The Everything Store: Jeff Bezos and the Age of Amazon (9 page)

From New York, Bezos called into the Amazon office on the day of the IPO and asked employees not to overcelebrate the moment or obsess over the stock price. Henry Weinhard’s beer, an inexpensive local brew, was passed around the Seattle offices and then everyone
went back to work, although they all occasionally stole furtive glances at Amazon’s stock price.

Later that month, everyone who worked on the IPO received a wooden box containing a bottle of tequila. On the bottle was a label with an invitation to a “Fiesta Mexicana,” a weekend at the Palmilla Resort in Los Cabos, Mexico, courtesy of Frank Quattrone and Deutsche Bank technology group.

Bezos, MacKenzie, Joy Covey, Shel Kaphan, and Nicholas Lovejoy attended, as did Jeff Blackburn, the Deutsche Bank associate and former Dartmouth College linebacker who would soon join Amazon and become its chief of business development. The weekend included a day cruise, during which Quattrone taught Bezos the Macarena, and the two men, despite a significant height difference, danced next to each other on the ship’s deck. One night there was an opulent dinner on the beach, and the bankers showed up in pirate regalia. Toward the end of the evening, storm winds started to gust and the ocean grew choppy. An errant wave came onto the shore and washed over electrical cables, shorting out the stereo equipment and sending a dessert tray crashing to the sand. As the partygoers scurried for shelter, a happy Bezos surveyed the scene, his laugh cutting through the Mexican night.

In early 1997, while Amazon was fending off the world’s biggest bookstore chain, Covey and Bezos courted Rick Dalzell, a former U.S. Army Ranger. A native of Georgetown, Kentucky, Dalzell had spent the 1980s as a signal engineer stationed in Fort Gamble and then as a communications officer in West Germany. After returning to civilian life, he eventually went to work in the information-systems division of the most technologically sophisticated retailer in the world: Walmart.

With his cheerful demeanor, southern drawl, and penchant for wearing shorts year-round, Dalzell became one of Amazon’s most loved and respected executives. But at first, he turned Bezos and Covey down—repeatedly. When he visited Seattle that spring, the airline lost his luggage, so Dalzell borrowed a coat and tie from the
bellman’s desk at his hotel. Then he showed up early to the Amazon offices, and no one was there; unlike Walmart’s staff, Amazon employees worked late and slept late. When Bezos did get there, he and Dalzell sat down to talk, and the Amazon founder promptly spilled his entire cup of coffee right onto Dalzell’s borrowed jacket.

Despite the awkward start, Dalzell left Seattle intrigued with Bezos’s vision and geeky charisma. But back in Bentonville, Arkansas, Dalzell was easily turned around by Walmart execs. From the front seat of a golf cart that was zooming through a massive distribution center, Lee Scott, the future Walmart CEO who was then running logistics, told Dalzell that Amazon was a novel idea but that it had limited potential. Don Soderquist, Walmart’s chief operating officer, said that because Amazon didn’t store its own inventory—at the time, it just ordered it from distributors and then quickly shipped it back out—the model would hit a wall once it got to $100 million in sales. He also said that Dalzell was one of a dozen guys they were betting on, and he added ominously, “Should you decide to leave, you are no longer a member of the Walmart family.”

Dalzell took that advice to heart. But his infatuation with online retailing wouldn’t go away. At that time, early 1997, Walmart and Sam’s Club were taking their own first steps into the world of e-commerce, but Dalzell could see the effort did not have the company’s full backing.

Bezos didn’t give up on Dalzell or the prospect of getting another seasoned engineering executive. He kept looking elsewhere but had Covey call Dalzell’s wife, Kathryn, every few weeks and deployed John Doerr to try to exert his charm. At one point, Bezos and Covey flew to Bentonville to surprise Dalzell and invite him out for dinner. After that meal, Dalzell agreed to join Amazon—but then changed his mind. “It would take an atomic bomb to get my family out of Arkansas,” he said at the time.
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But Dalzell couldn’t get Amazon out of his head. “My wife will tell you if I’m passionate about something, I don’t stop talking about it,” he says. “One day she turned to me and said, ‘Why are you still
at Walmart?’ ” In August, he finally accepted the job, for real this time, and Walmart’s CIO stood in Dalzell’s office as he collected his belongings and then marched him out the door.

In August 1997, Dalzell started his new job as Amazon’s chief information officer and became a key member of the J Team. He was a seasoned manager, adept at hiring quickly and getting large groups to set and meet ambitious objectives. 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.”

Dalzell’s arrival that summer had a big ripple effect, and it magnified the growing anxieties of Shel Kaphan. Before the IPO, Bezos had taken his original partner for a walk, told him the company needed deeper technical management, and then asked him to become chief technology officer of Amazon. It sounded like a promotion, but in reality Kaphan would be playing an advisory role with no budget or direct responsibilities. Kaphan thought about it for a few days and then registered an objection, but according to Kaphan, Bezos said, “It’s done,” and wouldn’t talk about it anymore.

Kaphan stayed as CTO for the next few years and remained on the management team, but he was sidelined, since he no longer had any employees reporting to him or any way to influence the distribution of critical resources. And his frustration and feelings of powerlessness grew. He had built Amazon’s original systems under battle conditions, with an emphasis on frugality. Now that Amazon was approaching $60 million in sales a year, the infrastructure was a disaster. Kaphan wanted to take the time to carefully rebuild it. Bezos refused to lift his foot off the pedal and wanted all his engineers working on new features, not rewriting old ones. Then he distressed Kaphan further by approving some of Kaphan’s projects, like rebuilding Amazon’s infrastructure from scratch, but allowing other managers to direct them. Kaphan could only sit and watch.

Bezos no longer entrusted the introverted programmer with any
real management responsibility, but he did express an appreciation and a fondness for Kaphan. In the fall of 1998, Bezos told Kaphan to pack his bags and accompany him on a trip to check out a potential acquisition target. Then he surprised Kaphan with what he dubbed the Shelebration, a weekend in Hawaii to celebrate Kaphan’s four-year anniversary at Amazon. Bezos flew in colleagues and Kaphan’s family and friends and put everyone up for three days in private cabins on a Maui beach. Every attendee received an ornamental tile coaster emblazoned with a picture of Kaphan wearing a goofy
Cat in the Hat
hat.

That weekend spawned a fortuitous relationship for Bezos. One of Kaphan’s friends who came on the trip was Stewart Brand, the founder of the Whole Earth Catalog. Brand and his wife, Ryan, bonded with Bezos and MacKenzie, forging a connection that led to Bezos’s involvement in the Clock of the Long Now, an aspirational project aimed at building a massive mechanical clock designed to measure time for ten thousand years, a way to promote long-term thinking. A few years later, as a direct result of that weekend, Bezos would become the biggest financial backer of the 10,000-Year Clock and agree to install it on property he owned in Texas.

But Kaphan grimaced through the Hawaii weekend. He says he felt like “the guy getting the gold watch who has not retired yet.”

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. Rick Dalzell and Joel Spiegel were adept at the political martial arts that occurred inside big companies. 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. But he had also quietly and competently led the effort to deliver Amazon to the world back when it was only a set of uncertain predictions on Jeff Bezos’s spreadsheets.

Kaphan couldn’t imagine himself walking away, but he found
himself counting the weeks to his five-year anniversary at the company, when he was scheduled to get the last portion of his stock. He eventually stopped going into the office altogether. He officially stayed at Amazon until the fall of 1999 and then called Bezos one morning from home to say he was quitting. Kaphan recalls that Bezos said he was sorry Kaphan felt that he needed to make that decision and made little effort to persuade him to stay.

Bezos would describe Kaphan as “the most important person ever in the history of Amazon.com.”
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But Kaphan felt bitter resentment about his five-year odyssey. He calls Bezos’s decision to remove him from active participation in Amazon “a betrayal of a sacred trust” between people who had started a business together and says that the way he was treated “was one of the biggest disappointments of my entire life.”

It was a distilled version of the dissatisfaction felt by many early Amazon employees. 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. Watching the company move on without them gave these employees a gnawing sensation, as if their child had left home and moved in with another family. But in the end, as Bezos made abundantly clear to Shel Kaphan, Amazon had only one true parent.

CHAPTER 3

Fever Dreams

In early 1997, Jeff Bezos flew to Boston to give a presentation at the Harvard Business School. He spoke to a class taking a course called Managing the Marketspace, and afterward the graduate students pretended he wasn’t there while they dissected the online retailer’s prospects. At the end of the hour, they reached a consensus: Amazon was unlikely to survive the wave of established retailers moving online. “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.

Brian Birtwistle, a student in the class, recalls that Bezos was humble and circumspect. “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.”

After the class, only a few students went to talk to Bezos, far fewer than the crush that greeted most speakers. One of those students was Jason Kilar (who would spend the next nine years scaling the executive ranks at Amazon before taking over as chief executive of the video site Hulu). By the time Birtwistle got to him, Bezos had to leave for the airport, so the professor of the class suggested that
Birtwistle give him a ride. “Great,” Bezos agreed. “I can save on cab fare.”

During the fifteen-minute drive, Bezos assumed Birtwistle was interested in a job and started to interview him. “Why do you want to work at Amazon.com?” he asked.

Birtwistle hadn’t prepared for an interview but he played along anyway. “I’m a student of history,” he said. “If I’m able to join a company like yours at this early stage, I’d feel like I get to participate in something historic.”

Bezos almost started yelling. “That is exactly how we think at Amazon.com! You watch. There will be a proliferation of companies in this space and most will die. There will be only a few enduring brands, and we will be one of them.”

After a few moments of silence, Bezos asked, “So, why are manhole covers round?”

“Jeff, if you want to get to the airport on time, you cannot ask me a question like that.”

Bezos let loose a gunfire burst of laughter, startling Birtwistle, who almost veered off the highway. “No, seriously,” Bezos said. “How would you solve that problem?”

“They’re round because it makes them easier to roll into place?”

“That is incorrect, but it is not a bad guess,” Bezos said.
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When Birtwistle graduated from Harvard, he joined Amazon, along with Kilar and Andy Jassy, who years later would run Amazon’s pioneering cloud business. They were among the first business-school graduates hired at Amazon, which had previously favored local, technical talent. They were also a handy resource for Bezos at a crucial juncture in the company’s history.

In early 1998, the doomed broomball pioneer and marketing executive Mark Breier brought Bezos findings from a survey that showed a significant majority of consumers did not use Amazon.com and were unlikely to start simply because they bought very few books. Bezos, Breier says, did not seem overly concerned with the depressing math behind America’s literary interests. He told Breier to
organize the new Harvard Business School graduates into a “SWAT team” to research categories of products that had high SKUs (the number of potentially stockable items), were underrepresented in physical stores, and could easily be sent through the mail. This was a key part of Amazon’s early strategy: maximizing the Internet’s ability to provide a superior selection of products as compared to those available at traditional retail stores. “I brought him very bad news about our business, and for some reason, he got excited,” Breier says.

Bezos now felt expansion into new categories was urgent. In customers’ minds, the Amazon brand meant books only. He wanted it to be more malleable, like Richard Branson’s Virgin, which stood for everything from music to airlines to liquor. Bezos also needed Amazon to generate the kind of returns that would allow him to invest in technology and stay ahead of rivals. “By that time, Jeff had done the math on a legal pad and knew this had to happen. It was go really big or go home,” says Joel Spiegel, a vice president of engineering who had spent time at Microsoft and Apple.