The Everything Store: Jeff Bezos and the Age of Amazon (19 page)

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.

Amazon introduced the service, called Free Super Saver Shipping, in January 2002 for orders above $99. In the span of a few months, that number dropped to $49, and then to $25. Super Saver Shipping would set the stage for a variety of new initiatives in the years ahead, including the subscription club Amazon Prime.

Not everyone was happy with this outcome. After that meeting, Warren Jenson took Greeley aside and berated him, in that moment seeing free shipping as nothing but another potential balance-sheet buster.

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. The company reached incredible levels of attrition in 2002 and 2003. “The number of employees at that point other than Jeff who thought he could turn it into an eighty-billion-dollar company—that’s a short list,” says Doug Boake, who departed for the Silicon Valley startup OpenTable. “He just never stopped believing. He never blinked once.”

They all had their reasons. David Risher left to teach at the University of Washington’s business school. Joel Spiegel wanted to spend more time with his three teenage kids before they left home. Mark Britto wanted to get back to the Bay Area. Harrison Miller
was exhausted and needed a change. Chris Payne left for Microsoft, where he would help launch the Bing search engine, after which he would end up as a top executive at eBay. And on and on.

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.”

Bezos never despaired over the mass exodus. One of his gifts, his colleagues said, was being able to drive and motivate his employees without getting overly attached to them personally. But he did usually make time in his calendar for a private meeting with exiting executives. Harrison Miller told Bezos at their parting lunch that the accomplishment at Amazon he was most proud of was the platform-services business with large retailers, which was responsible for a third of Amazon’s cash flow in 2002. “Yeah, but don’t forget, you built our first toy store and it was great,” Bezos said, another indication he remained more focused on his long-term goal of unlimited selection than on his short-term revenue-boosting partnerships, however lucrative.

At his going-away meeting, Brian Birtwistle wrote a list on a cocktail napkin of his favorite moments at Amazon. Bezos and Birtwistle took a picture with the napkin and recalled their drive from Harvard’s business school to the Boston airport. “This whole journey started with a car ride and what a ride it’s been,” Bezos said.

Bezos wasn’t always so sentimental. Christopher Zyda, Amazon’s treasurer, defected to eBay, and, in a throwback to Walmart’s lawsuit over poaching, Amazon sued eBay in federal court, alleging that Zyda was violating the noncompete clause in his employment contract. The lawsuit, like the Walmart poaching case against
Amazon, was settled with no consequential damages. 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.

The elevated competition between the two companies put at least one person in an awkward position: Scott Cook, Intuit’s founder, was still on the boards of both companies. Now it was clear he would need to cut ties with one of them. He chose to leave Amazon and stick with eBay. “Jeff was angry, but not at me,” Cook says. “He was angry at himself for not stopping me when I said I wanted to join the eBay board in the first place. He doesn’t like losing.”

Warren Jenson also left. Amazon’s CFO explained that he wanted to return to his wife and children, who were still living in Atlanta, and that the time was right because Amazon was finally clear of its most serious financial challenges. This was almost certainly not the whole story.

Jenson and Bezos were at loggerheads. Jenson had tried to placate angry investors by getting the company to profitability. He raised the last round of capital from European bonds at a critical time and forced Bezos to make tough decisions when the company’s runway was getting short. But he also pushed to raise prices and campaigned against free shipping. “I would never claim to be perfect,” he says. “I always tried to do what was right for the business.”

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. The evidence for the pro-Jenson case is difficult to dismiss. “Warren was the right CFO for the time,” says Dave Stephenson, a finance exec who worked for him at Amazon. “He forced hard decisions and hard debates. He would always stand up to Jeff a little bit more directly than anyone else.”

To replace Jenson, Bezos recruited another chief financial officer from General Electric, Tom Szkutak, sealing the deal with an
impassioned two-page letter to Szkutak and his wife about the impact they could make at a historic juncture for the Internet. 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.

Perhaps the most rancorous exits in the company during this time stemmed from the intramural combat between two departments: Amazon’s editorial group and its personalization team. The editorial division, which dated back to Amazon’s earliest days, was composed of writers and editors who added a human touch to the Amazon home page and to the individual product pages. Bezos originally formed the group to cultivate the literary aura of an independent bookstore and recommend books to customers that they might not have otherwise found.

But over the years, the personalization group started to infringe on the editorial group’s turf. P13N, as it was cleverly abbreviated (there are thirteen letters between the
p
and the last
n
in
personalization
), used analytics and algorithms to generate recommendations crafted to appeal to individual customers based on their previous purchases. Over the years, P13N kept getting better. In 2001, Amazon started making suggestions based on the items customers looked at, not just the products they bought.

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.

Most editors and writers were reassigned or laid off. Susan Benson—Rufus’s owner—took a sabbatical from Amazon. When she returned, Jason Kilar, then the vice president of media, invited her to a meeting that he described ominously in e-mails as an “editorial game changer.” She knew she was in trouble. “It had a lot do with how to dismantle editorial and turn it into part of the automated universe,” Benson says. “I thought,
Yeah, my time here is done.
”

An algorithm called Amabot brought about the downfall of editorial. Amabot replaced the personable, handcrafted sections of the site with automatically generated recommendations in a standardized layout. The system handily won a series of tests and demonstrated it could sell as many products as the human editors. Soon after, an anonymous Amazon employee placed a three-line classified advertisement in the Valentine’s Day 2002 edition of the
Stranger,
an independent Seattle newspaper. It read:

DEAREST AMABOT

If you only had a heart to absorb our hatred… Thanks for nothing, you jury-rigged rust bucket. The gorgeous messiness of flesh and blood will prevail!

* * *

In January 2002, Amazon reported its first profitable quarter, posting net income of $5 million, a meager but symbolic penny per share. Marketing costs were down, international revenues from the United Kingdom and Germany were up, and sales from third-party sellers on the vaunted Amazon platform made up 15 percent of the company’s orders. The exclamation point on the accomplishment was that Amazon had turned a profit by both controversial pro forma accounting standards and conventional methods.

Amazon had finally shown the world that it wasn’t just another doomed dot-com. The stock price immediately jumped 25 percent in after-hours trading, clawing its way out of the single digits. 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.

The company wasn’t yet entirely clear of its balance-sheet problems but it was on its way. In the first quarter the following year, Amazon cleared $1 billion in sales for the first time during a non-holiday period, setting the stage for its first profitable year. In a sign of optimism, Amazon said it would prematurely redeem the bonds from its first debt round back in 1998, paying bond holders the full outstanding value of the bonds five years before their maturity date.

As they prepared to make this announcement, someone on the finance team wondered what their old foe Ravi Suria was thinking. That revived the notion of the milliravi, a significant mathematical error. Mark Peek, the chief accounting officer at the time, joked that they should find a way to use the word in their press release. Everyone loved that idea, including Bezos, and they started exchanging suggestions over e-mail. Finally, investor-relations chief Tim Stone asked Bezos if he was serious about actually doing this, and Bezos said that yes, he definitely was.

Thus, on April 24, 2003, in the press release announcing quarterly earnings, shareholders, analysts, and journalists were treated to this inexplicable headline, which doubled as a quotation attributed to Bezos: MEANINGFUL INNOVATION LEADS, LAUNCHES, INSPIRES RELENTLESS AMAZON VISITOR IMPROVEMENTS.

Taking the first letter of each word and putting them together produced
milliravi.
A few of the analysts and reporters following the company scratched their heads over the unartful prose. No one outside Amazon knew what to make of it. But for Jeff Bezos, and for the employees who stuck with their implacably demanding leader through that first critical battle, the message was clear.

They had won.

PART II

Literary Influences

CHAPTER 5

Rocket Boy

Jeff Bezos did more than just refute Ravi Suria and other skeptics during the dot-com bust. He soundly defeated them, and then he surreptitiously encoded his victory for posterity in a press release. Similarly, he did more than just outmaneuver Barnes & Noble in the marketplace—he enjoyed telling the story of how he’d held his first meetings in its coffee shops.

When Bezos’s longtime friends and colleagues try to explain his fierce competitive streak and uncommon need to best his adversaries, they often veer into the past—back almost fifty years—to the circumstances of his early childhood. Bezos grew up in a tight-knit family, with two deeply involved and caring parents, Jackie and Mike, and two close younger siblings, Christina and Mark. Seemingly, there was nothing unusual about it.

Yet for a brief period early in his life, before this ordinary childhood, Bezos lived alone with his mother and grandparents. And before that, he lived with his mother and his biological father, a man named Ted Jorgensen. Bezos himself told
Wired
magazine that he remembered when Jackie and Mike, who is technically his adoptive father, explained this situation to him when he was ten. He learned Mike wasn’t his biological father around the same time he learned
that he needed glasses. “
That
made me cry,” he said.
¹
Years later, as a college student, he confronted his mother and asked her a series of pointed questions about his birth. They both declined to discuss the details of that conversation but afterward Bezos hugged her and said, “You did a great job, Mom.”
²