business ethics

Technology journalist Brad Stone details the rise of Amazon, from its earliest days in founder Jeff Bezos’s garage to its success as a global, game-changing online retailer, technology service provider and platform. Stone asserts that he had Bezos’s cooperation, though this corporate biography is unauthorized. Stone conducted 300 interviews with current and former Amazon employees, including those involved from the beginning. Though Bezos’s wife gives it only one-star with her review, getAbstract recommends Stone’s opus as the most comprehensive and readable account of “The Everything Store” and its visionary leader.

· In 1994, Jeff and MacKenzie Bezos moved to Seattle to start an online bookstore.

· Aided by computer engineers Stan Kaphan and Paul Davis, Amazon went live in 1995.

· A 1997 IPO raised $54 million, put Amazon in the public eye and boosted sales.

· In the beginning, Amazon staff ordered books wholesale from distributors and mailed them to customers.

· Amazon introduced game-changing innovations, such as unlimited rankings and 1-Click ordering.

· By the end of 1999, Amazon’s sales growth prompted Time magazine to name Bezos “Person of the Year.”

· Amazon survived the dot-com crash, expanded into new categories and countries, and strove to become a platform.

· In 2006, Amazon introduced computer storage and usage services priced like a utility.

· Pinterest and Instagram exist because they had access to Amazon’s computing power.

· Amazon launched the Kindle e-book reader in 2007, creating and eventually controlling the e-book market.

Jeff Bezos was 29 years old and working for the Wall Street technology-based hedge fund D.E. Shaw when the newly blossoming Internet caught his imagination. Bezos was hardworking, analytical and alert to new ideas. Fund founder David Shaw and Bezos met regularly in 1994 to discuss the Internet’s commercial potential. They imagined an “Everything Store,” an Internet intermediary between consumers and manufacturers.

“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.”

Understanding that an everything store would not work as a starting point, Bezos researched products that could be distributed online. Books emerged as his best option. Hundreds of thousands were in print, but only two major distributors controlled the supply lines. Bezos left Shaw’s hedge fund and ventured out on his own to start an online bookstore.

Bezos and his new wife, MacKenzie, moved to Seattle for its low sales tax and abundant technology talent. Computer engineers Stan Kaphan and Paul Davis were their first hires. Bezos funded the start-up with his own money, interest-free loans and $100,000 from his parents. MacKenzie handled the finances; the couple set up shop in their garage. Jeff named the company Amazon after the Earth’s largest river. The site went live on July 16, 1994. The start-up tallied a boatload of pioneering accomplishments, creating a “virtual shopping basket,” a secure credit card use system and a book-catalog search engine. Kaphan added a consumer review feature.

“Amazon is increasingly a daily presence in modern life.”

At first, staffers ordered books wholesale from distributors and mailed them to customers, an extremely cumbersome process. Everyone helped pack orders and drive the boxes to UPS or the post office. Nicholas Lovejoy, a part-time worker, suggested assembling orders on packing tables. Bezos declared the idea “brilliant!” and Amazon still uses packing tables as desks companywide.

By1996, revenues were growing 30% or 40% monthly. A hiring frenzy began, with Bezos asking candidates such questions as “Why are manhole covers round?” to gauge their problem-solving abilities. He created an editorial group to give the site a “literary voice” and a “personalization” team to customize pages for each user. He launched the Associates program, which pays websites a fee for every customer they send to Amazon. This started the affiliate marketing industry.

“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 unrelenting taskmaster. He pursued “Get Big Fast” with great urgency. He sought venture capital and hired seasoned executives who displaced original employees. Paul Davis left and became an open-source advocate and Amazon critic. Bezos hired Walmart’s Rick Dalzell as chief information officer; Stan Kaphan knew his days at Amazon were numbered.

“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.”

With Deutsche Bank as lead underwriter, Bezos and new CFO Joy Covey traveled the US and Europe, pitching an IPO. The retail book chain Barnes & Noble explored collaboration with Amazon, but instead launched a competing site. In May 1997, Amazon’s IPO raised $54 million, which put the firm in the public eye and boosted sales. The original investors became multimillionaires.

In 1998, Amazon expanded into music and DVDs, changing its slogan from “Earth’s Largest Bookstore” to “Earth’s Biggest Selection – The Everything Store.” That spring, it raised more capital through a $326 million junk-bond offering and an additional $1.25 billion in convertible debt. Bezos bought IMDB.com (the International Movie Database), BookPages, Exchange and PlanetAll. He invested in Pets.com and Drugstore.com, seeking to sell toys and electronics.

“Bezos is like a chess master playing countless games simultaneously, with the boards organized in such a way that the can efficiently tend to each match.”

Bezos detailed his belief in “bold action” in a shareholder letter that’s still part of the company’s “scripture.” He emphasized the “shareholder value we create over the long term.” When things went wrong, Bezos threw temper tantrums his staffers called “nutters.” Walmart sued Amazon for “trying to steal trade secrets.” The suit fizzled, but escalated tensions between the two companies.

Amazon patented 1-Click ordering, which lets customers make a purchase with a single mouse click knowing the company already has all their billing and shipping information. This system spawned debate over the legal protection of proprietary business tools versus open-source software.

“Amazon’s values are [Bezos’s] business principles, molded through two decades of surviving in the thin atmosphere of low profit margins and fierce skepticism from the outside world.”

Bezos introduced Amazon Auctions to compete with eBay. The auction venture failed, but launched Amazon’s work with third-party sellers. The company bought the price-comparison site Junglee, integrating it into a feature called Shop the Web. That effort also failed, but it brought Bezos into contact with Google founders Larry Page and Sergey Brin. Bezos became an original Google backer, an investment that is worth millions today.

“The company has nearly perfected the art of instant gratification, delivering digital products in seconds and their physical incarnations in just a few days.”

Bezos molded Amazon’s culture around five values: “customer obsession, frugality, bias for action, ownership and high bar for talent.” Later, he added “innovation.” He expected his staff to forgo work/life balance in favor of working “smart, hard and long.” By the end of 1999, sales were 95% stronger than in 1998. The company gained three million new users. Time magazine named Bezos “Person of the Year.” Yet, Amazon’s internal accounting was chaotic and it forecast massive losses. Bezos hired Joe Galli, from Black and Decker, as CEO. Galli introduced co-op marketing

Amazon endured hard times during 2000 and 2001. In early 2000, a Barron’s cover story highlighted the high rate at which web firms depleted venture capital. Amazon sold $672 million of convertible stock overseas early in 2001, giving it liquidity other web firms lacked. When the market crashed, Amazon focused on “getting its house in order.”

“Amazon started its dot-com-era sprint with what it called its megadeals.”

Bezos slowed the introduction of new products, converted to the Linux operating system and improved the distribution centers. In this volatile era, Amazon lost Wall Street’s faith. Bezos blamed Lehman Brothers analyst Ravi Suria, who wrote that the company was in trouble. Amazon’s stock fell 20%. Many staffers left, and managers questioned Bezos’s methods. Bezos battled negative reviews with a media offensive and met with US and European suppliers. Suria continued to criticize Amazon, and its stock plunged lower.

Even during this turbulence, Amazon sought to become a “platform” rather than a retailer. It made a 10-year deal to become the online retailer for Toys “R” Us. The deal provided the template for working with other firms, and Amazon approached Best Buy, Sony Electronics and Walmart. Some companies balked, but Amazon closed deals with Borders, AOL’s shopping channel and Circuit City. Bezos introduced Amazon Marketplace. Starting with used books, the site listed wares from third-party sellers next to its own products. Customers benefited, while publishing houses suffered. Within Amazon, category managers worried; the Marketplace made it harder for them to reach their sales goals.

“While the other dot-coms merged or perished, Amazon survived through a combination of conviction, improvisation and luck.”

Amazon retrenched, but Bezos refused to raise prices, reasoning that competitive pricing and unlimited selection would eventually win. He upped the ante with the “Free Super Saver Shipping” program in 2002, providing free delivery on orders over a designated price. Amazon posted its first profitable quarter in January 2002; by April of 2003, it had weathered the storm. Bezos never showed alarm or faltered.

Amazon expanded into new categories, such as sporting goods and jewelry and into new markets, including China and Japan. Chief of operations Jeff Wilke hired engineers to devise new algorithms to track stock and packing. He gave the distribution centers a new name: “fulfillment” centers. In two years, he made the system more efficient, cut costs and increased productivity. Distribution still didn’t function as well as desired. Working with MIT professor Stephen Graves, Wilke and Bezos decided Amazon would rewrite its software and “engineer” its “own solutions.”

“If Amazon stayed focused on the customer, Bezos declared, the company would be fine.”

Amazon dropped its vendors and offered new shipping options, such as overnight or two-day, and launched Amazon Prime, an expedited shipping service with an annual fee. The fulfillment centers ran so efficiently that the company could offer “Fulfillment by Amazon,” a storage and shipping service for outside merchants. Amazon wielded its power of scale, forcing UPS to negotiate prices by threatening to hire FedEx.

As Amazon celebrated its 10th anniversary in 2005, Google made headlines as a “search-engine star.” Customers could search on Google before it sent them to Amazon. To compete, Bezos hired Yahoo veteran Udi Manber to “improve Amazon’s operations and invent new features.” Manber created “Search Inside the Book,” allowing customers to search books for key words and phrases.

“Within Amazon there is a term used to describe the top executives who get to implement Jeff Bezos’s best ideas: JeffBots.”

Bezos established a satellite team in Cape Town, South Africa, to work on what eventually became the “Elastic Compute Cloud” (EC2) service and set up another team in Seattle to create Amazon’s “Simple Storage Service” (S3). Launched in 2006, S3 lets people store digital photos and documents on Amazon’s servers. The EC2 enables developers to use Amazon’s computers to run their programs. Bezos prices the service like an electric utility: customers pay only for what they use. Start-ups such as Pinterest and Instagram exist today because they had access to Amazon’s computer power.

In 2004, Bezos formed a Silicon Valley satellite group – Lab126 – to create a digital book-reading device. In 2007, the team introduced the Kindle. Apple dominated digital music; Bezos wanted Amazon to own the e-book business.

“He generated a nonstop flood of ideas on how to improve the experience of the website, make it more compelling for customers and keep it one step ahead of rivals.”

Amazon wielded its power of scale to demand concessions, like bulk discounts from publishers. If a publisher didn’t comply, Amazon removed its books from the site’s recommendations, which might lower the publisher’s sales by as much as 40%. As Amazon prepared the Kindle for market, it pressured publishers to create e-books. They didn’t know until Bezos spoke at the Kindle launch press conference that Amazon would sell all e-book titles for a flat rate of $9.99. The game-changing low price gave Amazon the market power that Bezos desired, put many independent bookstores out of business and threatened the big retailers of print books.

“One of his gifts, his colleagues said, was being able to drive and motivate his employees without getting overly attached to them personally.”

In 2008, the six major US publishing houses – aided by Steve Jobs and Apple – united to challenge Amazon’s e-book monopoly. They created the “agency model” for e-book pricing, letting publishers set their own prices, with Apple taking a 30% commission. This did little to slow Amazon’s dominance.

By April 2007, Amazon’s quarterly sales exceeded $3 billion, due to the success of Amazon Prime, the fulfillment centers and the Kindle. Amazon’s financial strength and Bezos’s desire to enter the footwear and apparel categories led to his interest in Zappos, an online shoe retailer. Zappos’s founders chose to remain independent. Bezos launched Endless.com to challenge Zappos on price. Zappos’s profits suffered, and it could not raise capital due to the 2008 economic downturn. The founders sold Zappos to Amazon for $900 million.

Amazon wields its power against any corporate threat. For example, Quidsi’s Diapers.com website succeeded by selling baby items. Amazon undercut prices on diapers and baby products by as much as 30%. When Quidsi felt the heat, it considered selling. Bezos outmaneuvered Walmart to purchase Diapers.com for $600 million. Yet, Amazon did lose one battle – the sales-tax fight. For years, it avoided collecting state sales taxes. Losing that advantage motivated Bezos to find new revenue streams, including a grocery business, Amazon Fresh, and to focus on making same-day delivery a future reality.