The Everything Store: Jeff Bezos and the Age of Amazon (34 page)

The meetings could get tense. Hobbs, Whitehorn, and Brunner wanted to strip out complexity and make the device as streamlined and inconspicuous as possible. Bezos also wanted a simple, iconic design but insisted on adding a keyboard so users could easily search for book titles and make annotations. (He envisioned sitting in a taxi with
Wall Street Journal
columnist Walt Mossberg and keying in and downloading an e-book right there in the cab.) Bezos toted around a BlackBerry messaging device at the time and told the designers, “I want you to join my BlackBerry and my book.”

In one trip to Seattle, the designers stubbornly brought models that left out the keyboard. Bezos gave them a withering look. “Look, we already talked about this,” he said. “I might be wrong but at the same time I’ve got a bit more to stand on than you have.”

“I remember being very silent for the rest of that meeting,” Hobbs says. They complied and designed oblong buttons, based on the style of the BlackBerry, while trying to accommodate the angles that reader’s fingers might take moving across the device.

There were similar disputes about wireless connectivity. The Pentagram designers couldn’t understand how the economics of the wireless connection could work and assumed Amazon would be asking the user to pay a wireless charge every time he or she bought a book. At one point, they pitched Bezos on a process similar to the iTunes model, which required making the bookstore accessible on a PC. Bezos pushed back. “Here’s my scenario, I’m going to the airport. I need a book to read. I want to enter it into the device and download it right there from my car.”

“But you can’t do that,” Hobbs replied.

“I’ll decide what I can do,” Bezos said. “I’ll figure this out and it is not going to be a business model you understand. You are the designers, I want you to design this and I’ll think about the business model.”

Pentagram worked on Fiona through the middle of 2006, and then Lab126, which by then had hired its own designers, reclaimed the project. The Pentagram designers would feel ambivalent about the device when they finally saw it at the same time as the rest of the world. It was too cluttered with buttons, the design too confusing. After the project, Symon Whitehorn left Pentagram to go work at, of all places, Kodak. He hired Tom Hobbs as a contractor and together they created a unique digital camera that allowed picture-takers to impose on their photos the historical look of classic Kodachrome film. It presaged mobile-phone applications like Instagram, and, naturally, Kodak killed the project before it ever hit the market.

Meanwhile, after Pentagram left the Kindle project, the device seemed nearly ready and close to launching. But a litany of delays followed. E Ink sent displays from Asia, and owing to variable temperatures and humidity, batches would have low contrast or get dimmer with frequent use. Intel sold the family of XScale microprocessor chips that Kindle used to another chip company, Marvell. Qualcomm and Broadcom, two wireless-technology companies that manufactured cellular components to be used in the Kindle, sued each other in 2007, and at one point it seemed like a judge would prevent certain key Kindle parts from entering the United States. Bezos himself brought about repeated delays, finding one fault or another with the device and constantly asking for changes.

The top-secret Kindle effort dragged on for so long that it became the subject of persistent rumors inside Amazon, even though no one was supposed to know of the project’s existence. At an all-hands meeting at the Moore Theater in the fall of 2006, someone stood up and asked, “Can you tell us what Lab126 is?”

Bezos responded brusquely. “It’s a development center in Northern California. Next question.”

* * *

To give the Kindle even a remote chance of succeeding, Amazon needed e-books—lots of them. Bezos had watched the Rocketbook and later saw the Sony Reader hobbled by pitifully limited catalogs. There was simply nothing for owners of the early e-book devices to read. His goal was to have one hundred thousand digital titles, including 90 percent of the
New York Times’
bestsellers, available for download when the device went on sale. At the time, publishers had digitized only their front lists, or about twenty thousand books total. The Kindle store finally offered Bezos another chance to fulfill part of his dream of the everything store, a comprehensively stocked library that was exceedingly convenient for customers, but to get there, Amazon would have to pressure, cajole, and even threaten some of its oldest partners, a group of companies that had come to view Amazon as something other than a faithful friend.

Back in its earliest days, Amazon’s relationship with book publishers was uncomplicated and largely symbiotic. The company acquired most of its books from Ingram, Baker and Taylor, and other distributors, and on the rare occasions when the distributors didn’t have a title in stock, they bought directly from publishers. There were occasional but insignificant skirmishes during these years. Bezos often said publicly that publishers originally hated the notion of customer reviews, fearing that harsh and often anonymous online critiques could hurt sales. Publishers and the Authors Guild also complained about the appearance of third-party sellers hawking used books on the site.
¹¹

For its part, a young Amazon constantly harangued publishers for more “metadata,” the books’ supplementary information, like author biographies, comprehensive descriptions of the subject matter, and digital images of jacket covers. Still, many publishers viewed Amazon as a savior, a desperately needed counterbalance to Barnes & Noble, Borders, and Waterstones in the United Kingdom, all of which were churning out new superstores and using their size and growth to press for steeper discounts on wholesale prices.

Living in Seattle, a continent away from New York City, Bezos made few friendships in the world of book publishing. One of his rare personal connections was with Larry Kirshbaum, the CEO of the Time Warner Book Group and the high-profile minder of James Patterson and other authors. Kirshbaum believed so deeply in the Amazon mission that he had bought shares in its May 1997 initial public offering. A few months later, on a night of pounding rain in midtown Manhattan, Bezos and Kirshbaum walked six blocks from the Time-Life Building to attend a party that Rupert Murdoch was throwing for Jane Friedman, then the incoming chief executive officer of News Corporation’s HarperCollins book division. The luminaries of the publishing business, such as Random House’s then CEO Alberto Vitale and literary agent Lynn Nesbit, crowded into the Monkey Bar on Fifty-Fourth Street, with its red-leather booths and murals of gamboling chimps. For a rare night, Bezos socialized amiably with the titans of an industry that Amazon was about to irrevocably change. “It was one of those moments in your life where you remember everything,” says Kirshbaum, who would join Amazon as the head of its New York publishing division in 2011. “In fact, I think Bezos still owes me an umbrella.”

When Amazon began its all-consuming pursuit of profitability after the turn of the century, its attitude toward the rest of the book world began to change. By 2004, Amazon sold a large percentage of all books in the United States. So it aggressively sought more favorable financial terms in its deals with publishers and tried to reap some of the benefits of its growing size and significance in the industry. During these pivotal years, the steward of Amazon’s relationship with publishers, Lyn Blake, was herself a veteran of the industry, a former executive of the computer-book division of Macmillan.

Blake joined Amazon in 1999. Her first job was to establish stronger direct relationships with publishers and create standards for how they shipped packages of books to Amazon’s fulfillment centers (no Styrofoam packing peanuts, for example). Blake brought more discipline and analytics to Amazon’s book-supply chain, overseeing the creation of automated systems that purchased from whichever
source—distributor or publisher—had books in stock and offered the best price. She developed Amazon’s first co-op programs in the book category, selling prominent placement on the site to publishers who were willing to pay promotional fees. These were customary tactics for any large retailer, and Blake had seen them employed by other retail chains, to profitable effect, from her perch at Macmillan.

Blake was an anomaly at Amazon. She refused to carry a BlackBerry and left the office every day promptly at five to greet her young daughter at home. She could be a tough negotiator, and she knew her way around the Robinson-Patman Act, the 1936 antitrust law that prohibited manufacturers from selling goods to large retailers at a lower price than they sold to their smaller competitors. Having been on the other side of the negotiating table, she was sensitive to the needs of book publishers and was often their advocate inside Amazon. “My relationship with the largest publishers was very positive,” Blake says. “Of course I pushed them to do better and work harder, but when they had issues with us, I was willing to address those issues.”

Blake’s balancing act soon became difficult. In Bezos’s perennial quest to subsidize low prices for customers and finance programs like Super Saver Shipping and Prime, he pushed Blake and her team to establish more favorable financial relationships with book publishers and expand profit margins wherever they could. Bezos believed Amazon should be well compensated for the special benefits it brought to the book industry. The site carried millions of titles, not just the one hundred and fifty thousand or so that appeared on the shelves of a Barnes & Noble superstore. Unlike traditional retailers, Amazon returned few unsold books, often less than 5 percent. The big book chains regularly returned 40 percent of all the books they acquired from publishers, for full refunds, an arrangement that is nearly unique in retail.

By 2004, Amazon’s normally placid book-buying department found itself preparing for battle. Buyers received negotiating training and an education on the limits and flexibility of Robinson-Patman. Blake dutifully pushed publishers for compromises while
constantly reminding her boss that if publishers rebelled, Amazon could be hurt. “There was a period of time where inside Amazon, we were scared of how the publishing industry would take all this,” says Erick Goss, a senior manager of the books group. “Lyn was our ambassador. I credit her for maintaining these relationships.”

Amazon approached large publishers aggressively. It demanded accommodations like steeper discounts on bulk purchases, longer periods to pay its bills, and shipping arrangements that leveraged Amazon’s discounts with UPS. To publishers that didn’t comply, Amazon threatened to pull their books out of its automated personalization and recommendation systems, meaning that they would no longer be suggested to customers. “Publishers didn’t really understand Amazon. They were very naïve about what was going on with their back catalog,” says Goss. “Most didn’t know their sales were up because their backlist was getting such visibility.”

Amazon had an easy way to demonstrate its market power. When a publisher did not capitulate and the company shut off the recommendation algorithms for its books, the publisher’s sales usually fell by as much as 40 percent. “Typically it was about thirty days before they’d come back and say, Ouch, how do we make this work?” says Christopher Smith, a senior book buyer at the time.

Bezos kept pushing for more. He asked Blake to exact better terms from the smallest publishers, who would go out of business if it weren’t for the steady sales of their back catalogs on Amazon. Within the books group, the resulting program was dubbed the Gazelle Project because Bezos suggested to Blake in a meeting that Amazon should approach these small publishers the way a cheetah would pursue a sickly gazelle.

As part of the Gazelle Project, Blake’s group categorized publishers in terms of their dependency on Amazon and then opened negotiations with the most vulnerable companies. Three book buyers at the time recall this effort. Blake herself said that Bezos meant the cheetah-and-gazelle analogy as a joke and that it was carried too far. Yet the program clearly represented something real—an emerging realpolitik approach toward book publishers, an attitude
whose ruthlessness startled even some Amazon employees. Soon after the Gazelle Project began, Amazon’s lawyers heard about the name and insisted it be changed to the less incendiary Small Publisher Negotiation Program.

Publishers were horrified by this. The company they had once viewed as a welcome counterbalance to the book chains was now constantly presenting new demands. The demands were introduced quite persuasively in the form of benefits to be passed on to Amazon’s customers, but even that could sound ominous. When Amazon passed on savings to customers in the form of shipping deals or lower prices, it had the effect of increasing the pressure on physical bookstores, including independent bookshops, and adding to Amazon’s growing market power.

Around this time, Amazon representatives made the rounds asking publishers to submit titles for its Search Inside the Book program. Meanwhile, Google had begun scanning library books without the permission of copyright owners, part of a massive effort to make the world’s literary output available online as a research tool. In 2005, the Authors Guild and the Association of American Publishers filed dual lawsuits against Google in federal court. This was a separate drama with its own convoluted legal backstory, but it amplified some book publishers’ growing anxiety: they risked losing control of their own business to the well-capitalized Internet companies on the West Coast, who seemed to approach the cerebral pursuit of bookselling with all the literary nuance one might find in an algorithm.

Lyn Blake left Amazon in early 2005. She had achieved unexpected financial success and wanted to devote more time to her family. She admits that she also saw an approaching rupture in Amazon’s relationships with book publishers. “Maybe I was feeling like it was going to go that way,” she says. “I like to do business where both parties feel like they are going to get something valuable out of it, which means future negotiations can take place in a civilized way.”