The Everything Store

2019-02-23

“The Everything Store” by Brad Stone

My Summary

• Amazon’s keys to success
  • established a foothold in a small, focused market (books only) and then kept expanding
  • relentless focus on the customer
  • willingness to operate at near loss to build loyalty, capture market share, and force out competitors
  • only hiring the best and brightest (lots of makers) people
  • playing the long term, not the short term
• Unfortunately, Amazon has a history of treating employees and business partners more like commodities instead of people
• interesting practices
  • no presentations/charts for meetings; write prose, distribute, and discussed
  • “we should be trying to figure out how to get teams to communicate less, not more”
  • start with what the user sees and work backwards

My Notes

Intro

• Amazon meeting practice: no presentations or PDFs; instead write up a few pages of prose in the style of a press release that is customer centric; then, every reads silently and discusses afterwards
• Jeff says Amazon is different than most companies because it looks long-term, favors experimentation, and is customer-centric

Part 1: Faith

• Bezos career story kicks off with D. E. Shaw, and it is discussed how Jeff “went to school” with everyone he met — learning as much as he could
• While at D. E. Shaw, Bezos recognized the rapid growth of the internet and amongst ideas pitched of how a company could take advantage of the growth, one of his favorites was “the everything store”; he knew it couldn’t happen immediately so he started small with an “everything book store”
• Amazon started in a garage with a website built in C that could complete a secure transaction for a book; the profits were not huge, but the volume of orders kept increasing
• Work dominated the life and culture of early Amazon; Jeff turned away candidates that mentioned work/life balance and made decisions that would try keep people working all the time versus not (ex: no bus passes)
• Despite many suggestions and offers to do than books, Jeff continued to stick with books and focus on the customer (not their competition, i.e. Barnes N Noble)
• Many early Amazon employees bought into the vision of Amazon, worked hard to make it happen, and were finically rewards… but then replaced with new and more experienced starry-eyed dreamers
• The ability to be nimble greatly helped Amazon beat its brick and mortar competitors
• Early business hires into Amazon worked on their expansion into new types of products but following a formula that originally worked with books: lots of SKUs, were under represented in physical stores, and could be easily sent through the mail
• Amazon brought in several Walmart transplant executives to help grow the company — there biggest contribution, early on, was the creation of the first Amazon “distribution centers”
• eBay rivaled Amazon early on and Jeff continued multiple experiments to try and beat them from stealing the mantel of “the everything store”
• Amazon values: frugality, bias for action, customer-obsession, ownership, high-bar for talent (only hire those smarter/better than you), and innovation
• Bezos made early attempts to bring in a COO to help him “grow up” the business, but they ultimately did not work; IMO Bezos seems like a hard person to work for… you must share his feverous dedication to the mission and be willing to be #2 (not #1 in command)
• Bezos (thus far in the story) is fearless and doesn’t mind taking losses and huge swings to keep striving towards his business goal; but all his swings are calculated and based on his vision and understanding of the problem, business landscape, and customer
• Eventually the mantra moved from “get big fast” to “get our house in order”
• To increase profits and increase product selection on Amazon, Bezos entered partnership deals with stores like Toys r’ Us who provided the selection which Amazon kept and sold from their warehouses
• Jeff continually made decisions that were unpopular to investors, Wall Street, and Amazon’s bottom line for the sake of the customer and better selection on the site (ex: 40% Goblet of Fire w/ fast shipping promo to build customer loyalty, and selling other merchants products alongside their’s for a commission — even though they’d lose out on some cash and risk bad reviews for sellers who may process the order poorly)
• To “get the house in order”, Bezos took a tip from Costco and lowered prices to bring more value to customers and reinforce their virtuous business/profitable cycle
• They also got rid of the in-person writers who did recommendations prior to bots that did the same thing
• By 2004, using a combination of these techniques and cutting costs, Amazon started turning a profit

Part 2: Literary Influences

• Bezos was adopted and has always had an extremely focused and driven nature
• He thought he could solve all problems in the garage
• One of his main reasons for wanting to acquire wealth is to get to space
• To solve the chaos within Amazon, Bezos hired a person who he could rely on the be as focused and obsessed with problems as he was
• “We should be trying to figure out how to get teams to communicate less, not more”
• Always looking for defects, Bezos recognized that their fulfillment centers weren’t moving fast enough and they rewrote software to make fulfillment faster
• Bezos ripped TVs off walls and mandated that all presentations be given in the form of written press releases where you start with what the user reads/sees and work backwards
• Amazon prime lost money up front but kept building the virtuous cycle; they utilized lots of existing in-house tech to build it
• In efforts to be more than a retailer, Amazon pushed forward quite a few R&D projects that ultimately produced marginal returns: “in-book OCR-based search, A9 amazon search, and their version of Google’s street view”; they needed something else to break through
• AWS grew out of Amazons own need to move faster coupled with the idea of having “primitives” that could be combined together to do interesting things
• Bezos tactically chose to keep the price of AWS services low, losing money in the short term, because that would keep competitors away and secure them more loyal users — and he was right, shortly after AWS introduction, a large percentage of developers and companies were running their code on Amazons computer
• Bezos has always been an avid reader and was interested in digitizing books — once he saw what the iPod did to CDs he felt that the time table was shrinking for them to figure out how to own the whole digital book experience or else one of their tech competitors would do it first
• Bezos and company bought fully into the notion that you must actively pursue new innovation as a company even if it doesn’t satisfy the short term and may challenge your existing business (ex: Bezos tasked manager with “killing the physical book business at Amazon by making the digital solution way better”)
• Bezos used threatening tactics to push publishers to digitize their books for Kindle or face getting removed from Amazon search results, etc
• Amazon didn’t reveal the $9.99 price for books on the Kindle until the press release and caught the publishing world flat footed in what would be a huge blow to that industry — this was strategic, of course, and helped ensure Bezos that Amazon was driving the ship for digitizing books, and nobody else

Part 3: Missionary or Mercenary?

• Bezos always embraced the truth — running to it, finding it, and not hiding from it
• Bezos went into battle with Zappos and used their superior tech and coffers (building their own apparel sales site and offering deals where they suffered a loss but gained users and forced Zappos’ hand) to ultimately push them into a deal
• Amazon and publishers went to war and Apple joined as another party in the fray; Amazon won the battle and by ~2009 had made itself equal with the other internet powers like Google; it’s amazing leverage and customer and market ownership allowed it to continually win these longer wars while maintaining growth and keeping customers
• Amazon had to fight hard to stave off taxation of online sales; they utilized “we’ll build a fulfillment center” and “we’ll bring jobs” to slow down and threaten state governments into not taxing them
• Amazon has an internal team whose job is to research competitors who may be doing a better job than they are
• Amazon lowered costs and took losses in the diaper/moms market to bleed Diapers.com (by offering prices so low that they couldn’t compete) and force them into a deal which held up after review by trade commission because it didn’t result in a monopoly — another chess move to acquire and add another group of items to his everything store
• Amazon can lure sellers onto their platform, gain them great short term profits, and then slowly start selling the products cheaper and cheaper until the seller barely has a profit margin
• Jeff wrote up an entire report and study saying Amazon could become a company that people loved by embodying the same characteristics as companies like Nike, Costco, etc
• Jeff will forward emails from jeff@amazon.com to the appropriate manager with just a “?” which initiates that there should be a detailed response in a few hours from the manager of why this issue happened and what they are going to do about it
• “Disagree and commit”