The Everything Store

Bezos’s Philosophy

When you are eighty years old, and in a quiet moment of reflection narrating for only yourself the most personal version of your life story, the telling that will be most compact and meaningful will be the series of choices you have made. In the end, we are our choices. —Jeff Bezos, commencement speech at Princeton University, May 30, 2010…

“We are genuinely customer-centric, we are genuinely long-term oriented and we genuinely like to invent. Most companies are not those things. They are focused on the competitor, rather than the customer. They want to work on things that will pay dividends in two or three years, and if they don’t work in two or three years they will move on to something else. And they prefer to be close-followers rather than inventors, because it’s safer. So if you want to capture the truth about Amazon, that is why we are different. Very few companies have all of those three elements.”

The narrative fallacy, Bezos explained, was a term coined by Nassim Nicholas Taleb in his 2007 book The Black Swan to describe how humans are biologically inclined to turn complex realities into soothing but oversimplified stories.

Amazon’s rise might be that sort of impossibly complex story. There was no easy explanation for how certain products were invented, such as Amazon Web Services, its pioneering cloud business that so many other Internet companies now use to run their operations. “When a company comes up with an idea, it’s a messy process. There’s no aha moment,”

Bezos had closely studied several wealthy businessmen and that he particularly admired a man named Frank Meeks, a Virginia entrepreneur who had made a fortune owning Domino’s Pizza franchises. Bezos also revered pioneering computer scientist Alan Kay and often quoted his observation that “point of view is worth 80 IQ points”—a reminder that looking at things in new ways can enhance one’s understanding. “He went to school on everybody,” Minor says. “I don’t think there was anybody Jeff knew that he didn’t walk away from with whatever lessons he could."

"It’s easier to invent the future than to predict it.” —Alan Kay…

She had Rufus in tow, and Bezos quietly studied the corgi. “You are a very sweet dog, Rufus,” he said. Then he looked up at Benson. “But you know, he is not bold.” Bezos used that word a lot: bold. In the company’s first letter to its public shareholders, written collaboratively by Bezos and Joy Covey and typed up by treasurer Russ Grandinetti in early 1998, the word bold was used repeatedly. “We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages,” they wrote. “Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.” The letter also stated that the company would make decisions based on long-term prospects of boosting free cash flow and growing market share rather than on short-term profitability, and one section in particular served as a guidepost for the unorthodox way the company planned to approach Wall Street.

He gave Blue Origin a coat of arms and a Latin motto, Gradatim Ferociter, which translates to “Step by Step, Ferociously.” The phrase accurately captures Amazon’s guiding philosophy as well. Steady progress toward seemingly impossible goals will win the day. Setbacks are temporary. Naysayers are best ignored.

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.

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 predicted they would be good over the long term but said that he didn’t want to repeat “Steve Jobs’s mistake” of pricing the iPhone in a way that was so fantastically profitable that the smartphone market became a magnet for competition. The comment reflected his distinctive business philosophy. Bezos believed that high margins justified rivals’ investments in research and development and attracted more competition, while low margins attracted customers and were more defensible.

The Innovator’s Dilemma, by Harvard professor Clayton Christensen. Christensen wrote that great companies fail not because they want to avoid disruptive change but because they are reluctant to embrace promising new markets that might undermine their traditional businesses and that do not appear to satisfy their short-term growth requirements.

Amazon’s founder repeatedly suggested he had little reverence for the old “gatekeepers” of the media, whose business models were forged during the analogue age and whose function it was to review content and then subjectively decide what the public got to consume. This was to be a new age of creative surplus, where it was easy for anyone to create something, find an audience, and allow the market to determine the proper economic reward. “Even well meaning gatekeepers slow innovation,” Bezos wrote in his 2011 letter to shareholders. “When a platform is self-service, even the improbable ideas can get tried, because there’s no expert gatekeeper ready to say ‘that will never work!’ And guess what—many of those improbable ideas do work, and society is the beneficiary of that diversity.”

Bezos has gradually worn down employees, investors, and a skeptical public and turned them toward his way of thinking. Any process can be improved. Defects that are invisible to the knowledgeable may be obvious to newcomers. The simplest solutions are the best. Repeating all these anecdotes isn’t rote monotony—it’s calculated strategy. “The rest of us try to muddle around with complicated contradictory goals and it makes it harder for people to help us,” says his friend Danny Hillis. “Jeff is very clear and simple about his goals, and the way he articulates them makes it easy for others, because it’s consistent. “If you look at why Amazon is so different than almost any other company that started early on the Internet, it’s because Jeff approached it from the very beginning with that long-term vision,” Hillis continues. “It was a multidecade project. The notion that he can accomplish a huge amount with a larger time frame, if he is steady about it, is fundamentally his philosophy.”

Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.

These are not fever dreams. They are near inevitabilities. It’s an easy prediction to make—that Jeff Bezos will do what he has always done. He will attempt to move faster, work his employees harder, make bolder bets, and pursue both big inventions and small ones, all to achieve his grand vision for Amazon—that it be not just an everything store, but ultimately an everything company. Amazon may be the most beguiling company that ever existed, and it is just getting started. It is both missionary and mercenary, and throughout the history of business and other human affairs, that has always been a potent combination. “We don’t have a single big advantage,” he once told an old adversary, publisher Tim O’Reilly, back when they were arguing over Amazon protecting its patented 1-Click ordering method from rivals like Barnes & Noble. “So we have to weave a rope of many small advantages.” Amazon is still weaving that rope. That is its future, to keep weaving and growing, manifesting the constitutional relentlessness of its founder and his vision. And it will continue to expand until either Jeff Bezos exits the scene or no one is left to stand in his way.

I think Jeff is one of the most capable and effective founders ever, and I think the Amazon juggernaut is still in its early stages.

…when asked why there was so much animosity toward Amazon in the book world, Bezos was unapologetic. “The Internet is disrupting every media industry, Charlie,” he said. “You know, people can complain about that, but complaining is not a strategy.”

Bezos Family Origins

Theodore John Jorgensen was a circus performer and in the 1960s was one of Albuquerque’s best unicyclists.

Miguel’s mother fretted about his moving to the frigid climate of el norte, so she and his sister knitted him a sweater from old rags. Miguel wore it to the airport. (The sweater is now framed and hanging on the wall of his home in Aspen.) His mother had to drop him off at the curb and then park in a nearby lot to watch the plane take off. But the family figured this was temporary and would last only until the political situation stabilized and everything reverted to normal. Miguel Bezos arrived in Miami in 1962, sixteen years old and alone. He knew only one word in English: hamburger.

Jeff and his siblings grew up observing their father’s tireless work ethic and his frequent expressions of love for America and its opportunities and freedoms. Miguel Bezos, who later began going by the name Mike, acknowledges that he may have also passed on a libertarian aversion to government intrusion into the private lives and enterprises of citizens.

He also reluctantly played football, barely clearing the league weight limit but getting named defensive captain by the team coach because he could memorize the plays and remembered where everyone on the field was supposed to stand.

Gise, who had been a lieutenant commander in the U.S. Navy during World War II, was in many ways Bezos’s mentor. He instilled in Bezos the values of self-reliance and resourcefulness, as well as a visceral distaste for inefficiency. “There was very little he couldn’t do himself,” Jackie Bezos says of her father. “He thought everything was something you could tackle in a garage.”

He brought him to the local Cotulla library, where over successive summers Bezos made his way through a sizable collection of science-fiction books…

Pop Gise taught Bezos checkers and then soundly and repeatedly defeated him, despite Jackie’s pleading with him to let Jeff win a match. “He’ll beat me when he’s ready to,” her father said.

”Jeff, one day you’ll understand that it’s harder to be kind than clever.”

Jackie Bezos prevailed on local school officials to let her son into the middle school’s gifted program despite the fact that the program had a strict one-year waiting period. The officials had been reluctant, so she forced them to examine the boy’s work, which changed their minds.7 “You want to account for Jeff’s success, look at Jackie,” says Bezos’s childhood friend Joshua Weinstein. “She’s the toughest lady you’ll ever meet and also the sweetest and most loyal.”

Bezos had dreams of becoming an inventor like Thomas Edison, so his mother patiently shuttled him back and forth and back again to a local Radio Shack to buy parts for a succession of gadgets: homemade robots, hovercrafts, a solar-powered cooker, and devices to keep his siblings out of his room. “I was constantly booby-trapping the house with various kinds of alarms and some of them were not just audible sounds, but actually like physical booby traps,”

“He was excruciatingly focused,” says Weinstein, who lived around the corner and became one of Bezos’s best friends (the two are still close). “Not like mad-scientist focused, but he was capable of really focusing, in a crazy way, on certain things. He was extremely disciplined, which is how he is able to do all these things.”

That morning, when Mike Bezos got to work, he discovered a handwritten letter from his son in his briefcase. He still carries the letter in his briefcase today.

…high-school friends say he was ridiculously competitive. He collected awards for best science student at his school for three years and best math student for two, and he won a statewide science fair for an entry concerning the effects of a zero-gravity environment on the housefly. At some point, he announced to his classmates his intention to become the valedictorian of his 680-student class, and he crammed his schedule with honors courses to bolster his rank. “The race [for the rest of the students] then became to be number two,” says Josh Weinstein. “Jeff decided he wanted it and he worked harder than anybody else.”

Jeff’s high-school girlfriend, says he was exceedingly creative and quite a romantic.

“Whatever image he had of his own future, it always involved becoming wealthy,” Ursula Werner says. “There was no way to get what he wanted without it.” What exactly did he want? “The reason he’s earning so much money,” Werner told journalists who contacted her in the 1990s, seeking to understand the Internet magnate, “is to get to outer space.”

…right at the height of the world’s skepticism about the future prospects of Amazon, Bezos secretly started an entirely new company devoted to space exploration and registered it with the state of Washington.

NASA is a national treasure, and it’s total bull that anyone should be frustrated by NASA. The only reason I’m interested in space is because they inspired me when I was five years old. How many government agencies can you think of that inspire five year olds? The work NASA does is technically super-demanding and inherently risky, and they continue to do an outstanding job. The ONLY reason any of these small space companies have a chance of doing ANYTHING is because they get to stand on the shoulders of NASA’s accomplishments and ingenuity. If you want a specific example: consider that all these companies use extremely sophisticated computer codes for analyzing things like structures, heat flows and aerodynamics, which codes were developed (over many years and meticulously tested against physical reality) by NASA!

“I didn’t know where he was, if he had a good job or not, or if he was alive or dead,” he says. The face of his child, frozen in infancy, has been stuck in his mind for nearly half a century. Jorgensen says that he always wanted to reconnect with his son—whatever his occupation or station—but he blames himself entirely for the collapse of his first marriage and is ashamed to admit that, all those years ago, he agreed to stay out of his life. “I wasn’t a good father or a husband,” he says. “It was really all my fault. I don’t blame Jackie at all.” Regret, that formidable adversary Jeff Bezos worked so hard to outrun, hangs heavily over the life of his biological father.

Bezos’s silence on the topic of his long-lost biological father is unsurprising: he is far more consumed with pressing forward than looking back.

Fala was startled to hear Bezos’s notorious, honking laugh. It was the same unrestrained guffaw that had once echoed off the walls of Fala’s childhood home, though over the past few years it had gradually been inhibited by emphysema. “He has Ted’s laugh!” Fala says in disbelief. “It’s almost exact.”

In a short but heartfelt e-mail, sent to Jorgensen’s stepson because Jorgensen himself does not use the Internet, Bezos tried to put the old man at ease. He wrote that he empathized with the impossibly difficult choices that his teenage parents were forced to make and said that he had enjoyed a happy childhood nonetheless. He said that he harbored no ill will toward Jorgensen at all, and he asked him to cast aside any lingering regret over the circumstances of their lives. And then he wished his long-lost biological father the very best.

The family can hire drivers; they can buy limousines and private airplanes. Yet they still own a modest Honda, albeit a larger model than the Accord of a decade ago, and MacKenzie often delivers their four children to school and then drives her husband to work.

Before Amazon

The broader financial community knew very little about D. E. Shaw, and its polymath founder wanted to keep it that way. The firm preferred operating far below the radar, deploying private capital from wealthy investors such as billionaire financier Donald Sussman and the Tisch family, and keeping its proprietary trading algorithms out of competitors’ hands. Shaw felt strongly that if DESCO was going to be a firm that pioneered new approaches to investing, the only way to maintain its lead was to keep its insights secret and avoid teaching competitors how to think about these new computer-guided frontiers.

Shaw brought an exacting sensibility to the management of his company. He regularly sent out missives instructing employees to spell the firm’s name in a specific manner—with a space between the D. and the E. He also mandated that everyone use a canonical description of the company’s mission: it was to “trade stocks, bonds, futures, options and various other financial instruments”—precisely in that order. Shaw’s rigor extended to more substantive matters as well: any of his computer scientists could suggest trading ideas, but the notions had to pass demanding scientific scrutiny and statistical tests to prove they were valid.

While the rest of Wall Street saw D. E. Shaw as a highly secretive hedge fund, the firm viewed itself somewhat differently. In David Shaw’s estimation, the company wasn’t really a hedge fund but a versatile technology laboratory full of innovators and talented engineers who could apply computer science to a variety of different problems.5 Investing was only the first domain where it would apply its skills.

(Bezos also liked to say in speeches during Amazon’s early years that it was the Web’s “2,300 percent” annual growth rate that jolted him out of complacency. Which makes for an interesting historical footnote: Amazon began with a math error.)

…it was seeing their accomplished son leave a well-paying job on Wall Street to pursue an idea that sounded like utter madness. Jackie Bezos suggested to her son that he run his new company at night or on the weekends. “No, things are changing fast,” Bezos told her. “I need to move quickly.”

Founding Amazon

Bezos built the first two desks out of sixty-dollar blond-wood doors from Home Depot, an endeavor that later carried almost biblical significance at Amazon, like Noah building the ark.

Bezos drove down to Portland, Oregon, to take a four-day course on bookselling sponsored by the American Booksellers Association, a trade organization for independent bookstores.

Bezos told his parents there was a 70 percent chance they could lose it all. “I want you to know what the risks are, because I still want to come home for Thanksgiving if this doesn’t work,” he said.

There was little urgency to their efforts, at least at first. Kaphan recalls showing up at the Bellevue house early one morning in October, only to have Bezos declare that they were all going to take the day off to go hiking. “The weather was changing and the days were getting short,” Kaphan says. “We were all new to the area and hadn’t seen much of it.” Bezos, MacKenzie, and Kaphan drove seventy miles to Mount Rainier and spent the day wandering amid patches of snow on the majestic volcano…

“At first it didn’t really have a lot of the energy one stereotypically associates with a startup,” says Davis, who biked to Bellevue each day wearing Gore-Tex socks over the cuffs of his trousers. “We were pre-startup. It was just Shel, myself, and Jeff in an office, sitting around a table with a whiteboard and discussing how to divide the programming work.” One of their driving goals was to create something superior to the existing online bookstores, including Books.com, the website of the Cleveland-based bookstore Book Stacks Unlimited. “As crazy as it might sound, it did appear that the first challenge was to do something better than these other guys,” Davis says. “There was competition already. It wasn’t as if Jeff was coming up with something completely new.”

Amazon had its first official warehouse in part of that building’s basement: a two-hundred-square-foot windowless room that was once a band practice studio and still had the words Sonic Jungle spray-painted on a jet-black door. Soon after, Bezos and MacKenzie left the Bellevue…

One early challenge was that the book distributors required retailers to order ten books at a time. Amazon didn’t yet have that kind of sales volume, and Bezos later enjoyed telling the story of how he got around it. “We found a loophole,” he said. “Their systems were programmed in such a way that you didn’t have to receive ten books, you only had to order ten books. So we found an obscure book about lichens that they had in their system but was out of stock. We began ordering the one book we wanted and nine copies of the lichen book. They would ship out the book we needed and a note that said, ‘Sorry, but we’re out of the lichen book.’ “4…

He wanted to value the fledgling firm at $6 million—an aggressive valuation that he had seemingly picked out of thin air. And he told investors the same thing he told his parents: the company had a 70 percent chance of failing.

“He swept me off my feet,” Dillon says. “He was so convinced that what he was doing was basically the work of God and that somehow the money would materialize. The real wild card was, could he really run a business? That wasn’t a gimme. Of course, about two years later I was going, ‘Holy shit, did we back the right horse!’ ”

…thought he was a little bit crazy,” says Lovejoy. “At the time we offered 1.5 million books. Only about 1.2 million of those you could actually order. The database came from Baker and Taylor and we had about forty books in the warehouse.”

By any measure, the acquisition of Junglee was a failure. All of Junglee’s founders and most of its employees left Amazon by the end of 1999 to return to the Bay Area. But the deal nevertheless produced an extraordinarily bounteous outcome—for Bezos. Unbeknownst to the founders of Junglee at the time, Ram Shriram was quietly advising two PhD students at Stanford—Larry Page and Sergey Brin—who were trying to reimagine search on the Internet. In February 1998, Shriram had become one of the first four investors who backed the hopeful little company, Google, with $250,000 each. Six months after that investment, over the summer of 1998, Bezos and MacKenzie were in the Bay Area for a camping trip with friends, and Bezos told Shriram that he wanted to meet the Google guys.

Revealing once again his utter faith in passionate entrepreneurs’ power to harness the Internet, Bezos immediately told Shriram that he wanted to personally invest in Google. Shriram told him the financing round had closed months ago, but Bezos insisted and said he wanted the same deal terms as other early investors. Shriram said he would try to get it done. He later went back to the Google founders and argued that Bezos’s insight and budding celebrity could help the fledgling firm, and they agreed. Brin and Page flew to Seattle and spent an hour with Bezos at Amazon’s offices talking about technical issues like computer infrastructure. “Jeff was very helpful in some of those early meetings,” Larry Page says. Thus did Jeff Bezos become one of the original investors in Google, his company’s future rival, and four years after starting Amazon, he minted an entirely separate fortune that today might be worth well over a billion dollars.

Recruiting Talent

Lovejoy pleaded his case, arguing he was ready to sign up for sixty hours a week like everyone else, but he couldn’t change Bezos’s mind. Bezos even asked him to find a full-time employee to replace himself, which seemed particularly cruel. Eventually Lovejoy gave him a stack of résumés, and he put his own at the top.

Bezos felt that hiring only the best and brightest was key to Amazon’s success.

And if the potential employees made the mistake of talking about wanting a harmonious balance between work and home life, Bezos rejected them. Paul Davis was incredulous. Amazon at the time was offering about sixty thousand a year in salary, stock options of questionable value, a meager health plan with a high deductible, and an increasingly frenetic work pace. “We would look at him and ask, How do you think you’re ever going to attract anyone with that kind of background to a company that has no revenue and that is not projected to have any kind of revenue?” Davis said. “I don’t see what the selling point is here!” Little by little, the CEO with the piercing laugh, thinning hair, and twitchy demeanor revealed his true self to his employees. He was unusually confident, more stubborn than they had originally thought, and he strangely and presumptuously assumed that they would all work tirelessly and perform constant heroics. He seemed to keep his ambitions and plans very close to the vest, not revealing much even to Kaphan. When his goals did slip out, they were improbably grandiose. Though the startup’s focus was clearly on books, Davis recalls Bezos saying he wanted to build “the next Sears,” a lasting company that was a major force in retail.

Miller knew nothing about toy retailing, but in a pattern that would recur over and over, Bezos didn’t care. He was looking for versatile managers—he called them “athletes”—who could move fast and get big things done. Miller was given a single lieutenant, Brian Birtwistle, and just eight months to get a toy business up and running before the holiday crush.

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.

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.”

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.

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.

That year, more than a dozen Walmart employees moved to Amazon.

John Doerr joked that he could no longer safely travel to the state. The case was a symbolic shot across the bow and was ultimately settled with no damages. But it brought the bubbling tensions between the reigning retail champion and the brash online upstart into the open. Some people were unhappy about this. Rick Dalzell’s wife, Kathryn, was upset that her new community was now at war with her old one. Dalzell happened to mention that to Bezos, and soon after, Bezos and MacKenzie stopped by Dalzell’s home with flowers and a copy of Sam Walton’s autobiography, Sam Walton: Made in America. Bezos had imbibed Walton’s book thoroughly and wove the Walmart founder’s credo about frugality and a “bias for action” into the cultural fabric of Amazon. In the copy he brought to Kathryn Dalzell, he had underlined one particular passage in which Walton described borrowing the best ideas of his competitors. Bezos’s point was that every company in retail stands on the shoulders of the giants that came before it. The book clearly resonated with Amazon’s founder. On the last page, a section completed a few weeks before his death, Walton wrote: Could a Wal-Mart-type story still occur in this day and age? My answer is of course it could happen again. Somewhere out there right now there’s someone—probably hundreds of thousands of someones—with good enough ideas to go all the way. It will be done again, over and over, providing that someone wants it badly enough to do what it takes to get there. It’s all a matter of attitude and the capacity to constantly study and question the management of the business.

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.

One of the first questions Bezos asked Manber was “Why don’t you describe a new algorithm that you invented?” Manber did and then marveled at Bezos’s comprehension. “He not only fully understood it, but did it faster than most people. I did not expect that from a CEO. It would have taken me a month to explain it to most senior Yahoo people,” he says.

He would see Bezos once a week—an exception to the CEO’s aversion to one-on-one meetings—to review ongoing projects and brainstorm new ideas. Manber always had Bezos’s full attention, even on a day when they met just a few hours before Amazon’s quarterly earnings announcement.

Piacentini’s old boss Steve Jobs had expressed incredulity at the move in his typically strident way. Over lunch in the Apple cafeteria in Cupertino, Jobs asked Piacentini why he would possibly want to go to a boring retailer when Apple was in the process of reinventing computing. Then in the same breath, Jobs suggested that maybe the career move revealed that Piacentini was so dumb that it was a good thing he was leaving Apple.

Rapid Expansion

…when Amazon had its first five-thousand-dollar-order day and Lovejoy wanted to throw a party, Bezos rejected the idea. “There are a lot of milestones coming and that’s not the way I want to run things,” he said.

…revenues were growing 30 to 40 percent a month, a frenzied rate that undermined attempts at planning and required such a dizzying pace that employees later found gaps in their memory when they tried to recall this formative time. No one had any idea how to deal with that kind of growth, so they all made it up as they went along.

…the company launched what could be considered its first big innovation: allowing other websites to collect a fee when they sent customers directly to Amazon to buy a book. Amazon gave these approved sites an 8 percent commission for the referral. The Associates program wasn’t exactly the first of its kind, but it was the most prominent and it helped spawn a multibillion-dollar-a-year industry called affiliate marketing.

…cash from Kleiner Perkins hit the place like a dose of entrepreneurial steroids, making Jeff more determined than ever.”12 Employees soon learned of a new motto: Get Big Fast. The bigger the company got, Bezos explained, the lower the prices it could exact from Ingram and Baker and Taylor, the book wholesalers, and the more distribution capacity it could afford. And the quicker the company grew, the more territory it could capture in what was becoming the race to establish new brands on the digital frontier. Bezos preached urgency: the company that got the lead now would likely keep it, and it could then use that lead to build a superior service for customers. Of course, that meant everyone at Amazon would have to work even harder. The assumption was that no one would take even a weekend day off. “Nobody said you couldn’t, but nobody thought you would,” says Susan Benson. Eric Benson adds, “There were deadlines and death marches.”

Smith worked so tirelessly over one span of eight months that he forgot about his light blue Peugeot station wagon that he’d parked near his apartment in Seattle’s Capitol Hill neighborhood.

Amazon took over the Columbia Building on Second Avenue in a seedy downtown neighborhood full of strip joints that was two blocks from touristy Pike Place Market. On the day the company moved in, a homeless man who’d been sleeping near the front door showed employees how to use their new key cards to gain access to the lobby.

Lovejoy suggested to Bezos that the company subsidize bus passes for employees, but Bezos scoffed at the idea. “He didn’t want employees to leave work to catch the bus,” Lovejoy says. “He wanted them to have their cars there so there was never any pressure to go home.”

That feature, called Similarities, immediately yielded a noticeable uptick in sales and allowed Amazon to point customers toward books that they might not otherwise have found. Greg Linden, an engineer who worked on the project, recalls Bezos coming into his office, getting down on his hands and knees, and joking, “I’m not worthy.”

Kaphan had taped a fortune-cookie message to the PC monitor on his desk. It read Let no one cause you to alter your code.

Bezos wanted to reinvent everything about marketing, suggesting, for example, that they conduct annual reviews of advertising agencies to make them constantly compete for Amazon’s business. Breier explained that the advertising industry didn’t work that way. He lasted about a year. Over the first decade at Amazon, marketing VPs were the equivalent of the doomed drummers in the satirical band Spinal Tap…

Risher and Bezos visited Starbucks’ CEO Howard Schultz in his SoDo headquarters—across from the Pecos Pit—and Schultz told the pair that Amazon had a big problem and that Starbucks could solve it. “You have no physical presence,” the lanky Starbucks founder said as he brewed coffee for his guests. “That is going to hold you back.” Bezos disagreed. He looked right at Schultz and told him, “We are going to take this thing to the moon.” They decided to work on a deal, but it fell apart a few weeks later when Schultz’s executives asked for a 10 percent ownership stake in Amazon and a seat on its board of directors. Bezos had been thinking along the lines of less than 1 percent.

Covey remained so intensely focused on executing Bezos’s “get big fast” imperative that everything else in her life became background noise. One morning she parked her car in the office garage and was so distracted that she inadvertently left it running—all day. That evening, she couldn’t find her car keys, concluded she had lost them, and went home without her car. The security guard in the garage called her a few hours later and told her that she might want to come back to the office to retrieve her still-idling vehicle.

During that time, no one placed bigger, bolder bets on the Internet than Jeff Bezos. Bezos believed more than anyone that the Web would change the landscape for companies and customers, so he sprinted ahead without the least hesitation. “I think our company is undervalued” became another oft-repeated Jeffism. “The world just doesn’t understand what Amazon is going to be.” In those highly carbonated years, from 1998 to early 2000, Amazon raised a breathtaking $2.2 billion in three separate bond offerings.

The portals were accustomed to receiving equity stakes for these kinds of deals, but Bezos refused to give that—he was as stingy about handing out stock as he was about allowing employees to fly business-class. Instead, he paid cash and convinced each portal to throw in a freebie: links to Amazon books within search results.

Bezos enforced strict frugality in Amazon’s daily operations; he made employees pay for parking and required all executives to fly coach. But he was surprisingly profligate in some ways.

…employees lived under Bezos’s frugal edicts while they watched in awe as he kept pushing more and more chips into the pot. Gene Pope was an early engineer at Apple who reunited at Amazon with his former colleague Joel Spiegel. After watching the wild expansion for a few months, Pope said to Spiegel, “What we are doing here is building a giant rocket ship, and we’re going to light the fuse. Then it’s either going to go to the moon or leave a giant smoking crater in the ground. Either way I want to be here when it happens.”

Bezos said he wanted a distribution system that was ten times larger than it currently was, and not just in the United States but in Amazon’s new markets in the United Kingdom and Germany. Wright asked Bezos what products they would be shipping. “He said, ‘I don’t know. Just design something that will handle anything,’ ” Wright recalls. “I’m going, You’re kidding me, right? And he said, ‘No, that is the mission.’ I had to have a solution to handle everything but an aircraft carrier.”

At Walmart, distribution centers shipped containers of products predictably, once a day, to all the stores in the surrounding area. At Amazon, there were innumerable packages going to countless destinations. And there was no predictability, because Amazon sales were growing by 300 percent a year.

Wright showed Bezos the blueprints for a new warehouse in Fernley, Nevada, thirty miles east of Reno. The founder’s eyes lit up. “This is beautiful, Jimmy,” Bezos said. Wright asked who he needed to show the plans to and what kind of return on investment he would have to demonstrate. “Don’t worry about that,” Bezos said. “Just get it built.” “Don’t I have to get approval to do this?” Wright asked. “You just did,” Bezos said.

Bezos wanted to obtain one of every product ever manufactured and store it in a distribution center. “The overarching goal was to make Amazon the first place people looked to buy anything,”

It kept getting pushed down the stack and Jeff kept reviving it. I vividly remember a large meeting where Jeff was trying to convince people that Fargo needed to be done. ‘This is the most critical project in Amazon’s history’ is pretty close to a direct quote.” Ultimately, the project faded amid other, more pressing priorities.

“for many years we were on a journey to figure out if we could get to same-day delivery.” The quest sparked a $60 million investment in Kozmo.com, which delivered everything, from snacks to video games, to a New York City customer’s doorstep.

Bezos even wondered aloud whether Amazon could hire college students on every block in Manhattan and get them to store popular products in their apartments and deliver them on bicycles. Employees were dumbstruck. “We were like, Aren’t we already worried about theft from our distribution center in Atlanta?” says Bruce Jones, an engineer who worked on DC software.

…were so outlandish that employees called them “fever dreams.” One internal initiative from that time was dubbed the Alexandria Project or, informally, Noah’s Ark. The idea was to obtain two copies of every book ever printed and store them in the new distribution center in Lexington, Kentucky. That was expensive and ever printed and store them in the new distribution center in Lexington, Kentucky. That was expensive and inefficient; most books would just sit gathering dust and taking up space, but Bezos wanted customers to be able to find any title on Amazon and get it quickly.

Amazon had to prostrate itself to suppliers for the privilege of selling the suppliers’ products. In pursuit of Star Wars action figures and other toys from the classic trilogy, Miller, Bezos, and John Doerr went to dinner with Hasbro chief executive Alan Hassenfeld at the Fairmont Hotel in San Francisco and made a pilgrimage to Lucasfilm headquarters in Marin County, north of San Francisco. “It was our first serious encounter with having to beg and plead to stock an item,” says…

“No! No! A hundred and twenty million!” Bezos yelled. “I want it all. If I have to, I will drive it to the landfill myself!” “Jeff, you drive a Honda Accord,” Joy Covey pointed out. “That’s going to be a lot of trips.”

Bezos loved it, but when he walked into the room the night before the event, he threw a tantrum: he didn’t think the piles were large enough. “Do you want to hand this business to our competitors?” he barked into his cell phone at his underlings. “This is pathetic!” Harrison Miller, Chris Payne, and their colleagues fanned out that night across Manhattan to various stores, splurging on random products and stuffing them in the trunks of taxicabs. Miller spent a thousand dollars alone at a Toys “R” Us in Herald Square. Payne maxed out his personal credit card and had to call…

Bezos claimed he was impervious to the hype, but as the dot-com frenzy intensified, he used the unique climate to hasten Amazon’s growth. If there was to be a great Internet landgrab, he reasoned, Amazon should rush to carve out the biggest parcel of territory. “We don’t view ourselves as a bookstore or a music store,” he said that year. “We want to be the place for someone to find and discover anything they want to buy.”5…

…he purchased the skeleton of an Ice Age cave bear, complete with an accompanying penis bone, for $40,000. After the company’s headquarters moved yet again over the summer, out of the deteriorating Columbia Building and into the Pacific Medical Center building, a 1930s-era art-deco hospital that sat on a hill overlooking the I-5 freeway, Bezos displayed the skeleton in the lobby. Next to it was a sign that read PLEASE DON’T FEED THE BEAR.

“In order to be a two-hundred-billion-dollar company, we’ve got to learn how to sell clothes and food,” Bezos said frequently to colleagues during this time. That figure was not randomly selected; it referred to the magnitude of Walmart’s sales in the middle years of the decade.

Going Public

Bezos believed a public offering could be a global branding event that solidified Amazon in customers’ minds. In these days, Bezos took every opportunity to appear in public and tell the story of Amazon.com. (Always Amazon.com, never Amazon; he was as insistent on that as David Shaw had been on the space between the D. and the E. in his company’s name.) Another reason Bezos pushed to go public was that competition was looming online in the form of the reigning giant of the bookselling business, Barnes & Noble.

The Riggios wore suits and came on strong. They told Bezos and Alberg that they were going to launch a website soon and crush Amazon. But they said they admired what Bezos had done and suggested a number of possible collaborations, such as licensing Amazon’s technology or opening a joint website. “They didn’t come right out and offer to buy us. It was not particularly specific,” Alberg says. “It was a pretty friendly dinner. Other than the threats.”

At seemingly every stop, investors asked the pair about possible expansion into other categories. Bezos demurred and said he was focused only on books. To burnish their case, they compared their fundamentals to Dell, the high-flying PC maker at the time. But Bezos, characteristically secretive, divulged only the legal minimum and withheld some data, like what it cost Amazon to attract a new user and how much loyal customers typically spent on the site. He wanted capital from an IPO but didn’t want to give his rivals a road map to use to follow in his footsteps. “There was a lot of skepticism on the road show,” says Covey. “A lot of people said, you are going to fail, Barnes and Noble is going to kill you, and who do you think you are not to share this stuff?” The IPO process was painful in another way: During the seven-week SEC-mandated “quiet period,” Bezos was not permitted to talk to the press. “I can’t believe we have to delay our business by seven years,” he complained, equating weeks to years because he believed that the Internet was evolving at such an accelerated rate.

…the Riggios unveiled their own website, and many seemed ready to see Amazon crushed. The CEO of Forrester Research, a widely followed technology research firm, issued a report in which he called the company “Amazon.Toast.” Straining against the regulatory shackles that required him to stay silent, Bezos wanted to send mimes wearing Amazon T-shirts to skulk around the Riggios’ launch event. Quattrone put the kibosh on the plan. Later Bezos recalled speaking at an all-hands meeting called to address the assault by Barnes & Noble. “Look, you should wake up worried, terrified every morning,” he told his employees. “But don’t be worried about our competitors because they`re never going to send us any money anyway. Let’s be worried about our customers and stay heads-down focused.”15…

Bezos had predicted that the chain retailer would have trouble seriously competing online, and, in the end, he was right.

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.

“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.”

“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.

Company Culture

…people forget that most people believed Amazon was doomed because it would not scale at a cost structure that would work. It kept piling up losses. It lost hundreds of millions of dollars.

Bezos is extremely difficult to work for. Despite his famously hearty laugh and cheerful public persona, he is capable of the same kind of acerbic outbursts as Apple’s late founder, Steve Jobs, who could terrify any employee who stepped into an elevator with him. Bezos is a micromanager with a limitless spring of new ideas, and he reacts harshly to efforts that don’t meet his rigorous standards. Like Jobs, Bezos casts a reality-distortion field—an aura thick with persuasive but ultimately unsatisfying propaganda about his company. He often says that Amazon’s corporate mission “is to raise the bar across industries, and around the world, for what it…

Bezos is an excruciatingly prudent communicator for his own company. He is sphinxlike with details of his plans, keeping thoughts and intentions private, and he’s an enigma in the Seattle business community and in the broader technology industry. He rarely speaks at conferences and gives media interviews infrequently.

PowerPoint decks or slide presentations are never used in meetings. Instead, employees are required to write six-page narratives laying out their points in prose, because Bezos believes doing so fosters critical thinking. For each new product, they craft their documents in the style of a press release. The goal is to frame a proposed initiative in the way a customer might hear about it for the first time. Each meeting begins with everyone silently reading the document, and discussion commences afterward—just like the productive-thinking exercise in the principal’s office at River Oaks Elementary.

…half a dozen door-desks, the same kind of blond wood that Bezos used twenty years ago when he was building Amazon from scratch in his garage. The door-desks are often held up as a symbol of the company’s enduring frugality.

“Amazon isn’t happening to the book business,” he likes to say to authors and journalists. “The future is happening to the book business.”)

He devotes his full attention to the conversation, and, unlike many other CEOs, he never gives you the sense that he is hurried or distracted—but…

Bezos kept coming back to the kind of culture he wanted to instill in his young but rapidly growing company. With door-desks and minimal subsidies for employee parking, he was constantly reinforcing the value of frugality. A coffee stand on the first floor of the Pac Med building handed out loyalty cards so a customer could get a free drink after his or her tenth purchase. Bezos, by now a multimillionaire, often made a deliberate show of getting his card punched or handing his free-drink credit to a colleague waiting in line next to him. Around that time, he also started traveling via a private plane, which he subleased from a local businessman. But whenever he flew with colleagues, he invariably declared…

They agreed on five core values and wrote them down on a whiteboard in a conference room: customer obsession, frugality, bias for action, ownership, and high bar for talent. Later Amazon would add a sixth value, innovation.

Bezos instituted the Just Do It award—an acknowledgment of an employee who did something notable on his own initiative, typically outside his primary job responsibilities. Even if the action turned out to be an egregious mistake, an employee could still earn the prize as long as he or she had taken risks and shown resourcefulness in the process.

Bezos drove employees even harder, calling meetings over the weekends, starting an executive book club that gathered on Saturday mornings, and often repeating his quote about working smart, hard, and long. As a result, the company was not friendly toward families, and some executives left when they wanted to have children.

…a female employee pointedly asked Bezos when Amazon was going to establish a better work-life balance. He didn’t take that well. “The reason we are here is to get stuff done, that is the top priority,” he answered bluntly. “That is the DNA of Amazon. If you can’t excel and put everything into it, this might not be the place for you.”

Bezos insisted the company needed to master anything that touched the hallowed customer experience, and he resisted any efforts to project profitability. “If you are planning for more than twenty minutes ahead in this kind of environment, you are wasting your time,” he said in meetings.

The rapid growth once again required the company to initiate the Save Santa operation. Employees said good-bye to their families and headed off on two-week shifts to staff the customer-service phone lines or work in distribution centers across the country. Frugal to the bone, Amazon packed them two to a hotel room. To some, it was the greatest experience they had ever had at the company. Others hated it and complained vociferously.

Amazon could be a deeply unhappy place to work. The stock price was flat, there were strict limits on annual raises, and the pace was unrelenting. Employees felt underpaid and overworked. When the new development centers opened in Palo Alto and elsewhere, the joke inside Amazon was that it was a necessary move because everyone in Seattle was aware of how abjectly miserable employees at the company were. In the engineering department, employees were constantly trying to fix a technical infrastructure that was now an aging, sprawling mess. The company had outgrown the original framework devised by Shel Kaphan in the 1990s, the monolithic code base dubbed Obidos that for years was held together by what Amazon executive Werner Vogels later called “duct tape and WD40 engineering.”4 And when Amazon cloned its clunky code base to run the websites of Target and Borders, those deals were lucrative but they magnified the company’s infrastructure problems. Instead of fighting flames emanating from a single building, engineers often had to deal with a neighborhoodwide inferno.

“My challenge with Amazon is finding a way to describe it without making me puke,” Yegge wrote. “But I’ll figure something out, eventually. In many ways they’re a world-class operation—primarily in ways that matter to their customers; employees, not so much. But I guess in the end it’s the customers that matter.”

The S Team was beset by a variety of internecine rivalries, perhaps typical for a large company. Raman and Piacentini, uncomfortably splitting ownership of the retail business, did not get along. Raman also battled with Jeff Wilke. At one point, Wilke heard that Raman had spoken negatively about the fulfillment team and he confronted him in a large meeting. “I heard there’s something you want to say to me,” Wilke said. “Do you want to say it in front of all these people?” Onlookers thought they might come to blows. In addition, Kathy Savitt, the vice president of communications, didn’t get along with Piacentini, and Jason Kilar, who had fully imbibed Bezos’s principles and mannerisms, had committed to run the video site Hulu but stuck around while he gave Amazon months to find his replacement. Bezos handled it all poorly; it was as if the personal dramas were happening on a different dimensional plane that he couldn’t or didn’t want to access. As a result, the S Team, according to several of its members, became a highly combustible forum, a group in which everyone felt the need to be outspoken and curry favor with the boss and where political disputes were allowed to fester.

A few days later Bezos calmed down and tried to get Manber to change his mind, but it was too late. Bezos had now lost his two closest colleagues and technical leaders, and just at the time that Amazon’s attempt to break out of retail and embrace an identity as a technology company was faltering. The general search engine at A9.com was a failure and was shut down a year after Manber left. Block View would be overtaken by Google’s Street View. Search Inside the Book was interesting but hardly a game changer, and the world’s best engineers were fleeing a poisonous Amazon culture and flocking to Google and other hot Internet companies in Silicon Valley. If Bezos was going to prove to the world that Amazon was indeed the technology company that he so desperately claimed it to be, he needed a dramatic breakthrough.

…the culture was self-perpetuating, and those who couldn’t channel Bezos’s fervor on behalf of Amazon and its customers didn’t stay with the company. Those who could do it stayed and advanced.

Goss admitted to mixed emotions about Amazon. He was proud of the difficult things he and his colleagues had accomplished. But he also found it increasingly hard to reconcile the company’s approach toward its partners with his own Christian values and says that for a year after leaving Amazon, he had post-traumatic stress disorder.

Amazon’s culture is notoriously confrontational, and it begins with Bezos, who believes that truth springs forth when ideas and perspectives are banged against each other, sometimes violently. In the ensuing scrum, Wilke and his colleagues argued that lubricants were available in grocery stores and drugstores and were not, technically, that embarrassing. They also pointed out that Amazon generated a significant volume of sales with such e-mails. Bezos didn’t care; no amount of revenue was worth jeopardizing customer trust. It was a revealing—and confirming—moment. He was willing to slay a profitable aspect of his business rather than test Amazon’s bond with its customers.

…people who do well at Amazon are often those who thrive in an adversarial atmosphere with almost constant friction. Bezos abhors what he calls “social cohesion,” the natural impulse to seek consensus. He’d rather his minions battled it out in arguments backed by numbers and passion, and he has codified this approach in one of Amazon’s fourteen leadership principles—the company’s highly prized values that are often discussed and inculcated into new hires.2 Have Backbone; Disagree and Commit Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.

LinkedIn is full of executives who left Amazon and then returned. Inside the company, this is referred to as a boomerang.

This perpetual exodus of employees hardly seems to hurt Amazon, though.

New hires are given an industry-average base salary, a signing bonus spread over two years, and a grant of restricted stock units over four years. But unlike other technology companies, such as Google and Microsoft, which spread out their stock grants evenly, Amazon backloads the grant toward the end of the four-year period. Employees typically get 5 percent of their shares at the end of their first year, 15 percent their second year, and then 20 percent every six months over the final two years.

“top-grade” their subordinates along a curve and must dismiss the least effective performers. As a result of this ongoing examination, many Amazon employees live in perpetual fear. A common experience among Amazon workers is a feeling of genuine surprise when one receives a good performance review. Managers are so parsimonious with compliments that underlings tend to spend their days anticipating their termination.

Conference-room tables are a collection of blond-wood door-desks shoved together side by side. The vending machines take credit cards, and food in the company cafeterias is not subsidized. When a new hire joins the company, he gets a backpack with a power adapter, a laptop dock, and some orientation materials. When someone resigns, he is asked to hand in all that equipment—including the backpack.

We try not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency and invention. There are no extra points for headcount, budget size or fixed expense.

“It’s scaffolding to magnify the thinking embodied by Jeff, to the greatest extent possible,” says Jeff Wilke when I bounce that theory off him. “Jeff was learning as he went along. He learned things from each of us who had expertise and incorporated the best pieces into his mental model. Now everyone is expected to think as much as they can like Jeff.”

…top executives are always modeling Bezos-like behavior. In the fall of 2012, I had dinner with Diego Piacentini at La Spiga, his favorite Italian restaurant in Seattle’s Capitol Hill neighborhood. He graciously insisted on picking up the tab, and after paying, he almost theatrically tore up the receipt. “The company is not paying for this,” he said.

Bezos had been almost religiously frugal with Amazon’s offices over the years. Not anymore. When the campus is completed, Amazon will have an iconic headquarters on par with other such tech giants as Apple, Facebook, and Google. With Rufus 2.0, it is as if Bezos finally understands that Amazon can no longer hide in plain sight.

It may very well be that the absolute intensity of drive and focus is essential and incompatible with all of the nice management thought about consensus and gentle demeanor. I think about how effective and quick Jeff was and how important it was that he didn’t slow down too much or modify his ideas to make others feel comfortable. I think about the early days and the level of clarity, vision, potential, and values that Jeff brought. And then I look at Amazon today, and reflect on some conversations I have had with him in the intervening years. It is easy to draw a straight line from the vision he had back then to the Amazon of today. There were a few little wobbles and detours in places, but really I don’t know any other company that has created such a juggernaut that is so consistent with the original ideas of the founder. It is almost like he fired an arrow and then followed that arc. Can we really think of any other company approaching Amazon’s size or age that continues to move forward with the boldness, risk-taking, innovation, and the long-term perspective that Amazon shows? Jeff’s clarity, intensity of focus, and ability to prioritize, which has no doubt become ingrained in his key team, is unusual and behind his ability to keep leaping forward versus protecting existing ground. Seeing the future, he put in place the critical DNA that would help the whole company embody his vision. His focus was on very bright, high-growth-potential and fluid-minded people, with the right values as “builders.” He looked for people that absolutely prioritized customer trust and delight, who at all times were long-term focused and driven to be bold and innovative. All of this was lived and modeled every day by Jeff and the senior team. Personal wealth was never discussed or really thought about. I see companies these days where thoughts of “exits” are foremost in the minds of top management and board, and it is so clear that this value will infect the decision making down to the smallest choice by the most junior employee. Do we create something that is good, or just that seems good and might get us acquired or funded? At Amazon it was always abundantly clear what the goals and values were, and as I reflect on discussions and decisions throughout my time there, it is easy to imagine how different so many small choices might have been otherwise. Now he has tens of thousands of employees, and I would bet a large sum that the same messages and values are still well understood and driving decisions broadly today. I also reflect on how effective the values were as a screening tool for hiring. People who were highly focused on their titles, traditional status metrics, security, or their own wealth stood out vividly in the process. We talked a lot about whether Jeff was difficult to work with. Yet Jeff attracted people like me, who really need to work on things they can internalize and adopt as mission, who had to leave the path they thought they were on, and who…

Leadership Style

“Bezos knew sales rank would be like a drug to authors,” says Greg Linden, an early Amazon engineer. “He insisted that it change whenever a new order came in.” That was not a trivial challenge. Amazon’s overloaded servers were already stretched to the limit, and its Oracle database software was not designed to handle the increasing loads generated by the swelling audience of the Web. Engineers ended up fudging it, taking snapshots of sales data and pushing new rankings to the website every few minutes. The service, called Amazon Sales Rank, was introduced in June to the consternation of not only authors, who began compulsively checking their rankings at all hours of the day and night, but also their spouses and more than a few wary editors and publishers. “I understand how addictive it can be, but maybe they could spend their time more productively, like, maybe, writing a new book,” veteran editor John Sterling said.3…

Critics charged that the idea behind 1-Click was rudimentary and that its approval by the U.S. patent office was a symptom of lazy bureaucracy and a broken patent process. Bezos didn’t altogether disagree—intellectually, he was an advocate for patent reform—but he was determined to exploit the status quo for any possible advantage. He sued Barnes & Noble for infringing on the patent in late 1999 and won a preliminary ruling that forced the bookseller to add an extra step to its checkout process. Amazon licensed the patent to Apple in 2000 for an undisclosed sum and tried to use it, ineffectively, to gain some leverage over a rising and worrisome rival that first showed up on Amazon’s radar in mid-1998: eBay.

The venture capitalists backing eBay asked around and heard that one did not work with Jeff Bezos; one worked for him.

Though Bezos often claimed that Amazon considered itself “a customer-focused company, not a competitor-focused company,“4 eBay anxiety spread. Employees exposed to a steady barrage of new economy hokum in newspapers and magazines worried not only that eBay had a better business but that fixed-price retailing itself might become a relic of the past. Late that year, Bezos initiated a secret auctions project in a sequestered space on the second floor of the Columbia Building, dubbing the effort EBS, for Earth’s Biggest Selection (or alternatively, employees joked, for eBay by spring). Bezos did not tell other employees or his directors, particularly since Scott Cook, the founder of Intuit, was on both the Amazon and…

Bezos was confident he could beat eBay, particularly since well-capitalized Amazon could afford to charge a lower listing fee to sellers and offer free fraud insurance. Foreseeing the need to marry auctions with a seamless way for buyers and sellers to exchange money, he paid $175 million to acquire the six-month-old payment firm Accept.com, which had not yet introduced an actual service but was already in the process of finalizing a deal with eBay when Bezos swooped in.

The high-tech community was getting a lesson in the dynamics of network effects—products or services become increasingly valuable as more people use them. In online marketplaces, the network effect was pervasive; sellers stuck around for access to a critical mass of buyers, and vice versa. In the auctions category, eBay already had an insurmountable advantage. Amazon’s executives remember this significant failure as painful but strangely uplifting.

The calculations showed that at its current rate, Amazon wouldn’t become profitable for decades. “It was an aha moment,” Brannon says. Bezos agreed to lift his foot from the accelerator and begin to move the company toward profitability. To mark the occasion, he took a photo of the group with his ever-present point-and-shoot digital camera and later taped the picture to the door of his office.

…the Amazon board initiated one of the biggest misadventures of the company’s first decade. The board members asked Bezos to search for a chief operating officer. Bezos eventually warmed to the idea. He believed the company should stockpile as many experienced managers as possible…

Bezos himself drew up the unorthodox new reporting structure, according to John Doerr. All Amazon executives now reported to Galli, who in turn reported to Bezos. Galli also joined the Amazon board. The J Team was renamed the S Team (the S stood for “Senior”).

Several Amazon executives from that time believe that Campbell was also given another, more secret mandate by the board: To see if Bezos should be persuaded to step aside and let Galli take over as chief executive. This was consistent with the overall philosophy in Silicon Valley at the time, which was to bring in “adult supervision” to execute the plans of a visionary founder.

Campbell himself revealingly described his role at Amazon this way in an interview with Forbes magazine in 2011: “Jeff Bezos at Amazon—I visited them early on to see if they needed a CEO and I was like, ‘Why would you ever replace him?’ He’s out of his mind, so brilliant about what he does.”11…

“He decided to spend the next umpteen years of his life building the company, as opposed to gradually withdrawing to pursue other interests,”

Apple’s founder reportedly fired employees in the elevator and screamed at underperforming executives. Perhaps there is something endemic in the fast-paced technology business that causes this behavior, because such intensity is not exactly rare among its CEOs. Bill Gates used to throw epic tantrums. Steve Ballmer, his successor at Microsoft, had a propensity for throwing chairs. Andy Grove, the longtime CEO of Intel, was known to be so harsh and intimidating that a subordinate once fainted during a performance review. Jeff Bezos fit comfortably into this mold.

If an employee did not have the right answers, or tried to bluff the right answer, or took credit for someone else’s work, or exhibited a whiff of internal politics, or showed any kind of uncertainty or frailty in the heat of battle, the vessel in Bezos’s forehead popped out and his filter fell away.

“This is not somebody who takes pleasure at tearing someone a new asshole. He is not that kind of person,” says Kim Rachmeler. “Jeff doesn’t tolerate stupidity, even accidental stupidity.”

“He had no background in control theory, no background in operating systems,” Jones says. “He only had minimum experience in the distribution centers and never spent weeks and months out on the line.” But Bezos laid out his argument on the whiteboard and “every stinking thing he put down was correct and true,” Jones says. “It would be easier to stomach if we could prove he was wrong but we couldn’t. That was a typical interaction with Jeff. He had this unbelievable ability to be incredibly intelligent about things he had nothing to do with, and he was totally ruthless about communicating it.”

Wilke and Bezos dug into the details, asking their inhumanly prescient questions. It was both inspiring and terrifying. “Those guys could be brutal,” says Mark Mastandrea. “You had to be comfortable saying, ‘I don’t know; I’ll get back to you in a couple of hours,’ and then doing it. You could not ever bullshit or make stuff up. That would be the end.”

“How can anything good be communicated in this way,” he complained. Bezos had all the new televisions in Amazon’s conference rooms immediately removed. But according to Matt Williams, a longtime Amazon manager, Bezos deliberately kept the metal mounts hanging in the conference rooms for many years, even some that were so low on the wall that employees were likely to stand up and hit them. Like a warlord leaving the decapitated heads of his enemies on stakes outside his village walls, he was using the mounts as a symbol, and as an admonition to employees about how not to behave.

As part of his ongoing quest for a better allocation of his own time, he decreed that he would no longer have one-on-one meetings with his subordinates. These meetings tended to be filled with trivial updates and political distractions, rather than problem solving and brainstorming. Even today, Bezos rarely meets alone with an individual colleague.

Every time a new feature or product was proposed, he decreed that the narrative should take the shape of a mock press release. The goal was to get employees to distill a pitch into its purest essence, to start from something the customer might see—the public announcement—and work backward. Bezos didn’t believe anyone could make a good decision about a feature or a product without knowing precisely how it would be communicated to the world—and what the hallowed customer would make of it.

“I spent most of my time trying to hide from Bezos,” Pinkham says. “He was a fun guy to talk to but you did not want to be his pet project. He would love it to distraction.”

“You could see the fact that he was getting feedback and taking it seriously,” says Diane Lye, then the director of infrastructure automation. During one memorable meeting, Bezos reprimanded Lye and her colleagues in his customarily devastating way, telling them they were stupid and saying they should “come back in a week when you figure out what you’re doing.” Then he walked a few steps, froze in midstride as if something had suddenly occurred to him, wheeled around, and added, “But great work, everyone.”

Bezos worked his subordinates to exhaustion, supplied little in the way of corporate creature comforts, and allowed many key personnel to leave without showing any remorse. But he was also capable of deeply gracious and unexpected expressions of appreciation. Dalzell had performed heroically for a decade and kept the company on track in the gloomy days when the infrastructure was a mess and Google was poaching every other engineer.

“Jeff does a couple of things better than anyone I’ve ever worked for,” Dalzell says. “He embraces the truth. A lot of people talk about the truth, but they don’t engage their decision-making around the best truth at the time. “The second thing is that he is not tethered by conventional thinking. What is amazing to me is that he is bound only by the laws of physics. He can’t change those. Everything else he views as open to discussion.”

…there’s an entirely separate kind of crisis, what some employees have informally dubbed the Sev-B. That’s when an e-mail containing the notorious question mark arrives directly from Bezos. When Amazon employees receive one of these missives, they drop everything they are doing and fling themselves at whatever issue the CEO is highlighting.

Wilke, Doug Herrington, Steven Shure (the vice president of worldwide marketing and a former executive at Time Inc.), and several other employees gathered and waited solemnly in a conference room. Bezos glided in briskly. He started the meeting with his customary “Hello, everybody,” and followed that with “So, Steve Shure is sending out e-mails about lubricants.” Bezos didn’t sit down. He locked eyes with Shure. He was clearly fuming. “I want you to shut down the channel,” he said. “We can build a one-hundred-billion-dollar company without sending out a single fucking e-mail.”

…they compromised. E-mail marketing for certain categories such as health and personal care was terminated altogether. The company also decided to build a central filtering tool to ensure that category managers could no longer promote sensitive products, so matters of etiquette were not subject to personal taste. E-mail marketing lived to fight another day.

…the company relies on metrics to make almost every important decision, such as what features to introduce or kill. Yet random customer anecdotes, the opposite of cold, hard data, also carry tremendous weight and can change Amazon policy. If one customer has a bad experience, Bezos often assumes it reflects a larger problem and escalates the resolution of the matter inside his company with a question mark.

“Every anecdote from a customer matters,” Jeff Wilke answered. “We research each of them because they tell us something about our metrics and processes. It’s an audit that is done for us by our customers. We treat them as precious sources of information.” Amazon styles itself as highly decentralized and promises that new employees can make decisions independently. But Bezos is capable of stopping any process dead in its tracks if it creates a problem for even a single customer. In the twelve months after the lube crisis, Bezos made it his personal mission to clean up the e-mail channel. Employees of that department suddenly found themselves in the hottest possible spot at Amazon: under the withering eye of the founder himself.

Bezos, though typically guarded with his personal time, stayed until the very end, catching up with former employees and surprising many of them with the intensity of his emotion. One executive, who had departed from Amazon several years before to join a rival e-commerce company, says that at the reception, Bezos approached and embraced him. The executive’s wife, who for years had heard stories of tense senior management meetings at Amazon, was shocked. Afterward, she turned to her husband and marveled, “Did Jeff Bezos just give you a hug?”

Dot-Com Crash

The deal was completed just a month before the crash of the stock market, after which it became exceedingly difficult for any company to raise money. Without that cushion, Amazon would almost certainly have faced the prospect of insolvency over the next year.

The company had exploded from 1,500 employees in 1998 to 7,600 at the beginning of 2000, and now, even Bezos agreed, it needed to take a breath. The rollout of new product categories slowed, and Amazon shifted its infrastructure to technology based on the free operating system Linux. It also began a concerted effort to improve efficiency in its far-flung distribution centers. “The company got creative because it had to,” says Warren Jenson.

…executives recall meeting privately in a conference room that year to write a list of all of Bezos’s successes and failures on a whiteboard. The latter column included Auctions, zShops, the investments in other dot-coms, and most of Amazon’s acquisitions. It was far longer than the first column…

“We were all running around the halls with our hair on fire thinking, What are we going to do?” says Mark Britto, a senior vice president. But not Jeff. “I have never seen anyone so calm in the eye of a storm. Ice water runs through his veins,” Britto says.

The Amazon we know today, with all of its attributes and idiosyncrasies, is in many ways a product of the obstacles Bezos and Amazon navigated during the dot-com crash, a response to the widespread lack of faith in the company and its leadership.

Bezos burned out many of his top executives and saw a dramatic exodus from the company. But Amazon escaped the downdraft that sucked hundreds of other similarly overcapitalized dot-coms and telecoms to their deaths.

“Up until that point, I had seen Jeff only at one speed, the go-go speed of grow at all costs. I had not seen him drive toward profitability and efficiency,” says Scott Cook, the Intuit founder and an Amazon board member during that time. “Most execs, particularly first-time CEOs who get good at one thing, can only dance what they know how…

“We believe that the company will run out of cash within the next four quarters, unless it manages to pull another financing rabbit out of its rather magical hat.”

The real danger for Amazon was that the Lehman report might turn into a self-fulfilling prophecy. If Suria’s predictions spooked suppliers into going on the equivalent of a bank run and demanding immediate payment from Amazon for their products, Amazon’s expenses might rise.

…the danger for Amazon was that in their wrongness, Suria and other Wall Street bears might prove themselves right.

In fact, times were not normal. The challenge from Suria and the dot-com collapse had changed the financial climate, and Bezos knew it. A few weeks later, Jenson and Bezos sat down to scrutinize Amazon’s balance sheet. They came to the conclusion that even if the company showed reasonable growth, its fixed costs—the distribution centers and salary rolls—were simply too big. They would have to cut even more. Bezos announced in an internal memo that Amazon was “putting a stake in the ground” and would be profitable by the fourth quarter of 2001.4…

…the company couldn’t catch a break in the press. When Amazon announced this goal publicly later in the year, it was subject to a new round of criticism for specifying that it would measure profitability using the pro forma accounting standard—which ignored certain expenses, like the costs of issuing stock options—instead of more conventional accounting methods.

Amazon had battled chaos and lived to fight another day. But it had come closer to the precipice than anyone knew. Its internal accounting was in disarray; rapid growth had led to misplaced and stolen inventory, which made it impossible to close the books on the company’s fourth quarter. Accountant Jason Child was working for Amazon’s German operation at the time but was called back to Seattle to take over as comptroller and tackle the problem. “It was the craziest quarter in Amazon’s history,” he says. The company sought outside help and hired a consultant through Ernst and Young. He came in, took a good look at the bedlam for a few weeks, and quit. Child and his colleagues had barely closed the books when the quarter ended in late January.

Bezos scrawled I am not my stock price on the whiteboard in his office and instructed everyone to ignore the mounting pessimism. “You don’t feel thirty percent smarter when the stock goes up by thirty percent, so when the stock goes down you shouldn’t feel thirty percent dumber,” he said at an all-hands meeting. He quoted Benjamin Graham, the British-born investor who inspired Warren Buffett: “In the short term, the stock market is a voting machine. In the long run, it’s a weighing machine” that measures a company’s true value. If Amazon stayed focused on the customer, Bezos declared, the company would be fine.

“That either-or mentality, that if you are doing something good for customers it must be bad for shareholders, is very amateurish,” he said in our interview that summer. The Harry Potter promotion unsettled even the executives working on it. “I was thinking, Holy shit, this is a lot of money,” says Lyn Blake, the Amazon executive in charge of books at the time. She was later inclined to admit that Bezos was right. “We were able to assess all the good press and heard all these stories from people who were meeting their deliverymen at their front doors. And we got these testimonials back from drivers. It was the best day of their lives.”

…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.

“I don’t care who you are or how much chutzpah you have,” says Warren Jenson. “It’s not fun picking up the Times and seeing your picture above the fold accused of insider trading. We are all products of what we’ve been through. This is one of the things that made Jeff the person he is. That scar does not heal easily.”

As the earthquake progressed, Killalea poked his head out, retrieved his laptop, and checked to see if the Amazon website was still running. (He would win a Just Do It award and get to keep an old ratty sneaker for that bit of bravado.)

“Books were decelerating, and everyone thought that Walmart.com would start selling books at a loss to keep us from growing.” Amazon then did something rare in its history. Warren Jenson, pushing to improve margins to meet the company’s self-imposed profitability deadline, convinced Bezos to quietly raise prices in the older media categories. Amazon reduced its discounts on bestselling books and started charging more to overseas customers who were buying from the domestic website.

Marketplace Platform

…as early as 1997, executives at Amazon were thinking about how to become a platform and augment the e-commerce efforts of other retailers. Amazon Auctions was the first such attempt, followed by zShops, the service that allowed small retailers to set up their own stores on Amazon.com. Both efforts failed in the face of eBay’s insurmountable popularity…

…by 2000, according to an internal company memo, Bezos was telling colleagues that by the time Amazon got to $200 billion in annual sales, he wanted revenues to be split evenly between sales from products it sold itself and commissions that it collected from other sellers who used Amazon.com. Ironically, it was the industrywide overreach of 1999 that finally sent Amazon down the path of becoming a platform.

The negotiations were, as was often the case when Jeff Bezos was involved, long and, according to Jon Foster, “excruciating.” When both teams met for the first time, Bezos made a big show of keeping one chair open at the conference-room table, “for the customer,” he explained.

Neither company got what it wanted, but for the moment, everyone was relieved. In August, the companies announced a ten-year partnership…

Bezos declined the offer for the same reason he kept the ghost towns of Auctions and zShops alive on the Amazon website. He wasn’t ready to give up or relinquish Amazon’s hopes of becoming a platform for small and midsized retailers. The fact that third-party selling on Amazon wasn’t working meant, to Bezos, only that it wasn’t working at that particular moment.

Traffic on Amazon was oriented around Amazon’s reliable product catalog. On eBay, a customer might search for the Hemingway novel The Sun Also Rises and get dozens of auctions of new and vintage copies. If a customer searched for the book on Amazon, there was one single page, with a definitive description of the novel, and that’s where customers flocked. Amazon executives reasoned that day that they had the Internet’s most authoritative product catalog and that they should exploit it. That, it turned out, was the central insight that not only turned Amazon into a thriving platform for small online merchants but powers a good deal of its success today.

“Jeff was super clear from the beginning,” says Neil Roseman. “If somebody else can sell it cheaper than us, we should let them and figure out how they are able to do it.”

The new strategy would result in years of tension between various divisions, between Amazon and its suppliers, and between industry trade groups and the company. Bezos didn’t care about any of that, as long as it offered more choices to customers and, in the process, gave Amazon a greater selection of products. With a single brilliant and nonintuitive strategic move, he managed to upset almost everybody, even his own colleagues. “As usual,” says Mark Britto, “it was Jeff against the world.”

“If you don’t know anything about the business, launch it through the Marketplace, bring retailers in, watch what they do and what they sell, understand it, and then get into it.”

Bezos invited O’Reilly to speak to a group of engineers, and later at an Amazon all-hands meeting, about lessons from computer history and the importance of becoming a platform.

Amazon’s own employees have compared third-party selling on the site to heroin addiction—sellers get a sudden euphoric rush and a lingering high as sales explode, then progress to addiction and self-destruction when Amazon starts gutting the sellers’ margins and undercutting them on price. Sellers “know they should not be taking the heroin, but they cannot stop taking the heroin,” says Kerry Morris, the former Amazon buyer. “They push and bitch and complain and threaten until they finally see they have to cut themselves off.”

Warehouse Deals has a selection of more than sixty Wüsthof products at steep discounts. Third-party merchants, mostly other authorized Wüsthof retailers, also sell their knives on Amazon, often through Fulfillment by Amazon, which allows the products to qualify for Prime shipping. So even when partners flee, the groundwork that Amazon has laid ensures that the hallowed shelves of the everything store are never completely bare.

Amazon and eBay had taken diametrically opposite paths. Amazon endured the pain of disrupting its own retail business with its eBay-like Amazon Marketplace, which allowed third-party sellers to list their products on the company’s single-detail pages; eBay, which had started as a third-party auctions platform, recognized that many of its customers wanted a more Amazon-like fixed-price alternative but failed to self-administer the necessary bitter medicine in a single dose. It spent two years working on a separate destination for fixed-price retail, called eBay Express, which got no traffic when it debuted in 2006 and was quickly shut down. Only then did eBay finally commit to allowing fixed-price sales to share space alongside auctions on the site and in search results on eBay.com.2 Meanwhile, Amazon invested heavily in technology, taking aggressive swings with digital initiatives like the Kindle. Amazon also focused on fixing and improving the efficiency of its fulfillment centers. EBay executives searched for high-growth businesses elsewhere, acquiring the calling service Skype in 2005, the online-ticketing site StubHub in 2007, and a series of classified-advertising websites. But it let its primary site wither. Customers became happier over time with the shopping experience on Amazon and progressively more disgruntled with the challenges of finding items on eBay and dealing with sellers who overcharged for shipping. Amazon had battled and mastered chaos; eBay was engulfed by it.

Bezos said that he did not view Amazon and eBay as fighting a winner-take-all battle. “Our job is to grow the e-commerce pie and if we do that there is going to be room for five Amazons and five eBays,” Bezos said. “I’ve never said a negative thing about eBay and I never will. I don’t want anyone to view this as a zero-sum game.” That year, eBay’s stock lost over half its market value, and in July, Amazon’s valuation surpassed eBay’s for the first time in nearly a decade.

Customer Obsession

…suggesting in a meeting that Amazon executives who traveled frequently should be permitted to fly business-class. Bezos often said he wanted his colleagues to speak their minds, but at times it seemed he did not appreciate being personally challenged. “You would have thought I was trying to stop the Earth from tilting on its axis,” Price says, recalling that moment with horror years later. “Jeff slammed his hand on the table and said, ‘That is not how an owner thinks! That’s the dumbest idea I’ve ever heard.’ “Of course everyone else was thinking [executives should be allowed to fly business-class], but I was the exposed nail in the room,” Price says.

His customer-service department tracked two important metrics: average talk time (the amount of time an employee spent on the phone with a customer) and contacts per order (the number of times a purchase necessitated a customer phone call or e-mail). Bezos demanded that Price reduce both, but that was fundamentally impractical. If a customer-service rep stayed on the phone long enough to fully solve each customer’s problem, the number of contacts per order might go down, but the average talk time would go up. If the customer-service rep tried to jump off each call quickly, average talk times would decline, but customers would be more likely to call back. Bezos didn’t care about that simple calculus. He hated when customers called at all, seeing it as a defect in the system, and he believed that customers should be able to solve their problems themselves with the aid of self-help tools.5 When they did call, Bezos wanted their queries answered promptly and their issues settled conclusively. There were no excuses. Price’s only solution was to push his team harder, but since he had limited resources to add new people, employees were burning out.

Bezos began the meeting by asking Price what the customer wait times were. Price then violated a cardinal rule at Amazon: he assured Bezos that they were well under a minute but without offering much in the way of proof. “Really?” Bezos said. “Let’s see.” On the speakerphone in the middle of the conference table, he called Amazon’s 800 number. Incongruously cheerful hold music filled the room. Bezos took his watch off and made a deliberate show of tracking the time. A brutal minute passed, then two.

Pricing Strategy

Well into retirement age, he showed no interest in slowing down. The two had plenty in common. For years Sinegal, like Bezos, had battled Wall Street analysts who wanted him to raise Costco’s prices on clothing, appliances, and packaged foods. Like Bezos, Sinegal had rejected multiple acquisition offers over the years, including one from Sam Walton, and he liked to say he didn’t have an exit strategy—he was building a company for the long term.

…but over the next hour, Bezos listened carefully and once again drew key lessons from a more experienced retail veteran. Sinegal explained the Costco model to Bezos: it was all about customer loyalty.

Costco buys in bulk and marks up everything at a standard, across-the-board 14 percent, even when it could charge more. It doesn’t advertise at all, and earns most of its gross profit from the annual membership fees. “The membership fee is a onetime pain, but it’s reinforced every time customers walk in and see forty-seven-inch televisions that are two hundred dollars less than anyplace else,” Sinegal said. “It reinforces the value of the concept. Customers know they will find really cheap stuff at Costco.”

Its vendors hadn’t been happy about being squeezed but they eventually came around. “You can fill Safeco Field with the people that don’t want to sell to us,” Sinegal said. “But over a period of time, we generate enough business and prove we are a good customer and pay our bills and keep our promises. Then they say, ‘Why the hell am I not doing business with these guys. I gotta be stupid. They are a great form of distribution.’ “My approach has always been that value trumps everything,” Sinegal continued. “The reason people are prepared to come to our strange places to shop is that we have value. We deliver on that value constantly. There are no annuities in this business.”

Sinegal doesn’t regret educating an entrepreneur who would evolve into a ferocious competitor. “I’ve always had the opinion that we have shamelessly stolen any good ideas,” he says. In 2008, Sinegal bought a Kindle e-reader that turned out to be defective and wrote Bezos a laudatory e-mail after Amazon’s customer service replaced his device for free. Bezos wrote back, “I want you to consider me your personal customer service agent on the Kindle.”

…as a result of the Sinegal meeting, Amazon announced it was cutting prices of books, music, and videos by 20 to 30 percent. “There are two kinds of retailers: there are those folks who work to figure how to charge more, and there are companies that work to figure how to charge less, and we are going to be the second, full-stop,” he said in that month’s quarterly conference call with analysts, coining a new Jeffism to be repeated over and over ad nauseam for years. Bezos had seemingly made up his mind that he was no longer going to indulge in financial maneuvering as a way to escape the rather large hole Amazon had dug for itself…

”You’ve got to decide what you’re great at,”

…when Warren Jenson asked Bezos if he should put the flywheel in his presentations to analysts, Bezos asked him not to. For now, he considered it the secret sauce.

”There can be only one head of marketing at Amazon, and his name is Jeff,”

Bezos felt that word of mouth could deliver customers to Amazon. He wanted to funnel the saved marketing dollars into improving the customer experience and accelerating the flywheel. And as it happened, at the time, Amazon was conducting an experiment that was actually working this way—free shipping.

…they got a taste of Walmart’s brand of frugality. Walmart booked them rooms at a local Days Inn. That night, Bezos, Britto, and Boake had dinner at a nearby Chili’s and walked around the historic town square.

Companies that make things and companies that sell them have waged versions of this battle for centuries. With its commitment to everyday low prices and the ingenious marriage of direct retail with a third-party marketplace, Amazon has taken these historic tensions to a new level. Like Sam Walton, Bezos sees it as his company’s mission to drive inefficiencies out of the supply chain and deliver the lowest possible price to its customers.

Executive Departures

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.”

“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.

“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.”

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.”

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.

Fulfillment Operations

…kitchen knives would fly down the conveyor chutes, free of protective packaging. Amazon’s internal logistics software didn’t properly account for new categories, so the computers would ask workers whether a new toy entering the warehouse was a hardcover or a paperback book.

…in moving quickly to satisfy Bezos’s open-ended goal to store and ship everything, they had created a system that was expensive, unreliable, and hungry for an emergency influx of employees from Seattle at the end of every year. “It was a mess,” says Bruce Jones. “It was pretty much how Walmart did all their distribution centers, which was great if you had to send out five thousand rolls of toilet paper. But it was not well suited to small orders.”

Wilke set about filling the ranks of Amazon’s logistics division with scientists and engineers rather than retail-distribution veterans. He wrote down a list of the ten smartest people he knew and hired them all, including Russell Allgor, a supply-chain engineer at Bayer AG. Wilke had attended Princeton with Allgor and had cribbed from his engineering problem sets. Allgor and his supply-chain algorithms team would become Amazon’s secret weapon, devising mathematical answers to questions such as where and when to stock particular products within Amazon’s distribution network and how to most efficiently combine various items in a customer’s order in a single box.1…

“We were essentially assembling and fulfilling customer orders. The factory physics were a lot closer to manufacturing and assembly than they were to retail,” Wilke says. So in one of his first moves, Wilke renamed Amazon’s shipping facilities to more accurately represent what was happening there. They were no longer to be called warehouses (the original name) or distribution centers (Jimmy Wright’s name); forever after, they would be known as fulfillment centers…

Wilke’s algorithms seamlessly matched demand to the correct FC, leveling out backlogs and obviating the need for the morning phone call. He then applied the process-driven doctrine of Six Sigma that he’d learned at AlliedSignal and mixed it with Toyota’s lean manufacturing philosophy, which requires a company to rationalize every expense in terms of the value it creates for customers and allows workers (now called associates) to pull a red cord and stop all production on the floor if they find a defect (the manufacturing term for the system is andon).

…he instilled some basic discipline in the FCs. “When I joined, I didn’t find time clocks,” Wilke says. “People came in when they felt like it in the morning and then went home when the work was done and the last truck was loaded.

Wilke promised Bezos that he would reliably generate cost savings each year just by reducing defects and increasing productivity.

“I think he ate the phone.” There were various interpretations of what actually happened. Some claimed that in his rage, Wilke had inadvertently yanked the phone cord out of the wall. Others speculated that he had thrown the receiver across the room in his fury. A decade later, over lunch at an Italian brasserie near Amazon’s offices, Wilke explains that he had actually still been on the line but was simply so angry that he could no longer speak.

Now Amazon had no choice but to master the complexity of its own systems and get more out of the investments it had already made. Wilke had burned a boat in mid-voyage, and for the Amazon armada, there was no turning back. Along the way, he was exhibiting a style—leadership by example, augmented with a healthy dose of impatience—that was positively Bezosian in character. Perhaps not coincidentally, Wilke was promoted to senior vice president a little over a year after joining Amazon. Jeff Bezos had found his chief ally in the war against chaos.

“Communication is a sign of dysfunction. It means people aren’t working together in a close, organic way. We should be trying to figure out a way for teams to communicate less with each other, not more.”

Bezos vowed to run Amazon with an emphasis on decentralization and independent decision-making. “A hierarchy isn’t responsive enough to change,” he said. “I’m still trying to get people to do occasionally what I ask. And if I was successful, maybe we wouldn’t have the right kind of company.”2 Bezos’s counterintuitive point was that coordination among employees wasted time, and that the people closest to problems were usually in the best position to solve them.

In the seminal high-tech book The Mythical Man-Month, IBM veteran and computer science professor Frederick Brooks argued that adding manpower to complex software projects actually delayed progress. One reason was that the time and money spent on communication increased in proportion to the number of people on a project. Bezos and other startup founders were reacting to lessons from previous technology giants.

”Autonomous working units are good. Things to manage working units are bad.”

Each group was required to propose its own “fitness function”—a linear equation that it could use to measure its own impact without ambiguity.

Bezos wanted to personally approve each equation and track the results over time. It would be his way of guiding a team’s evolution.

The idea of fitness functions in particular appeared to clash with some fundamental aspects of human nature—it’s uncomfortable to have to set the framework for your own evaluation when you might be judged harshly by the end result. Asking groups to define their own fitness functions was a little like asking a condemned man to decide how he’d like to be executed. Teams ended up spending too much time worrying over their formulas and making them ever more complex and abstract. “Being a two-pizza team was not exactly liberating,” says Kim Rachmeler. “It was actually kind of a pain in the ass. It did not help you get your job done and consequently the vast majority of engineers and teams flipped the bit on it.”

“Was distribution a commodity or was it a core competency? If it’s a commodity, why invest in it? And when we grow, do we continue to do it on our own or do we outsource it?” If Amazon chose to outsource it, Wegner might be out of a job. “I basically saw my own career flash before my eyes,” he says.

“one by one, we unplugged our vendors’ modems and we watched as their jaws hit the floor,” says Wegner. “They couldn’t believe we were engineering our own solutions.” When Amazon later opened small facilities in places like Seattle and Las Vegas to handle easily packable items and larger fulfillment centers in Indianapolis, Phoenix, and elsewhere, it would go even further, dispensing with the pick-to-light systems and big Crisplant sorting machines altogether and instead employing a less automated approach that favored invisible algorithms. Employees would bring their totes from the shelves right to the packing stations, their movements carefully coordinated by software. Slowly, Amazon would vanquish wave-based picking, elicit more productivity from its workers, and improve the accuracy and reliability of its fulfillment centers.

“The principles and math were on our side, and I realized early on that this was a company where you can carry the day when you have the principles and math on your side, and you are patient and tenacious.”

Wilke called Jones in Seattle and said, “Bruce, turn them off.” “In twelve hours, they went from millions of pieces [from Amazon] a day to a couple a day,” says Jones, who flew to Fernley to watch the fallout. The standoff lasted seventy-two hours and went unnoticed by customers and other outsiders. In Fernley, UPS representatives told Jones they knew Amazon couldn’t keep it up and predicted that FedEx would be overwhelmed. They were likely right. But before it came to that, UPS execs caved and gave Amazon discounted rates.

The complete software rewrite of the logistics network was having its desired effect. Cost per unit (the overall expense of fulfilling the order of a particular item) fell, while ship times (how quickly merchandise ordered on the website was loaded onto a truck) shortened.

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.

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.

Amazon stocks dissimilar products next to one another to minimize the possibility of employees selecting the wrong item, but that seems unlikely to happen. Every product, shelving unit, forklift, roller cart, and employee badge has a bar code, and invisible algorithms calculate the most efficient paths for workers through the facility.

Since the company was now beginning to collect sales tax in many states, it didn’t have to sidestep nexus issues and so opened more than a dozen new fulfillment and customer-service centers around the world.

Jewelry Business

For months, Bezos was consumed by the design of the elegant wooden jewelry box that Amazon would use. “The box was everything to him,” says Randy Miller. “He wanted it to be as iconic as Tiffany’s.” Amazon contracted with celebrity socialite Paris Hilton to sell her jewelry designs exclusively on the site, and the company spent considerable resources creating a tool to let customers design their own rings on the website. Amazon’s new staff jewelers would then craft the rings over an open flame on the mezzanine of the Lexington, Kentucky, fulfillment center. Additionally, Amazon introduced a feature called Diamond Search that let customers look for individual stones based on carat, shape, and color. And in a draconian tactic that further exposed his competitive streak, Bezos instructed Amazon’s communication staff to time public announcements in the jewelry category to coincide with the quarterly reports of Seattle-based rival Blue Nile…

Amazon Prime

Bezos decided on $79 per year, saying it needed to be large enough to matter to consumers but small enough that they would be willing to try it out. “It was never about the seventy-nine dollars. It was really about changing people’s mentality so they wouldn’t shop anywhere else,”

If each expedited shipment cost the company $8, and if a shipping-club member placed twenty orders a year, it would cost the company $160 in shipping, far above the $79 fee. The service was expensive to run, and there was no clear way to break even. “We made this decision even though every single financial analysis said we were completely crazy to give two-day shipping for free,” says Diego Piacentini. But Bezos was going on gut and experience. He knew that Super Saver Shipping had changed customers’ behavior, motivating them to place bigger orders and shop in new categories. He also knew from 1-Click ordering that when friction was removed from online shopping, customers spent more. That accelerated the company’s fabled flywheel—the virtuous cycle. When customers spent more, Amazon’s volumes increased, so it could lower shipping costs and negotiate new deals with vendors. That saved the company money, which would help pay for Prime and lead back to lower prices. Prime would eventually justify its existence. The service turned customers into Amazon addicts who gorged on the almost instant gratification of having purchases reliably appear two days after they ordered them.

Prime wouldn’t reveal itself to the world as a huge success for another few years, and originally it was unpopular inside Amazon.

Almost alone, Bezos believed fervently in Prime, closely tracking sign-ups each day and intervening every time the retail group dropped promotions for the shipping club from the home page.

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.

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.”

Devitt, then an analyst for the investment bank Stifel Nicolaus, spotted these shifts earlier than most and upgraded the stock from hold to buy in January 2007.1 He changed his rating on the same day a Merrill Lynch adviser offered the far more conventional analysis that Amazon’s margins were hopeless and that it could not make any money. “I was laughed out of portfolio managers’ offices,” Devitt says. “People were ripping apart every component of my investment thesis. At that point, they thought Amazon was some kind of nonprofit scam.” Inside Amazon, the pain endured over the previous seven years was paying off. Prime, the two-day shipping service, was an engine spinning the company’s flywheel ever faster. Amazon customers who joined Prime doubled, on average, their spending on the site…

Amazon was stealing customers from other Internet players and likely even from the offline chains. During 2007, as investors came to understand the salubrious effects of Prime, Amazon’s stock jumped 240 percent—only to fall all the way back down again in the ensuing financial crisis and global recession.

Bezos rationalized the giveaway by saying that it sustained and even complemented the seventy-nine-dollar fee for Prime at a time when customers were buying fewer DVDs. But Prime Instant Video played another role. Amazon was now providing, as a supplementary perk, something Reed Hastings and his colleagues at Netflix priced at five to eight dollars a month.

Amazon Web Services

…observers suggested that Amazon’s retail business was so seasonal—booming during the holiday months—that Bezos had decided to rent his spare computer capacity during the quieter periods. But that explanation is widely debunked by Amazon insiders, in part because it would require Amazon to kick developers off its servers every fall. The shift to offering these infrastructure services actually began with the transition to Gurupa and a more reliable technology infrastructure, a process that gathered momentum in 2003. While Amazon’s internal systems had been broken down into more durable individual components, Amazon’s technical staff was still organized conventionally as a single team, headquartered in a separate office building downtown near Seattle’s Union Station. This group strictly controlled who could access Amazon’s servers, and various teams inside the company had to plead for resources to try out their new projects and features. The process slowed down and frustrated many Amazon project managers.

The company had improved on its pick-to-light system in the FCs, and its infrastructure had been successfully recast into component services, but the provisioning of computer resources remained a bottleneck. It got so dysfunctional that project leaders would present the S Team with their six-page narratives and then in the discussion afterward admit they had been unable to actually test their projects.

If Amazon wanted to stimulate creativity among its developers, it shouldn’t try to guess what kind of services they might want; such guesses would be based on patterns of the past. Instead, it should be creating primitives—the building blocks of computing—and then getting out of the way. In other words, it needed to break its infrastructure down into the smallest, simplest atomic components and allow developers to freely access them with as much flexibility as possible. As Bezos proclaimed at the time, according to numerous employees: “Developers are alchemists and our job is to do everything we can to get them to do their alchemy.”

…while working on the S3 project, he frequently had difficulty grasping just how big Bezos was thinking. “He had this vision of literally tens of thousands of cheap, two-hundred-dollar machines piling up in racks, exploding. And it had to be able to expand forever,” Atlas says. Bezos told him, “This has to scale to infinity with no planned downtime. Infinity!” During one meeting, Atlas blundered by suggesting they could figure out how to keep up with any unexpected growth after the service launched. That triggered a Bezos nutter. “He leaned toward me and said, ‘Why are you wasting my life?,’ and went on a tirade about Keystone Cops,” Atlas says. “That was real anger. I wasn’t keeping up with him. There were a number of times like that. He was so far ahead of us.”

Atlas had commemorative T-shirts made up for his colleagues; he used the design of Superman’s costume but with an S3 rather than an S on the chest. Naturally, he had to pay for the shirts himself.

At a time when Amazon was having difficulty hiring engineers and needed to accelerate its international expansion, “Why would we go into this business?” “Because we need it as well,” Bezos replied, suggesting that Amazon’s demand for such a service reflected the broader market need. Jassy remembers Doerr telling him after the meeting that he was lucky to work at a company that would invest in something so daring.

…they happened to tell Bezos about the Agreya patent, and he was immediately interested and asked for it to be included in the overall deal. Seeing an opportunity to conclude the arrangement, they quickly agreed to sell it to him. To their surprise, Bezos then actually developed a version of Project Agreya inside Amazon. He renamed it Mechanical Turk, after an eighteenth-century chess-playing automaton that concealed a diminutive man—a chess master—who hid inside and guided the machine’s moves.

…and show off his own curious attempts to crystallize abstract concepts. He called Mechanical Turk “artificial, artificial intelligence”

Bezos wanted AWS to be a utility with discount rates, even if that meant losing money in the short term. Willem van Biljon, who worked with Chris Pinkham on EC2 and stayed for a few months after Pinkham quit in 2006, proposed pricing EC2 instances at fifteen cents an hour, a rate that he believed would allow the company to break even on the service. In an S Team meeting before EC2 launched, Bezos unilaterally revised that to ten cents. “You realize you could lose money on that for a long time,” van Biljon told him. “Great,” Bezos said. Bezos believed his company had a natural advantage in its cost structure and ability to survive in the thin atmosphere of low-margin businesses. Companies like IBM, Microsoft, and Google, he suspected, would hesitate to get into such markets because it would depress their overall profit margins.

Groups within Amazon were told to use AWS while the services were still immature, a demand that led to another round of consternation among its engineers.

Kindle & E-books

Bezos and Eberhard remained friendly during those years, and Bezos watched the rise and fall of the Rocketbook with more than passing interest. “I firmly believe that at some point the vast majority of books will be in electronic form,” he said in the late 1990s. “I also believe that is a long way in the future, many more than ten years in the future.”6 Bezos was underestimating the potential, perhaps intentionally. In 2004, seeking a digital strategy for Amazon amid the gathering power of a revived Apple Computer, he started a secretive Silicon Valley skunkworks with the mysterious name Lab126. The hardware hackers at Lab126 were given a difficult job: they were to disrupt Amazon’s own successful bookselling business with an e-book device while also meeting the impossibly high standards of Amazon’s designer in chief, Bezos himself.

Jobs stood up to illustrate on the conference-room whiteboard his vision of how Apple itself would sell albums and single-tracks directly from iTunes. The Amazon executives countered that surely such a music store should exist on the Web, not inside a piece of clunky desktop software that needed to be regularly updated. But Jobs wanted a consistent, easy-to-use experience that stretched from the music store all the way to the portable media player and was so simple that even unsophisticated users could operate it. “It was clear that Jobs had disdain for selling on the Web and he didn’t think anyone cared about books,” Neil Roseman says. “He had this vision for a client-application version of the iTunes store and he let us know why it had to be an end-to-end experience.” Jobs confidently predicted that Apple would quickly overtake Amazon in music sales, and he was right. In April 2003 Apple introduced the iTunes music store, and in just a few years Apple leapfrogged over, in quick succession, Amazon, Best Buy, and Walmart to become the top music retailer in the United States.

Bezos dismissed iTunes, noting that selling single-tracks for ninety-nine cents each wasn’t profitable and that Apple’s goal was only to increase sales of the iPod. This was true, but as the iPod became ubiquitous, Apple began to exploit iTunes to get into adjacent media such as video, and Amazon took a deeper look.

…several members of the team rebelled at what they viewed as a flawed approach, in part because the Janus-encoded music wouldn’t play on the iPod, which so many Amazon customers already owned. “I realized I’d rather die than launch that store,” says Erich Ringewald, a product manager who worked on the initiative. Bezos agreed to scrap the effort and start over. Meanwhile, Apple increased its lead in digital media. Amazon finally introduced the MP3 Store in 2007, featuring songs without DRM that users could freely copy. But Apple quickly negotiated the same agreements and Amazon remained a perennial straggler in music.

…friends often attribute Amazon’s tardiness in digital music to Bezos’s lack of interest in music of any kind. In high school, Bezos forced himself to memorize the call letters of local Miami radio stations in an effort to fake musical fluency in conversations with his peers.

…on the solemn road trip from Target’s offices in Minneapolis after 9/11, Bezos indiscriminately grabbed stacks of CDs from the bargain rack of a convenience store, as if they were all interchangeable. Steve Jobs, on the other hand, lived and breathed music. He was a notoriously devoted fan of Bob Dylan and the Beatles and had once dated singer Joan Baez. Jobs’s personal interests guided Apple’s strategy. Bezos’s particular passions would have the same defining impact at Amazon. Bezos didn’t just love books—he fully imbibed them, methodically processing each detail.

…books, music, and movies accounted for 74 percent of Amazon’s annual revenues that year. If those formats were inevitably transitioning to digital, as Apple’s accomplishment seemed to demonstrate, then Amazon had to move quickly to protect itself. “We were freaking out over what the iPod had done to Amazon’s music business,” says director John Doerr. “We feared that there would be another kind of device from Apple or someone else that would go after the core business: books.”

…the thing that blindsided Jeff and helped with the Kindle was the iPod, which overturned the music business faster than he thought,” says Miller. “He had always understood this stuff was going digital, but he didn’t expect to have his CD business eviscerated like that.” Bezos ultimately concluded that if Amazon was to continue to thrive as a bookseller in a new digital age, it must own the e-book business in the same way that Apple controlled the music business. “It is far better to cannibalize yourself than have someone else do…

Bezos speaking to his technical team about such a device and saying, “It’s for one-handed reading.” Upon imagining what the other hand might be doing, Weigend started to laugh out loud, and then everyone else in the small conference room did as well. “Jeff, the good kid that he is, had no idea what one-handed reading could refer to,” Weigend says.

The store was everything Bezos hated: its selection was small, its prices were high, and the customer experience of downloading titles and reading them on the screen of a PC or PDA was terrible. But Bezos, according to Piacentini, seemed determined. Despite these early flaws, e-books were clearly the future of bookselling. A few weeks into these discussions, in an S Team meeting, Bezos announced that Amazon would develop its own dedicated electronic reading device for long-form reading. It was a stunning edict. Creating hardware was expensive and complicated. It was also well outside of Amazon’s core competency—its litany of obvious skills. There was a chorus of vehement objections. Jeff Wilke in particular had the background in manufacturing to know what challenges lay ahead for the company if it tried to make and sell its own devices. “I thought it would be difficult and disruptive and I was skeptical that it was the right use of our resources,” he says. “It turned out that most of the things I predicted would happen actually happened, and we still powered through it because Jeff is not deterred by short-term setbacks.”

Bezos dismissed those objections and insisted that to succeed in books as Apple had in music, Amazon needed to control the entire customer experience, combining sleek hardware with an easy-to-use digital bookstore. “We are going to hire our way to having the talent,” he told his executives in that meeting. “I absolutely know it’s very hard. We’ll learn how to do it.”

Bezos unshackled Kessel from Amazon’s traditional media organization. “Your job is to kill your own business,” he told him. “I want you to proceed as if your goal is to put everyone selling physical books out of a job.” Bezos underscored the urgency of the effort. He believed that if Amazon didn’t lead the world into the age of digital reading, then Apple or Google would. When Kessel asked Bezos what his deadline was on developing the company’s first piece of hardware, an electronic reading device, Bezos told him, “You are basically already late.”

“We were told to do one great thing with maniacal focus,” says Tom Ryan, a software engineer from Palm whom Zehr brought over that fall. “The aspiration was to be Apple.”

He didn’t want to force customers to connect the device to a PC, so the only alternative was to build cellular access right into the hardware, the equivalent of embedding a wireless phone in each unit. Nothing like that had been tried before. Bezos insisted that customers should never have to know the wireless connection was there or even pay for access. “I thought it was insane, I really did,” Parekh says.

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’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.”

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.”

Kindle was supposed to go on sale for the 2006 holidays. But it was delayed another year as Bezos relentlessly pressured Steve Kessel and his team for fixes, new features, and a larger catalog of e-books.

…the development of the Kindle had gone on for so long, one of its Taiwanese suppliers had discontinued a key component in the wireless module. The company spent months getting a replacement.

Even after the device sold out, Bezos wanted to promote it heavily on the Amazon home page to continue educating customers and building the brand. Jeff Wilke, now head of North American retail, thought it was irresponsible to feature a product that wasn’t available, and also a waste of Amazon’s most precious real estate.

Wilke, who later conceded that Bezos was right and the short-term pain had been worth it to build the Kindle franchise. Bezos won the argument, of course, but Wilke convinced him to at least make it clearer on the site that Amazon did not actually have any Kindles on hand.

Amazon continued to experiment with new e-book formats and push the boundaries of publishers’ and authors’ tolerance. It introduced the Kindle Single, a novella-length e-book format, and the Prime Lending Library, which allowed Prime members who owned a Kindle reading device to borrow one digital book a month for free. But Amazon included the books of many mid-tier publishers in its lending catalog without asking for permission, reasoning that it had purchased those books at wholesale and thus believed it could set any retail price it wished (including, in this case, zero).

Bezos is hedging his bets; if customers choose Apple iPads or Google tablets, they can still shop on Amazon and play their music collections and read their Kindle books on a variety of applications that have been rolled out for its rivals’ devices.

Publisher Relations

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.

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…

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.”

These tactics were not unique to Amazon. The company had finally learned the tricks of the century-old trade that is modern retail. Profit margin is finite. Better financial terms with suppliers translate directly into a healthier bottom line—and create the foundation on which everyday low prices become possible. Walmart in particular had mastered this perpetual coercion of suppliers, and it did it with missionary zeal and the belief that it led to the low prices that made products like diapers affordable to lower- and middle-class Americans. Walmart is notorious for demanding that suppliers open offices in Bentonville, Arkansas, and integrate certain technologies, like RFID chips, into their products.

Kessel wanted to renegotiate the already completed contract to exact more favorable terms from the publisher. Steele bluntly told him that the deal had already been negotiated and that it was unethical to revisit the contract. Soon after, Steele got into a shouting match with Laura Porco and was asked by Kessel to collect his things and leave the company.

…music labels had scampered into the arms of Apple despite their reservations, since they were facing the even more ominous threat of rampant music piracy. But books were not as easily pirated and shared online, and book publishers feared no similar bogeyman. So Bezos finally had to turn Amazon into one.

The e-book business didn’t exist in any meaningful way, so publishers couldn’t understand why they were being berated and punished for not embracing it. Amazon executives saw themselves as racing toward the future and fulfilling Bezos’s vision of making every book ever printed available for instant digital delivery, but at the same time they were trying desperately to beat Apple and Google to the next vital phase in the evolution of digital media.

Bezos decided that the digital versions of the most popular books and new releases would have a flat price of $9.99. There was no research behind that number—it was Bezos’s gut call, fashioned after Apple’s successful ninety-nine-cent price tag for a digital single in iTunes and based on the assumption that consumers would expect to pay less for an e-book than they did for a traditional book…

Amazon knew quite well that publishers would absolutely hate the $9.99 price. The $9.99 e-books were considerably more appealing to some customers than the more expensive hardcovers, the industry’s most profitable format, and the pricing pulled the rug out from under traditional retailers, particularly independent booksellers, who would suddenly find their shelves stocked with what some book buyers might soon view as overly expensive relics. Everyone had watched this precise dynamic play out in music, with disastrous consequences for physical retailers. So Amazon decided not to let publishers know about the planned $9.99 price, lest they object. This was easily rationalized; retailers have no obligation to tell their suppliers how they plan to price products…

Amazon had approached publishers as a partner, and now it was deliberately withholding a key piece of information. “We were instructed not to talk about pricing strategy,” Jeff Steele says. “We knew that if we priced e-books too low, they would fear it would devalue their product. So we just said pricing had not yet been decided.”

Was the $9.99 price a promotional discount for the launch? Was it only for bestsellers? Even after the event, Amazon executives told their publishing counterparts they didn’t know or couldn’t say. Soon it was clear to the bookselling industry that the flat price was not transitory at all—Amazon was pushing it as a new standard.

The new low price for top-selling e-books changed everything. It tilted the playing field in the direction of digital, putting additional pressure on physical retailers, threatening independent bookstores, and giving Amazon even more market power.

…in the fall of 2009, a white knight appeared in the form of Apple and its cancer-stricken leader, Steve Jobs. Jobs had his own reasons to combat Amazon. He knew firsthand that Amazon could use its dominance in e-books to transition into other kinds of digital media—Jobs himself had used the iTunes monopoly in digital music to expand into podcasts, television shows, and movies. At the time Apple began reaching out to publishers, Jobs was preparing for the introduction of what would be his final masterstroke: the iPad. For Apple’s precious new invention, he wanted every kind of media available—including books. The publishing executives negotiated that winter with iTunes chief Eddy Cue and a deputy, Keith Moerer (ironically, a former employee of Amazon), and the resulting arrangements with Apple would solve the publishers’ $9.99 problem, relieve some of the pressure on physical bookstores, and allow Apple to enter the e-reading space without having to match Amazon’s subsidized pricing on bestsellers and new releases. In the new e-book model, publishers themselves would officially become the retailers and could set their own prices, typically in the more comfortable (for them) zone of between thirteen and fifteen dollars. Apple would act as the broker and receive a 30 percent commission, the same arrangement it had for mobile applications on the iPhone. As part of this shift to what was known as the agency model, Apple received a guarantee that other retailers would not undercut it on e-book prices. According to the DOJ, that meant publishers would have to force Amazon to adopt the same model. In his internal e-mails and to his biographer Walter Isaacson, Jobs proudly referred to this as an aikido move.

With no stark price advantage and increased competition from Barnes & Noble’s Nook, Apple’s iBookstore, and the Toronto-based startup Kobo, Amazon’s e-book market share fell from 90 percent in 2010 to around 60 percent in 2012. “For the first time, a level playing field was going to get forced on Amazon,”

“The iceman was a really important part of weekly American culture for years and his purpose was to keep your food from spoiling,” says Donald Katz, the founder and chief executive of Amazon’s Audible subsidiary. “But when refrigerators were invented, it was not about what the iceman thought, nor did anyone spend a lot of time writing about it.”

Competitive Battles

Amazon’s bruises from the 1990s helped to create a “building culture” there. Every major company faces decisions over whether it should build or buy new capabilities. “Jeff almost always prefers to build it,” Blackburn says. Bezos had absorbed the lessons of the business bible Good to Great, whose author, Jim Collins, counseled companies to acquire other firms only when they had fully mastered their virtuous circles, and then “as an accelerator of flywheel momentum, not a creator of it.”3…

Walmart then lowered prices on ten new books by high-profile authors, such as Stephen King and Dean Koontz, to ten dollars each. Amazon matched the price on those same books within a few hours. Walmart.com then lowered its prices again, to nine dollars, and Amazon matched it again. It was just the kind of price pressure from Walmart that Amazon executives had always worried about—but it came ten years too late to do Amazon any harm. Now Amazon was large enough that it could easily withstand such losses.

For the first time, Amazon was spoken in the same breath as Google and Apple—not as an afterthought, but as an equal. It had blasted off into high orbit.

Almost overnight, the company that viewed itself as the perennial underdog now seemed to many like a remote and often arrogant giant who was trying to play by his own set of rules.

Missionaries have righteous goals and are trying to make the world a better place. Mercenaries are out for money and power and will run over anyone who gets in the way. To Bezos, at least, there was no doubt where Amazon fell. “I would take a missionary over a mercenary any day,” he liked to say. “One of those great paradoxes is that it’s usually the missionaries who end up making more money anyway.”2…

Circuit City allowed Amazon to operate its website from 2001 to 2005 but afterward it didn’t establish a strong Internet presence. The company had lost touch with what customers wanted and it never embraced, as Rick Dalzell put it with regard to Bezos, “the best truth at the time.”

Desperate to protect their profit margins, many retailers reacted by firing employees, cutting down their product assortment, and lowering the overall quality of their service, and this just as Bezos was investing in new categories and more rapid distribution. The economic crisis served as a kind of cloaking device, hiding Amazon’s evolution into a dangerous diversified competitor. Retailers were scared, but the bogeyman was the reeling global economy and declining consumer spending, not Amazon.

Zappos Acquisition

Zappos was the Bizarro World version of Amazon; everything was slightly similar but completely different. Hsieh, like Bezos, nurtured a quirky internal culture and frequently talked about it in public to reinforce the Zappos brand in customers’ minds. But he took it even further. New employees were each offered a flat one thousand dollars to quit during the first week on the job, the assumption being that those who took the bounty were not right for the firm anyway.

Hsieh felt strongly that everyone, even senior executives, should take below-market compensation to work there because of the great internal culture the company offered. Like Bezos, Hsieh was obsessed with the customer experience. Zappos promised free five-to seven-day delivery on orders and aimed to surprise customers with two-day delivery in most major urban areas. The website’s users could return items at no charge for up to a year after their purchases, allowing a customer to order four pair of shoes, try them all on, and return three of them. Hsieh encouraged his call-center representatives to spend as much time as necessary talking to customers to solve their problems. Bezos, of course, treated phone calls from customers as indications of defects in the Amazon system, and he tried vigorously to reduce the number of customer contacts for each unit sold. In fact, finding the toll-free number on the Amazon website can be something of a scavenger hunt.

The company worked on the new site for all of 2006, spending some $30 million to design it from scratch using the collection of Web tools known as AJAX, according to an employee who was on the project. Executives came close to calling it Javari.com, but then the owner of that URL reneged on a deal to sell it and demanded more money. The site finally launched in December as Endless.com. On its first day, Endless offered free overnight shipping and free returns. The deal ensured Amazon would lose money on each sale. But it would clearly apply pressure to a certain company in Las Vegas. The Zappos board members considered Amazon’s opening maneuver, gritted their teeth, and a week later matched it with free overnight shipping. The difference was that the new Endless.com, unlike its rival, enjoyed almost no traffic or sales volume and so lost little with its overnight-shipping offer; Zappos’ profit margins took a direct hit.

Amazon was walking an almost impossible precarious tightrope, trying to assuage the fears of brand-name companies with industry-standard pricing while also using Endless as a way to undercut Zappos on price. In early 2007, with apparel brands watching closely for any signs of discounting, Amazon added a five-dollar bonus to its free overnight shipping. In other words, a customer was given five dollars just to buy something on the site. It was a clever but transparent ploy, an effort to inflict further pain on Zappos. Employees who worked on Endless say that, naturally, this was Jeff Bezos’s idea. Yet Zappos still continued to grow. Its 2007 gross sales hit $840 million and in 2008 it topped $1 billion. That year, Bezos learned that Zappos was advertising on the bottoms of the plastic bins at airport-security checkpoints. “They are outthinking us!” he snapped at a meeting.

…he had watched Amazon destroy one of his portfolio companies, eToys, a decade earlier and knew that to compete with Amazon, Zappos needed more engineers and more sophisticated fulfillment capabilities. “We just didn’t move quickly enough,” Moritz says. “You could sense it was going to be much harder to achieve, and we were squandering the opportunity. The hiring was too slow, the engineering department was not good enough, and the software was inferior to Amazon’s. It was very frustrating, and the Las Vegas location, plus an unwillingness to pay competitively, made it even harder to recruit talented people. We were starting to compete with the very best in the business and they had a lot of arrows in their quiver to make life painful. The last thing we wanted to do was to sell. It was mortifying.”

Diapers.com Acquisition

Dragging screaming children to the store is a well-known parental hassle, but Amazon didn’t start selling diapers until a year after Diapers.com, and neither Walmart.com nor Target.com was investing significantly in the category. Back when the dark clouds of the dot-com bust still hung over the e-commerce industry, retailers felt that they wouldn’t make any money shipping big, bulky, low-margin products like jumbo packs of Huggies Snug and Dry to people’s front doors.

…designed by former Boeing operations manager Scott Hilton, used software to match every order with the smallest possible shipping box (there were twenty-three sizes available), minimizing excess weight and thus reducing the per-order shipping cost. (Amazon, which had to match box sizes to a much larger selection of products, was not as adept at this.) Quidsi selected warehouses outside major population centers to take advantage of inexpensive ground-shipping rates and was able to promise free overnight shipping in two-thirds of the country. The Quidsi founders studied Amazon closely and idolized Jeff Bezos, referring to him in private conversation as “sensei.”9…

Quidsi noticed Amazon dropping prices up to 30 percent on diapers and other baby products. As an experiment, Quidsi execs manipulated their prices and then watched as Amazon’s website changed its prices accordingly. Amazon’s famous pricing bots were lasered in on Diapers.com.

While they were in that early-morning meeting with Bezos, Amazon sent out a press release introducing a new service called Amazon Mom.

Amazon was on track to lose $100 million over three months in the diapers category alone. Inside Amazon, Bezos had rationalized these moves as being in the company’s long-term interest of delighting its customers and building its consumables business.

By the time Walmart upped its offer to $600 million, Quidsi had tentatively accepted the Amazon term sheet.

Bezos’s Khrushchev-like willingness to take the e-commerce equivalent of the thermonuclear option in the diaper price war made Quidsi worried that it would be exposed and vulnerable if something went wrong during the consummation of a shotgun marriage to Walmart. So the Quidsi executives stuck with Amazon, largely out of fear.

”They have an absolute willingness to torch the landscape around them to emerge the winner.”

Netflix & Streaming

He brought the flyer into a meeting and said irritably of the managers running the advertising program, “Is it easy for them to ruin the company or do they have to work at it?” Bezos was clearly nervous about Netflix’s gathering momentum. With its recognizable red envelopes and late-fee-slaying DVD-by-mail program, it was forging a bond with customers and a strong brand in movies, a key media category.

Hastings himself says that Amazon was never truly serious about an acquisition of Netflix because “the basic operating rhythms” of the DVD-rental space, which required multiple small fulfillment centers to send discs out and then receive them back, were so different from Amazon’s core retail business. “It made no sense for them to be an aggressive bidder because it didn’t really leverage their strengths,” he says.

…there was opposition from Google’s YouTube division and fear that the company might be able to acquire one streaming-video business but not the other. That left Lovefilm still in need of additional capital. So over the summer of 2010, the company’s executives decided to pursue an initial public offering. Then Amazon decided it wanted to buy Lovefilm, and everything changed.

Amazon found a technical way to prevent a Lovefilm IPO. If the company was going to free up stock to sell to the public, it needed to amend its own bylaws, or articles of association—and as the largest shareholder, Amazon could block this change. It effectively had a veto over an IPO, and Amazon made it clear that it was not going to authorize or publicly endorse the move…

Amazon offered an opening bid of a hundred and fifty million pounds, the very bottom of Lovefilm’s price range. With no alternatives, Lovefilm started negotiating. In the protracted discussions that followed, Amazon characteristically argued every point, such as compensation packages for management and the timing of escrow payments. Lovefilm’s attorneys were astonished at the intractable positions taken by Amazon’s negotiators. The talks lasted more than seven months, and the acquisition was finally announced in January 2011.

Sales Tax Battle

New York State had a $4.3 billion budget gap that desperately needed to be filled. The following February, a month before Spitzer’s political career imploded in a prostitution scandal, Spitzer reintroduced the bill. David Paterson, his successor, embraced the proposal, and in April it was passed by the state legislature in Albany. The law cleverly eluded a 1992 Supreme Court ruling, Quill v. North Carolina, stipulating that only those merchants who had a physical presence or nexus, like a storefront or an office, in a state had to collect sales tax there.

Bezos considered his exemption from collecting sales tax to be an enormous strategic advantage and brought a libertarian’s earnestness to what he believed was a battle over principle. “We’re not actually benefiting from any services that those states provide locally, so it’s not fair that we should be obligated to be their tax collection agent since we’re not getting any of the services,”

…employees working for Amazon’s North American retail organization were told to say they worked for a company called Amazon Services, not Amazon.com, and to carry business cards to that effect.

…but Bezos, ever the farsighted chess player, was compensating by cultivating new ones. Amazon’s new fulfillment centers would be close to large cities, allowing for the possibility of next-day or same-day delivery and the wider rollout of its grocery business, AmazonFresh. Amazon also expanded its test of Amazon Lockers—large…

Corporate Character

Like all powerful companies, it would now be subject to ongoing scrutiny of its corporate character, a perpetual test of not only how well it served its customers but also how well it treated all of the parties drafted into its whirling ecosystem, including employees, partners, and governments.

Amazon’s behavior was a manifestation of Bezos’s own competitive personality and boundless intellect, writ large on the business landscape.

Bezos sat down to consider this very question. When Amazon became a company with $100 billion in sales, he wondered, how could it be loved and not feared?

Apple, Nike, Disney, Google, Whole Foods, Costco and even UPS strike me as examples of large companies that are well-liked by their customers.” On the other end of spectrum, he added, companies like Walmart, Microsoft, Goldman Sachs, and ExxonMobil tended to be feared.

…customers have patronized this store for years, even though it has moved three times within the Phoenix area. “The old guy that runs this is always there and you can tell he loves to fix and sell bikes,” writes one customer in a typically favorable online review of the store. “When you buy from him he will take care of you. He also is the cheapest place I have ever taken a bike for a service, I think sometimes he runs a special for $30! That’s insane!”

…the company’s name was represented as simply Amazon, not Amazon.com. For years Bezos had been adamant about using the longer version, part of an effort to engrave the Web address on customers’ minds. Now the company produced so many things, including cloud services and hardware, that the anachronistic original moniker no longer made sense. The name on the website was abbreviated in March of 2012. Few people noticed. Amazon, it seemed, was a company in constant flux. Yet…

2000 when Bezos visited the former Walmart CEO and marveled at the security around him. Bezos may not get ferried to work in a black sedan, but Amazon still spends $1.6 million per year on personal security for him and his family…