The Everything Store: Jeff Bezos and the Age of Amazon

“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.”
“Similarities eventually displaced Bookmatch and became the seed that would grow into Amazon’s formidable personalization effort. Bezos believed that this would be one of the insurmountable advantages of e-commerce over its brick-and-mortar counterparts. “Great merchants have never had the opportunity to understand their customers in a truly individualized way,” he said. “E-commerce is going to make that possible.”
“They agreed on five core values and wrote them down on a whiteboard in a conference room: customer obsession, frugality, bias for action, ownership, and high bar for talent. Later Amazon would add a sixth value, innovation.”
“All of these deals improved Amazon’s balance sheet in the short term, but in the long run, they were awkward for all parties. By relying on Amazon, the retailers delayed a necessary education on an important new frontier and ceded the loyalty of their customers to an aggressive upstart. That would be one of many problems for Borders and Circuit City, both of which went bankrupt in the depths of the financial crisis that began in 2008.”
“Drawing on Collins’s concept of a flywheel, or self-reinforcing loop, Bezos and his lieutenants sketched their own virtuous cycle, which they believed powered their business. It went something like this: 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.
“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.”
“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 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.”
“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.”
“Wilke’s gradual success in making the logistics network more efficient would offer Amazon innumerable advantages in the years ahead. Tightly controlling distribution allowed the company to make specific promises to customers on when they could expect their purchases to arrive. Amazon’s operating all of its own technology, from the supply chain to the website, allowed Russell Allgor and his engineers to create algorithms that modeled countless scenarios for each order so systems could pick the one that would yield the quickest and cheapest delivery.”
“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.”
“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.”
“But Bezos was going on gut and experience. He knew that Super Saver Shipping had changed customers’ behavior, motivating them to place bigger orders and shop in new categories. He also knew from 1-Click ordering that when friction was removed from online shopping, customers spent more. That accelerated the company’s fabled flywheel—the virtuous cycle. When customers spent more, Amazon’s volumes increased, so it could lower shipping costs and negotiate new deals with vendors. That saved the company money, which would help pay for Prime and lead back to lower prices.”
“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.”
“Like a lot of other technology companies at the time, Amazon got an education in the wisdom of moving to a simpler and more flexible technology infrastructure, called service-oriented architecture. In this kind of framework, every feature and service is treated as an independent piece and each can easily be updated or replaced without breaking the whole.”
“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.”
“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.”
“Just like Creation author Steve Grand had predicted, the creatures were evolving in ways that Bezos could not have imagined. It was the combination of EC2 and S3—storage and compute, two primitives linked together—that transformed both AWS and the technology world. Startups no longer needed to spend their venture capital on buying servers and hiring specialized engineers to run them. Infrastructure costs were variable instead of fixed, and they could grow in direct proportion to revenues. It freed companies to experiment, to change their business models with a minimum of pain, and to keep up with the rapidly growing audiences of erupting social networks like Facebook and Twitter.”
“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.”
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.”
“If vendors or brands leave Amazon, they will eventually come back,” Wilke predicts, because “customers trust Amazon to be great providers of information and customer reviews about a vast selection of products. If you have customers ready to buy, and if you have a chance to tell them about your product, what brand ultimately doesn’t want that?”
“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.”
“Book publishers needed only to listen to Jeff Bezos himself to have their fears stoked. Amazon’s founder repeatedly suggested he had little reverence for the old “gatekeepers” of the media, whose business models were forged during the analogue age and whose function it was to review content and then subjectively decide what the public got to consume. 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.”
“Have Backbone; Disagree and Commit 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 cohesion. Once a decision is determined, they commit wholly.”
“Frugality We try not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency and invention. There are no extra points for headcount, budget size or fixed expense.”