DECEMBER 27, 1999 VOL. 154 NO. 25
Actually, it was one of Shaw's partners who interviewed Bezos first and urged the boss to meet him, saying, "He's going to make someone a lot of money someday." Shaw agreed, understanding that Bezos was unusual not only for his balanced intellect--he could handle complex logic as well as articulate his thinking--but also for the overall package: smart, creative, personable, precisely the kind of person they wanted. Over time, Bezos became a specialist in researching business opportunities in insurance, software and then the booming Internet.
But how to take advantage of that online explosion? The Net had been, until 1994, a largely commerce-free zone. It was created by the Defense Department to keep its network of computers communicating in case of nuclear attack. The system then evolved into a network over which university and government researchers could exchange messages and data across most computer platforms.
The government decided to get out of the Internet business and allow private companies to step in and develop it. Bezos recalls, "I'm sitting there thinking we can be a complete first mover in e-commerce." He researched mail-order companies, figuring that things that sold well by mail would do well online. He made a list of the Top 20 mail-order products and looked for where he could create "the most value for customers." Value, in his equation, would be something customers craved: selection, say, or convenience or low prices. "Unless you could create something with a huge value proposition for the customer, it would be easier for them to do it the old way," he reasoned. And the best way to do that was "to do something that simply cannot be done any other way."
And that's what ultimately led to books. There weren't any huge mail-order book catalogs simply because a good catalog would contain thousands, if not millions of listings. The catalog would need to be as big as a phone book--too expensive to mail. That, of course, made it perfect for the Internet, which is the ideal container for limitless information.
Bezos needed to learn the book business fast. Fate was his handmaiden: the American Booksellers Association's annual convention was set for the very next day in Los Angeles. He flew out and spent the weekend roaming the aisles and taking a crash course in the business. Everything he learned encouraged him. The two big wholesalers for books were Ingram and Baker & Taylor. "So I went to their booths and told them I was thinking of doing this." Books, it turns out, are among the most highly databased items on the planet. The wholesalers even had CD-ROMs listing them. It seemed to Bezos as if all the stuff "had been meticulously organized so it could be put online."
Bezos realized he desperately wanted to start his own online bookstore. First he talked it over with MacKenzie. She too had graduated from Princeton, but six years after him; they met at Shaw, where she worked as a researcher. An English-literature major at the university, she had been novelist Toni Morrison's assistant and now had begun a novel of her own. MacKenzie was all for the adventure.
Next Bezos went to Shaw, who said he was sorry to lose such a talented executive but fully understood Bezos' desire to strike out on his own. He cautioned him to make sure, however, that this was what he truly wanted to do. Bezos decided to spend the next two days recalculating the risks.
In his typically analytic way, Bezos cast his decision in what he calls the "regret-minimization framework." He imagined that he was 80 years old and looking back at his life. And suddenly everything became clear to him. When he was 80, he'd never regret having missed out on a six-figure Christmas bonus; he wouldn't even regret having tried to build an online business and failed. "In fact, I'd have been proud of that, proud of myself for having taken that risk and tried to participate in that thing called the Internet that I thought was going to be such a big deal. It was like the wild, wild West, a new frontier. And I knew that if I didn't try this, I would regret it. And that would be inescapable."
Bezos figured that the average Net start-up had a 1 in 10 chance of success; he gave himself a 30% chance. "That's actually a very liberating expectation, expecting to fail," he says. That's exactly what he told his first investors--family and friends: "I think there's a 70% chance you're going to lose all your money, so don't invest unless you can afford to lose it."
"When he called and said he wanted to sell books on the Internet, we said, 'The Internet? What's that?'" remembers Mike Bezos, who initially questioned his son's sanity when he heard him say he was quitting his cushy job to start a company that would probably fail. But this was Jeff, after all, and his parents trusted him and believed in him every moment of his life. In the end, "we talked about it for two minutes," says Jackie Bezos. They ponied up $300,000, a huge chunk of the money they had saved for retirement. "We didn't invest in Amazon," says his mother, "we invested in Jeff." The ROJ--return on Jeff-- was substantial. Today, as 6% owners of the company, they're billionaires.
On July 4 weekend, Jeff and MacKenzie flew out to Fort Worth, Texas, bid goodbye to his family and headed for Seattle--a city near one of the two big book wholesalers and chockfull of the kinds of Net-savvy people he'd need to hire. MacKenzie drove a 1988 Chevy Blazer that Mike Bezos donated, while Jeff tapped out a business plan on a laptop. On that road trip West, somewhere near the Grand Canyon, Bezos called a lawyer who specialized in start-ups. What do you plan to call your company, the lawyer asked. Bezos liked the sound of Abracadabra, but the word was a little long. "So I said, 'Cadabra,'" he recalls. "Cadaver?" repeated the lawyer. A few weeks later, Bezos changed the name to Amazon Inc., after the seemingly endless South American river.
The most important person Bezos hired was probably the first: Shel Kaphan, a brilliant programmer in Santa Clara, Calif., and veteran of a dozen start-ups, many of them, in fact, failures. Bezos persuaded him, over the course of a few months, to join his company in Seattle.
His "company" was headquartered in a modest two-bedroom home that Jeff and MacKenzie rented in Bellevue, a Seattle suburb. They converted the garage into a work space and brought in three Sun workstations. Extension cords snaked from every available outlet in the house to the garage, and a black hole gaped through the ceiling--this was where a potbellied stove had been ripped out to make more room. To save money, Bezos went to Home Depot and bought three wooden doors. Using angle brackets and 2-by-4s, he hammered together three desks, at a cost of $60 each. (That frugality continues at Amazon to this day; every employee sits behind a door desk.) MacKenzie agreed to work with the crew a few days a week, helping out with accounting and interviewing--the latter chore often conducted, cheekily, in a nearby Barnes & Noble.
By June 1995 a rudimentary website had been created on a hidden site (www.amazon.com:99, now defunct), and 300 friends and family members were sworn to secrecy and invited to crash-test it. "The first time I saw the site, I said to myself, 'Wow, this is it,'" recalls Shaw. It was simple, functional and wonderful. Kaphan's code was incredibly elegant and streamlined, allowing pages to be delivered without delay.
On July 16, 1995, Amazon.com opened its site to the world. Bezos simply told all 300 beta testers to spread the word. During the first 30 days, without any press, Amazon sold books in all 50 states and 45 other countries. "Within the first few days, I knew this was going to be huge," says Bezos. "It was obvious that we were onto something much bigger than we ever dared to hope."
The company grew and grew and grew. It grew so fast that it surprised him how little he knew. "No plan survives its first encounter with reality," he says. One night, while Bezos was on his knees complaining about how sore he was from packing, he said to a co-worker, "You know what we need? Kneepads!" The employee looked at him like he was an idiot. "What we need," the co-worker said evenly, "is packing tables."
In May 1996, Amazon landed on the front page of the Wall Street Journal. The story did two things: it introduced Amazon to a whole new stream of customers, and it caught the attention of rivals like Barnes & Noble and Borders Group, which hadn't yet moved online. Barnesandnoble.com would appear a year later--just before Amazon's initial public offering, which went off at a modest $18 a share. Never mind that the celebrated venture-capital firm Kleiner Perkins Caufield & Byers was its biggest institutional investor before the IPO. Wall Streeters were afraid of the threat posed by the giant Barnes & Noble, whose national network of bookstores looked unbeatable, prompting George Colony, president of Forrester Research, a prominent technology-analysis firm, to pronounce the company "Amazon.toast." Other naysayers referred to it as "Amazon.org"--".org" being a domain name reserved for nonprofit companies. But Barnesandnoble.com did nothing to stall Amazon's amazing sales.
The stock began to move too, propelling Bezos' personal wealth into the tens of millions, then into the hundreds of millions. And then, when analyst Henry Blodget, now with Merrill Lynch, said he believed Amazon was a $400-a-share company, Bezos became another Rockefeller. As of last week, his shares were worth $10.5 billion.
Ah, but money ... Who cares about that? Bezos has cashed in less than $25 million worth of his stock, but that's enough to live well on, come what may. He and his wife live in a sprawling, single-story modern home in the suburbs north of Seattle.
Bezos is beyond talking about his wealth or whether Amazon will be successful. Instead, he talks about a "nirvana" state of consumer service, in which you'll come to Amazon, and the one thing you've been looking for all your life will be featured on the page that day. You may not even know you've been looking for the thing or that it even exists, but since the site is so familiar with your consumption habits, it knows.
If the world goes his way, Bezos could become even richer than his neighbor Bill Gates. Then what? "At some point," he says, giving MacKenzie a hug as the two of them stand around in the kitchen, "we want to figure out how to do philanthropic work that's highly leveraged. It's very easy to give away money ineffectively. But doing it well requires at least as much attention and energy as building a successful company."
He says the trick to solving some of the world's problems is to think, Amazon-like, in the long term. "Say you want to solve world hunger. If you think in terms of a five-year time frame, you get really depressed; it's an intractable problem. But if you say, well, let's see how we could solve this in 100 years--it's a problem because you'll be dead by then, but the solution becomes more tractable."
"Anyway," he adds quickly, self-deprecatingly, in probably the same way he told people his start-up had only a 30% chance of success, "it'll be a long time before we build a lasting company." And then he laughs and laughs and laughs.
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