includes the classic Star Trek opening, “Space, the final frontier,” and discusses his dream of saving humanity by creating permanent human colonies in orbiting space stations while turning the planet into an enormous nature preserve. These were not pie-in-the-sky ideas. They were personal goals. “Whatever image he had of his own future, it always involved becoming wealthy,” Ursula Werner says. “There was no way to get what he wanted without it.” What exactly did he want? “The reason he’s earning so much money,” Werner told journalists who contacted her in the 1990s, seeking to understand the Internet magnate, “is to get to outer space.”
• “He absolutely thinks he’s going to space,” Hanauer says. “It’s always been one of his goals. It’s why he started working out every morning. He’s been ridiculously disciplined about it.”
• In an interview I conducted with Bezos in 2000, I asked him what he was reading. He talked about Robert Zubrin’s books Entering Space: Creating a Spacefaring Civilization and The Case for Mars.
• NASA is a national treasure, and it’s total bull that anyone should be frustrated by NASA. The only reason I’m interested in space is because they inspired me when I was five years old. How many government agencies can you think of that inspire five year olds?
• Like other great entrepreneurs, including Walt Disney, Henry Ford, and Steve Jobs, Bezos was turning imagination into reality, the fancies of his youth into actual physical things.
• He gave Blue Origin a coat of arms and a Latin motto, Gradatim Ferociter, which translates to “Step by Step, Ferociously.” The phrase accurately captures Amazon’s guiding philosophy as well. Steady progress toward seemingly impossible goals will win the day. Setbacks are temporary. Naysayers are best ignored.
• For while Amazon had quieted its most vociferous critics, Bezos needed help taming the growing chaos inside his company’s walls.
• Size bred chaos. All companies hit this critical moment, when their internal structures, like a teenager’s old shoes, suddenly don’t fit anymore. But Amazon went through a severe form of this rite of passage. The larger and more ambitious it got, the more complicated it became structurally and the harder it was to keep everyone coordinated and moving quickly. Bezos wanted to execute several strategies simultaneously, but the company’s various interdependent divisions were wasting too much time coordinating with one other.
  • “Divisions we’re wasting time coordinating with each other” = screams for a need of decentralization.
• To guide his company through this transition, he created an unorthodox organizational structure with a peculiar name.
• Called Leaders for Manufacturing (now it’s Leaders for Global Operations), the program is a novel alliance of MIT’s business school, its engineering school, and partner companies, like Boeing, created to address emerging global competition.
• All of thirty-two years old at the time, with a toothy smile and unfashionable eyeglasses, Wilke did not immediately present the picture of a dynamic leader. “He was not a charismatic communicator,” Galli says. “He was an extremely smart and thoughtful supply-chain expert who relied on fact-based analysis and wanted to zero in and do the right thing.”
• Immediately upon moving to Seattle, Wilke set about filling the ranks of Amazon’s logistics division with scientists and engineers rather than retail-distribution veterans. He wrote down a list of the ten smartest people he knew and hired them all, including Russell Allgor, a supply-chain engineer at Bayer AG.
  • Hiring - keep the bar high. [[Talent Vortex]] - what happens if someone doesn’t know very many smart people?
• The factory physics were a lot closer to manufacturing and assembly than they were to retail,” Wilke says. So in one of his first moves, Wilke renamed Amazon’s shipping facilities to more accurately represent what was happening there. They were no longer to be called warehouses (the original name) or distribution centers (Jimmy Wright’s name); forever after, they would be known as fulfillment centers, or FCs.
• He then applied the process-driven doctrine of Six Sigma that he’d learned at AlliedSignal and mixed it with Toyota’s lean manufacturing philosophy, which requires a company to rationalize every expense in terms of the value it creates for customers and allows workers (now called associates) to pull a red cord and stop all production on the floor if they find a defect (the manufacturing term for the system is andon).
• It wasn’t the kind of rigor I thought would scale.”
• “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.”
  • Communication = inefficiency. Decentralization instills a lack of need for coordination.
• At that meeting and in public speeches afterward, Bezos vowed to run Amazon with an emphasis on decentralization and independent decision-making. “A hierarchy isn’t responsive enough to change,” he said. “I’m still trying to get people to do occasionally what I ask. And if I was successful, maybe we wouldn’t have the right kind of company.”
• 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.
• That would come to represent something akin to the conventional wisdom in the high-tech industry over the next decade. The companies that embraced this philosophy, like Google, Amazon, and, later, Facebook, were in part drawing lessons from theories about lean and agile software development. 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.
  • Reason NOT to hire people.
• Microsoft took a top-down management approach with layers of middle managers, a system that ended up slowing decisions and stifling innovation.
• The drive to cut costs also forced Bezos to eliminate any emerging layers of middle management from his company.
• All new hires had to directly improve the outcome of the company.
• “We didn’t want to be a monolithic army of program managers, à la Microsoft. We wanted independent teams to be entrepreneurial,” says Neil Roseman. Or, as Roseman also put it: “Autonomous working units are good. Things to manage working units are bad.”
• The entire company, he said, would restructure itself around what he called “two-pizza teams.” Employees would be organized into autonomous groups of fewer than ten people—small enough that, when working late, the team members could be fed with two pizza pies.
• They would likely compete with one another for resources and sometimes duplicate their efforts, replicating the Darwinian realities of surviving in nature.
• Freed from the constraints of intracompany communication, Bezos hoped, these loosely coupled teams could move faster and get features to customers quicker.
• Bezos wanted to personally approve each equation and track the results over time. It would be his way of guiding a team’s evolution.
  • Connect to Obama’s framework for reacting to things (yes, no, let’s discuss.)
• Bezos was applying a kind of chaos theory to management, acknowledging the complexity of his organization by breaking it down to its most basic parts in the hopes that surprising results might emerge.
• Bezos and Wilke were asking themselves a fundamental question that seems surprising today: Should Amazon even be in the business of storing and distributing its products?
• “We had a key decision to make,” he says. “Was distribution a commodity or was it a core competency? If it’s a commodity, why invest in it? And when we grow, do we continue to do it on our own or do we outsource it?”
• At the end of the day, Bezos, Wilke, and their colleagues reached a conclusion: the equipment and software from third-party vendors simply wasn’t designed for the task at hand. To escape from batches and move toward a continuous and predictable flow of orders through the facility, Amazon would have to rewrite all the software code. Instead of exiting the business of distribution, they had to reinvest in it.
• Whenever Jeff Bezos roamed a fulfillment center or his own Seattle headquarters, he looked for defects—flaws in the company’s systems or even its corporate culture.
• Bezos was once again looking for ways to reinforce his values within the company.
• 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.
• Bezos believed that method concealed lazy thinking. “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.”
• Bezos announced that employees could no longer use such corporate crutches and would have to write their presentations in prose, in what he called narratives.
• He wanted people thinking deeply and taking the time to express their thoughts cogently.
• Meetings no longer started with someone standing up and commanding the floor as they had previously at Amazon and everywhere else throughout the corporate land. Instead, the narratives were passed out and everyone sat quietly reading the document for fifteen minutes—or longer.
• Quickly there was a supplemental decree: a six-page limit on narratives, with additional room for footnotes.
• Every time a new feature or product was proposed, he decreed that the narrative should take the shape of a mock press release. The goal was to get employees to distill a pitch into its purest essence, to start from something the customer might see—the public announcement—and work backward.
• 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.
• While he was charming and capable of great humor in public, in private, Bezos could bite an employee’s head right off.
• If an employee did not have the right answers, or tried to bluff the right answer, or took credit for someone else’s work, or exhibited a whiff of internal politics, or showed any kind of uncertainty or frailty in the heat of battle, the vessel in Bezos’s forehead popped out and his filter fell away.
• “This document was clearly written by the B team. Can someone get me the A team document? I don’t want to waste my time with the B team document.”
• Some Amazon employees advance the theory that Bezos, like Steve Jobs, Bill Gates, and Larry Ellison, lacks a certain degree of empathy and that as a result he treats workers like expendable resources without taking into account their contributions to the company. That in turn allows him to coldly allocate capital and manpower and make hyperrational business decisions while another executive might let emotion and personal relationships intrude.
• “This is not somebody who takes pleasure at tearing someone a new asshole. He is not that kind of person,” says Kim Rachmeler. “Jeff doesn’t tolerate stupidity, even accidental stupidity.”
• Right or wrong, Bezos’s behavior was often easier to accept because he was so frequently on target with his criticisms, to the amazement and often irritation of employees.
  • If you’re going to swing hard you had better be right.
• “He had no background in control theory, no background in operating systems,” Jones says. “He only had minimum experience in the distribution centers and never spent weeks and months out on the line.” But Bezos laid out his argument on the whiteboard and “every stinking thing he put down was correct and true,” Jones says. “It would be easier to stomach if we could prove he was wrong but we couldn’t. That was a typical interaction with Jeff. He had this unbelievable ability to be incredibly intelligent about things he had nothing to do with, and he was totally ruthless about communicating it.”
• Meanwhile, the company could watch and learn. “That was something we did quite well,” says Randy Miller. “If you don’t know anything about the business, launch it through the Marketplace, bring retailers in, watch what they do and what they sell, understand it, and then get into it.”
  • How do you invite participants into your ecosystem to learn from them and then compete with them? The access is just too good to ignore? Is there a way not to screw them (e.g. the perspective that Roam adding RoamJS features is ripping off the ecosystem participant?)
• “You’re not thinking about this right,” Bezos said, and he excused himself to get something from his office. He was gone a few minutes, then returned with a stack of photocopied documents and handed a page to everyone in the meeting. It had only one paragraph, about ten sentences long. It began with the words We are the “Unstore.” The document, as Miller and other executives who were there remember it, defined how Bezos saw his own company—and explains why, even years later, so many businesses are unsettled by Amazon’s entrance into their markets. 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. In Bezos’s eyes, Amazon offered both everyday low prices and great customer service. It was Walmart and Nordstrom’s. Being an unstore also meant that Amazon had to concern itself only with what was best for the customer.
  • THIS IS THE MOST IMPORTANT PARAGRAPH ABOUT BUILDING A DIFFERENTIATED LONG TERM VENTURE FUND STRATEGY. What is “customer obsession” to a venture capitalist?
• “I know you’re retailers and I hired you because you are retailers,” Bezos said. “But I want you to understand that from this day forward, you are not bound by the old rules.”
• Wilke thought that Amazon’s progress in its FCs had plateaued, so instead of promoting from within the ranks of Amazon’s logistics executives, all of them molded, as he was, by the dogma of Six Sigma, Wilke went looking for someone with a fresh approach and additional international experience.
• The sheer size of Amazon’s workforce and the fact that turnover is so high in the fulfillment centers make it extremely difficult for anyone to organize workers.
• “The number one thing standing in the way of Amazon unionization is fear,” says Rennie Sawade, a spokesman for the Washington Alliance of Technology Workers.
• In a detail that struck many readers and Amazon customers as downright cruel, the newspaper noted that Amazon paid a private ambulance company to have paramedics stationed outside the FCs during the heat wave—ready to deal with employees as they dropped.
• Despite how far Amazon.com had come, it was still often a media afterthought. It was now officially the age of Google, the search-engine star from Silicon Valley.
• Eighteen of the twenty-three financial analysts who covered the company at the time of the anniversary event expressed their skepticism by putting either a hold or a sell rating on Amazon’s stock. The market capitalization of eBay, still viewed as a perfect venue for commerce, was three times larger than Amazon’s. Google’s valuation was more than four times Amazon’s, and it had been public for less than a year. Fixed-price online retail was simply out of vogue.
  • Mainstream. Majority. Short term. Lack of vision. Easy to question in retrospect.
• They were essentially paying a tax to Google on sales that began with a search. To make this new kind of advertising more efficient, Amazon devised one of the Web’s first automated search-ad-buying systems, naming it Urubamba, after a river in Peru, a tributary of the Amazon. But Bezos was wary of helping Google develop tools that it might then extend to Amazon’s rivals. “Treat Google like a mountain. You can climb the mountain, but you can’t move it,” he told Blake Scholl, the young developer in charge of Urubamba. “Use them, but don’t make them smarter.”
• Bezos also helped to pioneer the modern crowd-sourcing movement with a service called Mechanical Turk and laid the groundwork for Amazon Web Services—a seminal initiative that ushered in the age of cloud computing.
• Bezos battled a reaction that he dubbed the institutional no, by which he meant any and all signs of internal resistance to these unorthodox moves.
  • “The Institutional No”
• He simply refused to accept Amazon’s fate as an unexciting and marginally profitable online retailer. “There’s only one way out of this predicament,” he said repeatedly to employees during this time, “and that is to invent our way out.”
• Neither did particularly well under Bezos’s demanding tutelage and both quickly grew tired of Seattle. Weigend lasted only sixteen months at Amazon, Tesler a little over three years.
• Rick Dalzell had heard of Manber’s book and started courting him while Manber was preparing to leave Yahoo. Dalzell introduced Manber to Bezos, and by all accounts, an intoxicating geek bromance was born. One of the first questions Bezos asked Manber was “Why don’t you describe a new algorithm that you invented?” Manber did and then marveled at Bezos’s comprehension. “He not only fully understood it, but did it faster than most people. I did not expect that from a CEO. It would have taken me a month to explain it to most senior Yahoo people,” he says.
• He would see Bezos once a week—an exception to the CEO’s aversion to one-on-one meetings—to review ongoing projects and brainstorm new ideas.
  • Compare to Marks comments about Conor’s trust issues. Find someone you DO trust to carry out your discussions
• It was a computationally intensive process, and Amazon did not provide Manber and his team with much in the way of computer resources.
• But as Amazon’s catalog grew ever more complicated and Google got exceedingly good at indexing and organizing the Web, Amazon had to confront the awkward truth that one of its chief rivals could search Amazon’s site better than its own search engine could.
• At ten years old, Amazon could be a deeply unhappy place to work. The stock price was flat, there were strict limits on annual raises, and the pace was unrelenting. Employees felt underpaid and overworked.
• As a result, dozens of these talented technicians left, many of them defecting to Google. Steve Yegge was one such engineer who made the move around this time. He would publish his opinion of his former employer years later by writing a screed on the Google+ social network and accidentally making it public for the entire Internet to read.
• “My challenge with Amazon is finding a way to describe it without making me puke,” Yegge wrote. “But I’ll figure something out, eventually. In many ways they’re a world-class operation—primarily in ways that matter to their customers; employees, not so much. But I guess in the end it’s the customers that matter.”
• Bezos handled it all poorly; it was as if the personal dramas were happening on a different dimensional plane that he couldn’t or didn’t want to access.
• Holden began to feel that Manber’s group was too absorbed with the abstract challenges of general search and wasn’t focused enough on the practicalities of running the search for the Amazon website and solving nagging problems, such as latency, or the amount of time it took for searches on Amazon.com to generate results.
  • There are interesting general R&D problems to tackle and then are critical product-specific problems to solve that may not be as sexy or intellectually stimulating but nonetheless will drive more impact.
• Feeling that Bezos had chosen Manber over him, Holden planned his departure from Amazon.
• But when Holden left, Bezos lost one of his oldest friends at the company and one of Amazon’s most versatile innovators. Fortunately, he still had Udi Manber. And then Manber decided to leave. Manber said he didn’t like running a remote office and felt isolated from the decision-making in Seattle. Privately, he was annoyed that Bezos had allowed Holden’s rival search effort to take root in Seattle.
• Bezos had now lost his two closest colleagues and technical leaders, and just at the time that Amazon’s attempt to break out of retail and embrace an identity as a technology company was faltering.
• O’Reilly spoke ambitiously about parceling out entire sectors of the Amazon store and allowing other websites to build on top of them. “Companies need to think not just what they can get for themselves from new technologies but how they can enable others,” he said.
  • Decentralized infrastructure: more important than the products you launch is the platform the empowers many more people
• Bezos invited O’Reilly to speak to a group of engineers, and later at an Amazon all-hands meeting, about lessons from computer history and the importance of becoming a platform.
• Bezos himself bought into the Web’s new orthodoxy of openness, preaching inside Amazon over the next few months that they should make these new tools available to developers and “let them surprise us.” The company held its first developer conference that spring and invited all the outsiders who were trying to hack Amazon’s systems. Now developers became another constituency at Amazon, joining customers and third-party sellers. And the new group, run by Colin Bryar and Rob Frederick, was given a formal name: Amazon Web Services.
• The rise of Amazon Web Services brings up a few obvious questions. How did an online retailer spawn such a completely unrelated business? How did the creature that was originally called Amazon Web Services—the group working on the commerce APIs—evolve into something so radically different, a seller of high-tech infrastructure? Early observers suggested that Amazon’s retail business was so seasonal—booming during the holiday months—that Bezos had decided to rent his spare computer capacity during the quieter periods. But that explanation is widely debunked by Amazon insiders, in part because it would require Amazon to kick developers off its servers every fall.
  • The Amazon “Process”
• It got so dysfunctional that project leaders would present the S Team with their six-page narratives and then in the discussion afterward admit they had been unable to actually test their projects.
• “Jeff finally just exploded at me,” Dalzell says. “I always handled Jeff’s outbursts pretty well, but to be honest about it, he had a right to be angry. We were stifling the flow of creativity. Even though we were probably faster than ninety-nine percent of companies in the world, we were still too slow.”
• At the same time, Bezos became enamored with a book called Creation, by Steve Grand, the developer of a 1990s video game called Creatures that allowed players to guide and nurture a seemingly intelligent organism on their computer screens. Grand wrote that his approach to creating intelligent life was to focus on designing simple computational building blocks, called primitives, and then sit back and watch surprising behaviors emerge.
• 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. In other words, it needed to break its infrastructure down into the smallest, simplest atomic components and allow developers to freely access them with as much flexibility as possible. As Bezos proclaimed at the time, according to numerous employees: “Developers are alchemists and our job is to do everything we can to get them to do their alchemy.”
  • “First Principles”
• Bezos directed groups of engineers in brainstorming possible primitives. Storage, bandwidth, messaging, payments, and processing all made the list. In an informal way—as if the company didn’t quite know the insight around primitives was an extraordinary one—Amazon then started building teams to develop the services described on that list.
  • Compare to Postman’s “product squads.” Forming your product team around “primitives”
• Pinkham later said that the solitude was beneficial, as it afforded a comfortable distance from Amazon’s intrusive CEO. “I spent most of my time trying to hide from Bezos,” Pinkham says. “He was a fun guy to talk to but you did not want to be his pet project. He would love it to distraction.”
  • Building an internal startup to overcome Innovators Dilemma
• Atlas said that while working on the S3 project, he frequently had difficulty grasping just how big Bezos was thinking. “He had this vision of literally tens of thousands of cheap, two-hundred-dollar machines piling up in racks, exploding. And it had to be able to expand forever,” Atlas says. Bezos told him, “This has to scale to infinity with no planned downtime. Infinity!”
• A few years later, in a companywide reorganization, Jassy was chosen to oversee the personalization group, but then the engineers in that department objected to being led by someone they viewed at the time as nontechnical.
• So Jassy was given a unique opportunity. Bezos asked him to become his first official shadow—a new role that would entail Jassy’s following around the CEO and sitting with him in every meeting.
• Jassy was conflicted about the proposal. “I was flattered by the offer to work closely with Jeff but wasn’t initially excited about it because I’d seen the way it had gone down before,” he says. “I asked Jeff what success would look like. He said success would be if I got to know him and he got to know me and we built trust in each other.” Jassy agreed and spent much of the next eighteen months by Bezos’s side, traveling with him, discussing the events of each day, and observing the CEO’s style and thought process. Jassy would define the shadow role as a quasi chief of staff, and today the position of Bezos’s shadow, now formally known as technical adviser, is highly coveted and has broad visibility within the company.
• For Bezos, having an accomplished assistant on hand to discuss important matters with and ensure that people follow up on certain tasks is another way to extend his reach.
• The paper listed the primitives that Amazon would subsequently turn into Web services, from storage and computing to database, payments, and messaging. “We tried to imagine a student in a dorm room who would have at his or her disposal the same infrastructure as the largest companies in the world,” Jassy says. “We thought it was a great playing-field leveler for startups and smaller companies to have the same cost structure as big companies.”
  • From Day One they identified the primitives that made up the most important components people would need
• Jassy, Bezos, and Dalzell presented the plan for the new AWS to the Amazon board, and the institutional no came close to rearing its ugly head. John Doerr, expressing what he would later call a “healthy skepticism,” asked the obvious question: At a time when Amazon was having difficulty hiring engineers and needed to accelerate its international expansion, “Why would we go into this business?” “Because we need it as well,” Bezos replied, suggesting that Amazon’s demand for such a service reflected the broader market need. Jassy remembers Doerr telling him after the meeting that he was lucky to work at a company that would invest in something so daring.
  • Being willing to invest in opportunities
• It was considered a Jeff project, which meant that the product manager met with Bezos every few weeks and received a constant stream of e-mail from the CEO, usually containing extraordinarily detailed recommendations and frequently arriving late at night.
• Part of AWS’s immediate attraction to startups was its business model. Bezos viewed Web services as similar to an electric utility that allowed customers to pay for only what they used and to increase or decrease their consumption at any time. “The best analogy that I know is the electric grid,” Bezos said. “You go back in time a hundred years, if you wanted to have electricity, you had to build your own little electric power plant, and a lot of factories did this. As soon as the electric power grid came online, they dumped their electric power generator, and they started buying power off the grid. It just makes more sense. And that’s what is starting to happen with infrastructure computing.”
• “You realize you could lose money on that for a long time,” van Biljon told him. “Great,” Bezos said.
• Bezos believed his company had a natural advantage in its cost structure and ability to survive in the thin atmosphere of low-margin businesses. Companies like IBM, Microsoft, and Google, he suspected, would hesitate to get into such markets because it would depress their overall profit margins.
  • Being willing to accept the slimmest margins and building an organization that can operate lean enough to not need margin can be a competitive differentiation
• Bill Miller, the chief investment officer at Legg Mason Capital Management and a major Amazon shareholder, asked Bezos at the time about the profitability prospects for AWS. Bezos predicted they would be good over the long term but said that he didn’t want to repeat “Steve Jobs’s mistake” of pricing the iPhone in a way that was so fantastically profitable that the smartphone market became a magnet for competition.
• 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.
• (He was partly right about the iPhone; its sizable profits did indeed attract a deluge of competition, starting with smartphones running Google’s Android operating system. But the pioneering smartphone is also a fantastically lucrative product for Apple and its shareholders in a way that AWS has not been, at least so far.)
• “It’s a significant benefit when every interesting fast-growing company starts on your platform.”
• Just like Creation author Steve Grand had predicted, the creatures were evolving in ways that Bezos could not have imagined.
• Amazon’s inexpensive and easily accessible Web services facilitated the creation of thousands of Internet startups, some of which would not have been possible without it, and it provided larger companies with the ability to rent a supercomputer in the cloud, ushering in a new era of innovation in areas like finance, oil and gas, health, and science.
• Over coffee that day, the friends postulated that it might finally be possible to invent a computer for reading digital books. People had been talking about this for years, ever since Project Gutenberg, a nonprofit founded in the early 1970s in Champaign, Illinois, with a mission to digitize the world’s books and make them available on personal computers.
• Bezos’s colleagues and friends often attribute Amazon’s tardiness in digital music to Bezos’s lack of interest in music of any kind. In high school, Bezos forced himself to memorize the call letters of local Miami radio stations in an effort to fake musical fluency in conversations with his peers.
• Jobs’s personal interests guided Apple’s strategy. Bezos’s particular passions would have the same defining impact at Amazon. Bezos didn’t just love books—he fully imbibed them, methodically processing each detail.
• Bezos ultimately concluded that if Amazon was to continue to thrive as a bookseller in a new digital age, it must own the e-book business in the same way that Apple controlled the music business. “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. “We didn’t want to be Kodak.”
• Bezos announced that Amazon would develop its own dedicated electronic reading device for long-form reading. It was a stunning edict. Creating hardware was expensive and complicated. It was also well outside of Amazon’s core competency—its litany of obvious skills. There was a chorus of vehement objections.
• Bezos dismissed those objections and insisted that to succeed in books as Apple had in music, Amazon needed to control the entire customer experience, combining sleek hardware with an easy-to-use digital bookstore.
• Jeff Bots draw fuel from their CEO’s ample idea tank and then go out into the world and dutifully execute the best notions. They have completely absorbed Bezos’s business philosophy and molded their own worldviews around it, and they recite rote Jeffisms—how they start from the customer and work backward, et cetera—as if these were their prime directives.
• By that time, Bezos and his executives had devoured and raptly discussed another book that would significantly affect the company’s strategy: 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.
• Bezos unshackled Kessel from Amazon’s traditional media organization. “Your job is to kill your own business,” he told him. “I want you to proceed as if your goal is to put everyone selling physical books out of a job.”
• “We were told to do one great thing with maniacal focus,” says Tom Ryan, a software engineer from Palm whom Zehr brought over that fall. “The aspiration was to be Apple.”
  • As important as it is to not be focused on competition it’s just as important to have role models. Sometimes the same company can be both #[[Great Artists Steal]]
• Unlike LCD systems, the technology worked well under direct sunlight, used very little battery power, and was exceedingly easy on the eyes. In a sense, Amazon got lucky. A technology perfectly suited for long-form reading on a device (and terrible for everything else) just happened to be maturing after a decade of development.
• To publishers that didn’t comply, Amazon threatened to pull their books out of its automated personalization and recommendation systems, meaning that they would no longer be suggested to customers. “Publishers didn’t really understand Amazon. They were very naïve about what was going on with their back catalog,” says Goss. “Most didn’t know their sales were up because their backlist was getting such visibility.”
  • How aware have industries been as they were getting disrupted? How long did it take journalism to realize they were getting Facebooked?
• These tactics were not unique to Amazon. The company had finally learned the tricks of the century-old trade that is modern retail. Profit margin is finite. Better financial terms with suppliers translate directly into a healthier bottom line—and create the foundation on which everyday low prices become possible.
• Dan Rose, a longtime Amazon business development executive, led the early effort to bring publishers on board. Rose was of medium height, sported dot-com casual clothes like khakis and royal blue oxford shirts, and spoke easily about the coming opportunities of the digital age.
• Their goal, set in the first half of 2006, was to convince jittery publishers to place yet another bet on e-books, despite the many previous failures and false starts in digital publishing. They were handicapped in their mission: Bezos didn’t actually permit them to acknowledge the existence of the Kindle, which remained top secret.
• Amazon offered this as an option to publishers, arguing that it would help them decrease the costs of digitizing their catalogs, although the digital file would remain exclusive to the Kindle. Large publishers like Simon and Schuster did not want to create a new dependency on Amazon, but some smaller publishers jumped at the option.
  • Find a way to amplify the distribution for people that don’t have as much distribution in the old regime.
• “What is your negotiation strategy?” The executive replied that he believed a successful negotiation must make both sides happy. Porco’s passionate view, according to this executive (who did not get the job), was that this was an “un-Amazon” response and that one party must always win.
• This is not to pick on a particular Amazon executive, but to illustrate a point. Inside the company at the time, the culture was self-perpetuating, and those who couldn’t channel Bezos’s fervor on behalf of Amazon and its customers didn’t stay with the company. Those who could do it stayed and advanced.
• Goss admitted to mixed emotions about Amazon. He was proud of the difficult things he and his colleagues had accomplished. But he also found it increasingly hard to reconcile the company’s approach toward its partners with his own Christian values and says that for a year after leaving Amazon, he had post-traumatic stress disorder.
• Bezos stated that Amazon’s new device was the successor to the five-hundred-and-fifty-year-old invention of blacksmith Johannes Gutenberg, the movable-type printing press. “Why are books the last bastion of analog?” Bezos asked that day. “The question is, can you improve upon something as highly evolved and as well suited to its task as the book, and if so, how?”
• “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,” says Russ Grandinetti, a faithful Jeff Bot who later joined the Kindle team.
  • Build things people want
• “Certainly there’s an opportunity to get back into the business but we think it’s small at this moment and probably will be small for the next couple of years,” he said. “When the market is there, we’ll be there.”
  • Sometimes there are small markets. And sometimes there are small minds. #TAM
• Just as Clayton Christensen had predicted in The Innovator’s Dilemma, technological innovation caused wrenching pain to the company and the broader industry. No one was feeling it more than the book publishers.
• Wall Street analysts first began to notice changes in the company’s financial numbers early that year. Amazon’s sales were accelerating while third-party sellers were reporting a surge of activity on the site and a corresponding decrease on rival platforms like eBay. Curiously, Amazon’s inventory levels were growing too. The company was keeping more merchandise in places like Phoenix 3, as if it confidently expected customers to start buying more.
• Scott Devitt, then an analyst for the investment bank Stifel Nicolaus, spotted these shifts earlier than most and upgraded the stock from hold to buy in January 2007.1 He changed his rating on the same day a Merrill Lynch adviser offered the far more conventional analysis that Amazon’s margins were hopeless and that it could not make any money. “I was laughed out of portfolio managers’ offices,” Devitt says. “People were ripping apart every component of my investment thesis. At that point, they thought Amazon was some kind of nonprofit scam.”
• 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. Amazon was enjoying what analysts call operating leverage—it was getting more out of its assets, and its famously microscopic profit margins started to expand. (Although that was temporary—they would shrink again a few years later when Bezos started investing in new areas like tablets and streaming video.)
  • Nail it then scale something else.
• At the same time that Amazon’s flywheel was accelerating, eBay’s was flying apart. The appeal of online auctions had faded; a customer wanted the convenience and certainty of a quickly completed purchase, not a seven-day waiting period to see if his aggressively low bid for a set of Cobra golf clubs had won the day.
  • Understand the difference between a novel experience and a lasting customer preference
• Customers became happier over time with the shopping experience on Amazon and progressively more disgruntled with the challenges of finding items on eBay and dealing with sellers who overcharged for shipping. Amazon had battled and mastered chaos; eBay was engulfed by it.
• To lead the new foray into consumable goods, Bezos hired Doug Herrington, a former executive at Webvan, the failed grocery-delivery business from the dot-com boom. After two years of work, Herrington’s group started testing AmazonFresh, a grocery-delivery service in Amazon’s hometown of Seattle.
  • Experience can still be valuable even if gained in a failure. The experience might be even more valuable because they learned what NOT to do.
• In the midst of yet another retail expansion at Amazon, Bezos seemed to be trying to modulate his management style and keep his notoriously eviscerating assessments of employees in check.
• “You could see the fact that he was getting feedback and taking it seriously,” says Diane Lye, then the director of infrastructure automation.
• During one memorable meeting, Bezos reprimanded Lye and her colleagues in his customarily devastating way, telling them they were stupid and saying they should “come back in a week when you figure out what you’re doing.” Then he walked a few steps, froze in midstride as if something had suddenly occurred to him, wheeled around, and added, “But great work, everyone.”
  • Connect to Zuckerberg getting PR training and progressing from the “I’m CEO, bitch” phase
• 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.
• “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.
  • Connect to Charles Darwin -> kill your beliefs
• “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.”
• The lessons learned from its early acquisition spree in the late 1990s were still felt inside the company. Amazon had impulsively spent hundreds of millions to buy unproven startups that it could not digest and whose executives almost all left. In the resulting retrenchment, Amazon became uniquely parsimonious in how it approached mergers and acquisitions.
• Jeff Blackburn, Amazon’s chief of business development, said that Amazon’s bruises from the 1990s helped to create a “building culture” there. 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.”
• Michael Moritz has a slightly different take. When he invested in Zappos, he wanted it to become an independent, public company “that provided every item of clothing for consumers from head to toe.” But he had watched Amazon destroy one of his portfolio companies, eToys, a decade earlier and knew that to compete with Amazon, Zappos needed more engineers and more sophisticated fulfillment capabilities. “We just didn’t move quickly enough,” Moritz says. “You could sense it was going to be much harder to achieve, and we were squandering the opportunity. The hiring was too slow, the engineering department was not good enough, and the software was inferior to Amazon’s. It was very frustrating, and the Las Vegas location, plus an unwillingness to pay competitively, made it even harder to recruit talented people. We were starting to compete with the very best in the business and they had a lot of arrows in their quiver to make life painful. The last thing we wanted to do was to sell. It was mortifying.”
• “When given the choice of obsessing over competitors or obsessing over customers, we always obsess over customers,” he said, reciting a well-worn and, considering the past few years of competition with Zappos, credulity-straining Jeffism. “We pay attention to what our competitors do but it’s not where we put our energy.”
  • What is the motivating factor when you spend a lot of energy thinking about your competitor vs. focusing on your customer? Connect to Netflix - “you don’t leave your friends during a knife fight.”
• The company had lost touch with what customers wanted and it never embraced, as Rick Dalzell put it with regard to Bezos, “the best truth at the time.” When the chain needed to finance a turnaround in the midst of the financial crisis, the capital markets were dry. So in 2009, Circuit City, a sixty-year-old company lauded in one of Bezos’s favorite books, Good to Great, liquidated its operations and laid off thirty-four thousand employees.
• But like Circuit City, Borders had a narrow operating philosophy and repeatedly missed the changing tastes of consumers. It was obsessively focused on opening new stores and increasing same-store sales while fighting Barnes & Noble on all fronts and dutifully guiding and meeting Wall Street’s quarterly expectations.
• Like Circuit City, Borders allowed Amazon to run its online business so it could focus on its physical stores. One longtime Borders executive, who asked for anonymity, says the early perception of Amazon was that it “was just another catalog—a version of Lands’ End.” The executive suggests that this sentiment was now suitable for a bumper sticker.
• Target had outsourced its online operations to Amazon in 2001 but the relationship was far from perfect, with joint projects frequently falling behind schedule.
• But in 2006, Target came to the realization that it did not have the in-house capabilities to develop its own website, and, incredibly, it renewed its agreement with Amazon for another five years.
• Jeff Bezos returned to Minneapolis to meet with Target executives Robert Ulrich and Gerald Storch and to give a presentation that was open to any Target employee who wanted to attend. Dale Nitschke, the executive running Target.com at the time, recalls that to fill the auditorium, he had to personally implore employees to attend. “These guys are going to be world-class competitors, you have to keep tracking them,” he told colleagues.
• In 2009, it belatedly announced it was leaving Amazon, and it finally ended the relationship when the contract expired two years later. It was a rocky breakup. 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.
• In September of 2009, I wrote a lengthy story for the New York Times entitled “Can Amazon Be the Wal-Mart of the Web?”9 The headline apparently hit a nerve in Bentonville. A few weeks after it appeared, Raul Vazquez, then the chief executive of Walmart.com, told the Wall Street Journal, “If there is going to be a ‘Wal-Mart of the Web,’ it is going to be Walmart.com.
• In the e-commerce equivalent of a preemptive military strike, Walmart then lowered prices on ten new books by high-profile authors, such as Stephen King and Dean Koontz, to ten dollars each. Amazon matched the price on those same books within a few hours. Walmart.com then lowered its prices again, to nine dollars, and Amazon matched it again. It was just the kind of price pressure from Walmart that Amazon executives had always worried about—but it came ten years too late to do Amazon any harm.
• 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.
• Apple would act as the broker and receive a 30 percent commission, the same arrangement it had for mobile applications on the iPhone. As part of this shift to what was known as the agency model, Apple received a guarantee that other retailers would not undercut it on e-book prices. According to the DOJ, that meant publishers would have to force Amazon to adopt the same model. In his internal e-mails and to his biographer Walter Isaacson, Jobs proudly referred to this as an aikido move.
• In trying to loosen Amazon’s grip on the e-book market, the publishers and Apple created a significant new problem for themselves. A day after the standoff with Macmillan, according to court documents, Amazon sent a white paper to the Federal Trade Commission and the U.S. Department of Justice laying out the chain of events and its suspicion that the publishers and Apple were engaged in an illegal conspiracy to fix e-book prices.
• In part because of the e-book pricing war, investors began to understand that the Kindle could grab an outsize share of the book business and that the device had the potential to do to bookstores what iTunes had done to record shops.
  • Understanding distribution control.
• Bezos often said that Amazon had a “willingness to be misunderstood,” which was an impressive piece of rhetorical jujitsu—the implication being that its opponents just didn’t understand the company.
• Bezos also deflected attacks by claiming that Amazon was a missionary company, not a mercenary one. 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.”
  • Just hot air and marketing fluff? Is Amazon really a missionary company?
• The law cleverly eluded a 1992 Supreme Court ruling, Quill v. North Carolina, stipulating that only those merchants who had a physical presence or nexus, like a storefront or an office, in a state had to collect sales tax there. (Technically, the tax was still due for online purchases, but customers were supposed to pay it themselves.) The New York law specified that an affiliate website that took a commission for passing customers on to an online retailer was an agent of that retailer, and thus the retailer officially had a presence in that affiliate’s state.
• Dozens of pages of internal company rulebooks, flowcharts, and maps were filed with the King County Superior Court on Third Avenue in downtown Seattle. Together, they revealed a fascinating portrait of a company desperately contorting itself to accommodate a rapidly shifting tax climate.
• “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.
• 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 that usually includes Bezos, Jeff Wilke, and Diego Piacentini, who ensure that the company addresses any emerging threat and catches up quickly.
  • We don’t pay attention to our competitors except for when we do.
• The Quidsi founders studied Amazon closely and idolized Jeff Bezos, referring to him in private conversation as “sensei.”
• Jeff Blackburn, Amazon’s mergers and acquisitions chief, said Quidsi was similar to Zappos, a “stubbornly independent company building an extremely flexible franchise.” He also said that everything Amazon subsequently did in the diapers market was planned beforehand and was unrelated to competing with Quidsi.
• Walmart vice chairman Eduardo Castro-Wright took over Walmart.com, and one of his first calls was to Marc Lore at Diapers.com to initiate acquisition talks. Lore said that Quidsi wanted a chance to get “Zappos money”—$900 million, which included bonuses spread out over many years tied to performance goals. Walmart agreed in principle and started due diligence.
• However, the subsequent formal offer from Bentonville was well under the requested amount.
• So Lore picked up the phone and called Amazon. In September 2010, Lore and Bharara traveled to Seattle to pitch Jeff Bezos on acquiring Quidsi. While they were in that early-morning meeting with Bezos, Amazon sent out a press release introducing a new service called Amazon Mom. It was a sweet deal for new parents: they could get up to a year’s worth of free two-day Prime shipping (a program that usually cost $79 to join), and there was a wealth of other perks available, including an additional 30 percent off the already-discounted diapers, if they signed up for regular monthly deliveries of diapers as part of a service called Subscribe and Save. Back in New Jersey, Quidsi employees desperately tried to call their founders to discuss a public response to Amazon Mom. It was no accident that they couldn’t reach them. They were sitting blithely unaware in a meeting in Amazon’s own offices.
  • What?!?!?
• Walmart should have had a natural advantage in this fight. Jim Breyer, the managing partner at one of Quidsi’s venture-capital backers, Accel, was also on the Walmart board of directors. But Walmart was caught flat-footed. By the time Walmart upped its offer to $600 million, Quidsi had tentatively accepted the Amazon term sheet.
• The money-losing Amazon Mom program was obviously introduced to help dead-end Diapers.com and force a sale, and if anyone at the time had doubts about that, those doubts were quickly dispelled by Amazon’s subsequent actions.
• Walmart had missed the chance to acquire a talented team of entrepreneurs who had gone toe to toe with Amazon in a key product category. 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. Amazon executives view MAPs and similar techniques as the last vestiges of an old way of doing business, gimmicks that inefficient companies use to protect their bloated margins.
• “We know it’s in the customer’s best interest that we have a cost structure that allows us to match competitors and be known for low prices,” says Jeff Wilke. “That’s our objective.” 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.
  • Visibility necessitates transparency #[[Naked Brands]] - in a world where we can see most things we get nervous when we can’t see something
• “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.”
• Amazon’s own employees have compared third-party selling on the site to heroin addiction—sellers get a sudden euphoric rush and a lingering high as sales explode, then progress to addiction and self-destruction when Amazon starts gutting the sellers’ margins and undercutting them on price. Sellers “know they should not be taking the heroin, but they cannot stop taking the heroin,” says Kerry Morris, the former Amazon buyer. “They push and bitch and complain and threaten until they finally see they have to cut themselves off.”
• As it is wont to do, Amazon watched from the sidelines, learned, and patiently waited for an opening.
• Google was the most prominent bidder for Lovefilm. The search giant’s executive team was developing a plan over the summer of 2009 to acquire both Lovefilm and Netflix and add a significant new focus that was unrelated to its core advertising business.
• Amazon had watched the explosion in popularity of Internet-connected Blu-ray players and video-game consoles in its own electronics store and knew it had to get off the sidelines.
  • What unfair advantage do you have to understand your customers changing preferences?
• It was more Bezos-style expedient conviction—the arguments had the advantage of being completely rational while also serving Amazon’s own strategic interests.
• 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. “For the first time, a level playing field was going to get forced on Amazon,” says James Gray, the former chief strategy officer of the Ingram Content Group. Amazon executives “were basically spitting blood and nails.”
  • Moats don’t stay impenetrable forever
• “There have been a few brickbats I’ve had to duck,” Kirshbaum says, “but I have a message I really believe in, which is that we’re trying to innovate in ways that can help everybody. We are trying to create a tide that will lift all boats.”
• This was to be a new age of creative surplus, where it was easy for anyone to create something, find an audience, and allow the market to determine the proper economic reward. “Even well meaning gatekeepers slow innovation,” Bezos wrote in his 2011 letter to shareholders. “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.”
  • Democratization of creativity
• 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?
• When Amazon became a company with $100 billion in sales, he wondered, how could it be loved and not feared? As he regularly does, Bezos wrote up his thoughts in a memo and distributed it to his top executives at an S Team retreat. I received a copy through a person close to the company who wished to remain anonymous. The memo, which Bezos titled Amazon.love, lays out a vision for how the Amazon founder wants his company to conduct itself and be perceived by the world. It reflects Bezos’s values and determination, and perhaps even his blind spots.
• “Some big companies develop ardent fan bases, are widely loved by their customers, and are even perceived as cool,” he wrote. “For different reasons, in different ways and to different degrees, companies like Apple, Nike, Disney, Google, Whole Foods, Costco and even UPS strike me as examples of large companies that are well-liked by their customers.” On the other end of spectrum, he added, companies like Walmart, Microsoft, Goldman Sachs, and ExxonMobil tended to be feared.
• Rudeness is not cool. Defeating tiny guys is not cool. Close-following is not cool. Young is cool. Risk taking is cool. Winning is cool. Polite is cool. Defeating bigger, unsympathetic guys is cool. Inventing is cool. Explorers are cool. Conquerors are not cool. Obsessing over competitors is not cool. Empowering others is cool. Capturing all the value only for the company is not cool. Leadership is cool. Conviction is cool. Straightforwardness is cool. Pandering to the crowd is not cool. Hypocrisy is not cool. Authenticity is cool. Thinking big is cool. The unexpected is cool. Missionaries are cool. Mercenaries are not cool.
• “I actually believe the four ‘unloved’ companies are inventive as a matter of substance. But they are not perceived as inventors and pioneers. It is not enough to be inventive—that pioneering spirit must also come across and be perceivable by the customer base,” he wrote.
• Then there’s an entirely separate kind of crisis, what some employees have informally dubbed the Sev-B. That’s when an e-mail containing the notorious question mark arrives directly from Bezos. When Amazon employees receive one of these missives, they drop everything they are doing and fling themselves at whatever issue the CEO is highlighting. They’ve typically got a few hours to solve the problem and prepare a thorough explanation for how it occurred in the first place, a response that will be reviewed by a succession of managers before the answer is presented to Bezos himself. The question mark e-mails, often called escalations, are Bezos’s way to ensure that potential problems are addressed and that the customer’s voice is always heard inside Amazon.
• Bezos likes to say that when he’s angry, “just wait five minutes,” and the mood will pass like a tropical squall.1 When it comes to issues of bungled customer service, though, that is rarely true.
• There was an animated argument. Amazon’s culture is notoriously confrontational, and it begins with Bezos, who believes that truth springs forth when ideas and perspectives are banged against each other, sometimes violently.
• Long past the era of using the editorial judgment of employees to drive changes to the website, the company relies on metrics to make almost every important decision, such as what features to introduce or kill. Yet random customer anecdotes, the opposite of cold, hard data, also carry tremendous weight and can change Amazon policy. If one customer has a bad experience, Bezos often assumes it reflects a larger problem and escalates the resolution of the matter inside his company with a question mark.
• Many Amazon employees are all too familiar with these fire drills and find them disruptive. “Why are entire teams required to drop everything on a dime to respond to a question mark escalation?”
• 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…
• Despite the scars and occasional bouts of post-traumatic stress disorder, former Amazon employees often consider their time at the company the most productive of their careers. Their colleagues were smart, the work was challenging, and frequent lateral movement between departments offered constant opportunities for learning. “Everybody knows how hard it is and chooses to be there,” says Faisal Masud, who spent five years in the retail business. “You are learning constantly and…
  • Connect to tweet; even if you knew joining a startup would be an absolute failure, what would it take you to join? Always (1) good people, and (2) learning.
• But some also express anguish about their experience. Bezos says the company attracts a certain kind of person who likes to pioneer and invent, but former employees frequently complain that Amazon has the bureaucracy of a big company with the infrastructure and pace of a startup, with lots of duplicate efforts and poor communication that makes it difficult to get things done. The people who do well at Amazon are often those who thrive in an adversarial atmosphere with almost constant friction. Bezos abhors what he calls “…
• Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social…
• But other escapees call Amazon’s internal environment a “gladiator culture” and wouldn’t think of returning. There are many who last less than two years. “It’s a weird mix of a startup that is trying to be super corporate and a corporation that is trying hard to still be a startup,” says Jenny Dibble, who spent five months there as a marketing manager in 2011, trying, ineffectively, to get the company to use more social-media tools. She found her bosses were not particularly receptive…
• Even leaving Amazon can be a combative process—the company is not above sending letters threatening legal action if an employee takes a similar job at a competitor. It’s more evidence of that “fierce competitiveness” mentioned by Faisal Masud, who left Amazon for eBay in 2010 and received such a legal threat (eBay settled the matter privately). This perpetual exodus of employees hardly seems to hurt Amazon, though. The company, aided by the appeal of its steadily increasing stock price, has become an accomplished recruiter of…
  • It’s easier to be an intense high-turnover culture if you have (1) the ability to always be attracting new and better talent, and (2) external metrics that drown out any negative experiences former employees might have had
• New hires are given an industry-average base salary, a signing bonus spread over two years, and a grant of restricted stock units over four years. But unlike other technology companies, such as Google and Microsoft, which spread out their stock grants evenly, Amazon backloads the grant toward the end of the four-year period. Employees typically get 5 percent of their shares at the end of their first year, 15 percent their second year, and then 20 percent every six months over the final two years. Ensuing…
• 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. As a result of this ongoing examination, many Amazon employees live in perpetual fear. A common experience among Amazon workers is a feeling of genuine surprise when one receives a good performance review. Managers are so…
• 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.
• All of this comes from Bezos himself. Amazon’s values are his business principles, molded through two decades of surviving in the thin atmosphere of low profit margins and fierce skepticism from the outside world.
• In a way, the entire company is scaffolding built around his brain—an amplification machine meant to disseminate his ingenuity and drive across the greatest possible radius. “It’s scaffolding to magnify the thinking embodied by Jeff, to the greatest extent possible,” says Jeff Wilke when I bounce that theory off him. “Jeff was learning as he went along. He learned things from each of us who had expertise and incorporated the best pieces into his mental model. Now everyone is expected to think as much as they can like Jeff.”
• Teams work intensely for months preparing for these sessions, drawing up six-page documents that spell out their plans for the year ahead. A few years ago, the company refined this process further to make the narratives more easily digestible for Bezos and other S Team members, who cycle through many topics during these reviews. Now every document includes at the top of the page a list of a few rules, called tenets, the principles for each group that guide the hard decisions and allow them all to move fast, without constant supervision.
• Bezos is like a chess master playing countless games simultaneously, with the boards organized in such a way that he can efficiently tend to each match.
  • You need people and systems to organize the boards for you.
• Bezos does not attend these meetings. But he can always make his presence felt anywhere in the company.
• Perhaps, Bezos reasoned, Amazon should be sending a single well-crafted e-mail every week—a short digital magazine—instead of a succession of bland, algorithm-generated marketing pitches. He asked marketing vice president Steve Shure to explore the idea.
• Shure formed a team and they spent two months coming up with trial concepts. Bezos gave them little direction, but their broad mandate was to create an entirely new type of e-mail for customers—the kind of personal voice that Amazon had lost more than ten years ago, when it downsized its editorial division
• The project never progressed—it fared poorly in tests with customers—but several participants remember the process as being particularly excruciating. In one meeting, Bezos quietly thumbed through the mockups, styled in the customary Amazon format of a press release, as everyone waited in tense, edge-of-the-seat silence. Then he tore the documents apart. “Here’s the problem with this, I’m already bored,” he said.
• “Steve, why haven’t I seen anything on this in three months?” “Well, I had to find an editor and work through mockups.” “This is developing too slow. Do you care about this?” “Yes, Jeff, we care.” “Strip the design down, it’s too complicated. Also, it needs to move faster!”
• Run by business-development chief Jeff Blackburn, advertising at Amazon is a highly profitable side business that helps subsidize free shipping and low prices and funds some of the company’s expensive long-term projects, like building its own hardware.
  • Find your cash machine
• “The symbol is important for a couple of reasons. If [humans] think long term, we can accomplish things that we wouldn’t otherwise accomplish,” Bezos said. “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. So this is a symbol. I think symbols can be very powerful.”
• Like the late Steve Jobs, Bezos has gradually worn down employees, investors, and a skeptical public and turned them toward his way of thinking. Any process can be improved. Defects that are invisible to the knowledgeable may be obvious to newcomers. The simplest solutions are the best.
• “If you look at why Amazon is so different than almost any other company that started early on the Internet, it’s because Jeff approached it from the very beginning with that long-term vision,” Hillis continues. “It was a multidecade project. The notion that he can accomplish a huge amount with a larger time frame, if he is steady about it, is fundamentally his philosophy.”
• Bezos and MacKenzie seem to share the skill of efficiently dispersing their time across many personal responsibilities and multiple projects.
• When you have fit yourself snugly into Jeff Bezos’s worldview and then evaluated both the successes and failures of Amazon over the past two decades, the future of the company becomes easy to predict. The answer to almost every conceivable question is yes.
• These are not fever dreams. They are near inevitabilities. It’s an easy prediction to make—that Jeff Bezos will do what he has always done. He will attempt to move faster, work his employees harder, make bolder bets, and pursue both big inventions and small ones, all to achieve his grand vision for Amazon—that it be not just an everything store, but ultimately an everything company.
• It is both missionary and mercenary, and throughout the history of business and other human affairs, that has always been a potent combination. “We don’t have a single big advantage,” he once told an old adversary, publisher Tim O’Reilly, back when they were arguing over Amazon protecting its patented 1-Click ordering method from rivals like Barnes & Noble. “So we have to weave a rope of many small advantages.”
• Former Amazon executives sometimes wondered whether the focused and driven Bezos even remembered their contributions, but from his speech, it was clear that he valued his three-year collaboration with Covey.
• I found myself thinking about what it takes to accomplish things as big as they both did, when a lot of what you are doing is unconventional. It may very well be that the absolute intensity of drive and focus is essential and incompatible with all of the nice management thought about consensus and gentle demeanor. I think about how effective and quick Jeff was and how important it was that he didn’t slow down too much or modify his ideas to make others feel comfortable.
• I think about the early days and the level of clarity, vision, potential, and values that Jeff brought.
• years. It is easy to draw a straight line from the vision he had back then to the Amazon of today.
• There were a few little wobbles and detours in places, but really I don’t know any other company that has created such a juggernaut that is so consistent with the original ideas of the founder. It is almost like he fired an arrow and then followed that arc.
• Personal wealth was never discussed or really thought about. I see companies these days where thoughts of “exits” are foremost in the minds of top management and board, and it is so clear that this value will infect the decision making down to the smallest choice by the most junior employee. Do we create something that is good, or just that seems good and might get us acquired or funded?
  • The difference between Conor and David at CommonStock
• We talked a lot about whether Jeff was difficult to work with. Yet Jeff attracted people like me, who really need to work on things they can internalize and adopt as mission, who had to leave the path they thought they were on, and who poured their hearts and souls and best efforts into building Amazon.
• As I read the Jobs book I really had to wonder if that (sometimes-harsh) intensity isn’t an essential element when so much of what you want to do requires boldness, immediacy, ruthless prioritization, and risk. It seems counterintuitive to everyone who has pursued traditional corporate goals in the past. I even had an insight and question about myself, that maybe I haven’t begun to really find my own limits, since I have not, aside from those times of highest stakes and intensity at Amazon, really run free following my own insights and directions without being too accommodating of others.
• Suppliers who view Amazon as a bully are perfectly free to sell their wares elsewhere. Employees who feel marginalized or mistreated can leave at any time, and many do, sometimes after their first taste of the relentless corporate culture. Yet with so many other retailers in retreat, or tailoring their own operations to get as lean and efficient as Amazon, both suppliers and employees may find their opportunities elsewhere are increasingly limited.