The Everything Store: Jeff Bezos and the Age of Amazon (27 page)

So when Bezos pulled Wilke out of an operating review in late 2006, Wilke wasn’t expecting to hear that that holiday season would be his last in the world of logistics. Bezos wanted Wilke to take over the entire North American retail division, and Wilke was charged with finding his own replacement. Wilke thought that Amazon’s progress in its FCs had plateaued, so instead of promoting from within the ranks of Amazon’s logistics executives, all of them molded, as he was, by the dogma of Six Sigma, Wilke went looking for someone with a fresh approach and additional international experience.

The search led him to Marc Onetto, a former General Electric executive with a thick French accent and a gift for animated storytelling. Under Onetto’s watch, engineers once again rewrote elements of Amazon’s logistics software and devised a computer system, called Mechanical Sensei, that simulated all the orders coursing through Amazon’s fulfillment centers and predicted where new FCs would most productively be located. Onetto also shifted Amazon’s focus toward lean manufacturing, another management philosophy that emanated from Toyota and was directed at eliminating waste and making practical changes on the shop floor. Japanese consultants occasionally came to work with Amazon, and they were so unimpressed and derogatory that Amazon employees gave them a nickname: the insultants.

Though Amazon was intensely focused on its software and systems, there was another key element of its distribution system—the low-wage laborers who actually worked in it. As Amazon grew throughout the decade, it hired tens of thousands of temporary employees each holiday season and usually kept on about 10 to 15 percent of them permanently. These generally low-skilled workers,
toiling for ten to twelve dollars an hour in places where there were few other good jobs, could find Amazon to be a somewhat cruel master. Theft was a constant problem, as the FCs were stocked with easily concealable goodies like DVDs and jewelry, so the company outfitted all of its FCs with metal detectors and security cameras and eventually contracted with an outside security firm to patrol the facilities. “They definitely viewed everyone as someone who could potentially steal from them,” says Randall Krause, an associate who worked at the Fernley FC in 2010. “I didn’t really take it personally because probably a lot of people actually were stealing.”

Amazon tried to combat employee delinquency by using a point system to track how workers performed their jobs. Arriving late cost an employee half a point; failing to show up altogether was three points. Even calling in sick cost a point. An employee who collected six such demerits was let go. “They laid out their expectations and if you didn’t meet them, they had people waiting to take your job,” says Krause. “They wouldn’t give you a second chance.”

Over the years, unions like the Teamsters and the United Food and Commercial Workers tried to organize associates in Amazon’s U.S. FCs, passing out flyers in the parking lots and in some cases knocking on the doors of workers’ homes. Amazon’s logistics executives quickly met these campaigns by engaging with employees and listening to complaints while making it clear that unionizing efforts would not be tolerated. The sheer size of Amazon’s workforce and the fact that turnover is so high in the fulfillment centers make it extremely difficult for anyone to organize workers. Most recently, in 2013, workers at two Amazon FCs in Germany went on strike for four days, demanding better pay and benefits. The company refused to negotiate with the union.

The unions themselves say there’s another hurdle involved—employees’ fear of retribution. In January 2001, the company closed a Seattle customer-service call center, as part of a larger round of cost-cutting measures. Amazon said closing the facility was unrelated to recent union activity there, but the union involved was not
so sure. “The number one thing standing in the way of Amazon unionization is fear,” says Rennie Sawade, a spokesman for the Washington Alliance of Technology Workers. Employees are “afraid they’ll fire you—even though it’s technically not legal. You’re the one who has to fight to get your job back if they do.”

Amazon often had to contend with something even more unpredictable than stealing, unionization, or truancy in its FCs: the weather. Company managers learned quickly that they had no choice but to install air-conditioning in their first fulfillment centers in Phoenix, where the summers were brutal, but they skimped on what they viewed as an unnecessary expense in colder climates. Instead, fulfillment-center managers developed protocols to deal with heat waves. If temperatures spiked above 100 degrees, which they often did over the summer in the Midwest, five minutes were added to morning and afternoon breaks, which were normally fifteen minutes long, and the company installed fans and handed out free Gatorade.

These moves sound almost comically insufficient, and they were. In 2011, the
Morning Call,
an Allentown newspaper, published an exposé about poor working conditions in Amazon’s two Lehigh Valley fulfillment centers during that summer’s brutal heat wave. Fifteen workers suffered heat-related symptoms and were taken to a local hospital. An emergency room doctor called federal regulators to report an unsafe working environment. In a detail that struck many readers and Amazon customers as downright cruel, the newspaper noted that Amazon paid a private ambulance company to have paramedics stationed outside the FCs during the heat wave—ready to deal with employees as they dropped.

Jeff Wilke argues that Amazon’s overall safety record, as reflected in the low number of incidents reported to the Occupational Safety and Health Administration, or OSHA, demonstrates that it is safer to work in the company’s warehouses than in department stores. (The low number of recorded complaints to OSHA regarding Amazon facilities backs up this contention.
³
) In terms of public perception, though, it didn’t matter. The report sent shock waves
through the media, and the following year, battered by the negative publicity, Amazon announced it was paying $52 million to install air-conditioning in more of its fulfillment centers.
⁴

Bezos and Wilke could battle chaos, they could try to out-engineer it, but they could never eradicate it completely. The capricious and unpredictable quirks of human nature always managed to emerge in unexpected ways, like in December of 2010, when a disgruntled employee set a fire in a supply room in Fernley. Employees were evacuated and had to stand out in the cold shivering for two hours before being sent home, according to two employees who were there. That same year in Fernley, a worker preparing to quit hoisted himself onto a conveyor belt and took a long joyride through the facility. He was subsequently escorted out the door.

Perhaps the best story stems from the busy holiday season of 2006. A temporary employee in the Coffeyville, Kansas, fulfillment center showed up at the start of his shift and left at the end of it, but strangely, he was not logging any actual work in the hours in between. Amazon’s time clocks were not yet linked to the system that tracked productivity, so the discrepancy went unnoticed for at least a week.

Finally someone uncovered the scheme. The worker had surreptitiously tunneled out a cavern inside an eight-foot-tall pile of empty wooden pallets in a far corner of the fulfillment center. Inside, completely blocked from view, he had created a cozy den and furnished it with items purloined from Amazon’s plentiful shelves. There was food, a comfortable bed, pictures ripped from books adorning the walls—and several pornographic calendars. Brian Calvin, the general manager of the Coffeyville FC, busted the worker in his hovel and marched him out the door. The man left without argument and walked to a nearby bus stop; sheepish, one might imagine, but perhaps also just a little bit triumphant.

CHAPTER 7

A Technology Company, Not a Retailer

On July 30, 2005, Amazon celebrated its tenth anniversary at a gala at Seattle’s Benaroya Hall. Authors James Patterson and Jim Collins and screenwriter Lawrence Kasdan spoke to employees and their guests, and Bob Dylan and Norah Jones performed and sang a rare duet, Dylan’s “I Shall Be Released.” The comedian Bill Maher acted as master of ceremonies. Marketing vice president Kathy Savitt had persuaded Bezos to splurge on the historic moment, and, characteristically, they organized everything in such a way that it had a benefit for customers: the concert was streamed live on Amazon.com and watched by a million people.

Despite how far Amazon.com had come, it was still often a media afterthought. It was now officially the age of Google, the search-engine star from Silicon Valley. Google cofounders Larry Page and Sergey Brin were rewriting the story of the Internet. Their high-profile ascent, which included an IPO in 2004, was universally watched. Suddenly, clever online business models and experienced CEOs from traditional companies were passé in Silicon Valley, replaced by executives with deep technical competence.

This, it seemed, was to be the era of Stanford computer science PhDs, not Harvard MBAs or hedge-fund whiz kids from Wall Street, and the outside world did not believe Amazon would fare
well in this profound shift. In the year leading up to its birthday celebration, Amazon’s stock fell 12 percent as Wall Street focused on its slender margins and the superior business models of other Internet companies. Eighteen of the twenty-three financial analysts who covered the company at the time of the anniversary event expressed their skepticism by putting either a hold or a sell rating on Amazon’s stock. The market capitalization of eBay, still viewed as a perfect venue for commerce, was three times larger than Amazon’s. Google’s valuation was more than four times Amazon’s, and it had been public for less than a year. Fixed-price online retail was simply out of vogue.

Ever since the late 1990s, Bezos had been claiming that Amazon was a technology company pioneering e-commerce, not a retailer. But that sounded like wishful thinking. Amazon still collected a vast majority of its revenues by selling stuff to customers. Despite Bezos’s protestations, Amazon looked, smelled, walked, and quacked like a retailer—and not a very profitable one at that.

A week after the tenth-anniversary show, the
New York Times
published a lengthy article on the front page of its Sunday business section that suggested Bezos was no longer the right man for the job.
¹
“It’s time for Mr. Bezos to do as the founders of so many other technology companies have done before him: find a professionally trained chief executive with a deep background in operations to take the reins,” said an analyst quoted prominently in the piece.

The rise of Google did more than shift the mind-set of Wall Street and the media. It posed a new set of challenges to Amazon. Rather than just hopping on Amazon.com and looking for products, Internet users were starting their shopping trips on Google, putting an unwelcome intermediary between Jeff Bezos and his customers. Google had its own e-commerce ambitions and early on opened a comparative shopping engine, dubbed Froogle. Even worse, both Amazon and eBay had to compete with each other to advertise alongside Google results for popular keywords like
flat-screen TV
and
Apple iPod.
They were essentially paying a tax to
Google on sales that began with a search. To make this new kind of advertising more efficient, Amazon devised one of the Web’s first automated search-ad-buying systems, naming it Urubamba, after a river in Peru, a tributary of the Amazon. But Bezos was wary of helping Google develop tools that it might then extend to Amazon’s rivals. “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.”

Google competed with Amazon for both customers and talented engineers. After its IPO, the search giant opened an office in Kirkland, a twenty-minute drive from downtown Seattle. Google offered its employees lavish perks, like free food, office gyms, and day care for their children, not to mention valuable stock options. For its part, Amazon offered a sickly stock price and a combative internal culture, and employees still had to pay for their own parking and meals. Not surprisingly, Google began to suck engineers out of Amazon en masse.

During this time, Bezos relentlessly advocated for taking risks outside of Amazon’s core business. Between 2003 and 2005, Amazon started its own search engine and devised a way to allow customers to search for phrases inside books on the site. Bezos also helped to pioneer the modern crowd-sourcing movement with a service called Mechanical Turk and laid the groundwork for Amazon Web Services—a seminal initiative that ushered in the age of cloud computing.

Bezos battled a reaction that he dubbed the institutional no, by which he meant any and all signs of internal resistance to these unorthodox moves. Even strong companies, he said, tended to reflexively push back against moves in unusual directions. At quarterly board meetings, he asked each director to share an example of the institutional no from his or her own past. Bezos was preparing his overseers to approve what would be a series of improbable, expensive, and risky bets. He simply refused to accept Amazon’s fate as an unexciting and marginally profitable online retailer.
“There’s only one way out of this predicament,” he said repeatedly to employees during this time, “and that is to invent our way out.”

Bezos was certain that Amazon needed to define itself as a technology company instead of a retailer, so he started hiring technologists and giving them obscure job titles. In 2001, he lured Apple veteran and renowned user-interface expert Larry Tesler to Amazon and called him vice president of shopping experience. The next year, he hired a Stanford-educated machine-learning professor named Andreas Weigend and dubbed him chief scientist. Neither did particularly well under Bezos’s demanding tutelage and both quickly grew tired of Seattle. Weigend lasted only sixteen months at Amazon, Tesler a little over three years. Then Bezos found a technologist who thought just as grandly as he did about ways Amazon could branch out in new directions.