This interview was conducted in 1999 and published in 2000.
A brilliant computer scientist and would-be entrepreneur named Jeff Bezos was huddled with his cronies, sipping lattes and crunching biscotti, plotting and planning. The setting was ironic: a cozy café in the Barnes and Noble store in downtown Seattle. Why ironic? Because Bezos and his friends were conspiring to nuke this and every other Barnes and Noble store. What Bezos didn’t realize at the time is that they were creating a way of shopping that would change business forever.
In 1994 the revolution Bezos was plotting would have sounded fanciful to almost any eavesdropper. The plan was to start a bookselling business in an alternative reality, a place Bezos called cyberspace. There would be no shelves, no inventory, not even stores you could physically enter. What’s more, Bezos had quit a good job to hatch this cockamamie idea.
But the funniest part was yet to come. Four years later, Bezos’ firm, Amazon.com, is one of the fastest-growing companies in history, valued at $22 billion, a third more than stalwart Sears. In that short amount of time, Bezos almost single-handedly launched e-commerce—a way of doing business that represents a larger and larger segment of all buying and selling—and he set a standard for all comers to the world wide web. In the process, he got rich. Really rich. Depending on the day one does the calculating, Bezos’ 41 percent share of Amazon.com is worth between $8 billion and $10 billion. He is richer than Ross Perot, David Rockefeller or Rupert Murdoch.
It’s difficult to remember that cyberspace, the site of Bezos’ store, was unknown to most of us as recently as five years ago. To show how wild the idea was, consider that Bezos hatched his plan for Net domination before the official founding of either Netscape or Yahoo, the browser and the search engine that helped popularize the web. At the time, few people had modems, and those who did slogged along at a 2,400-baud rate. E-mail was beginning to take off, but most people still used the U.S. Postal Service or, when there was a rush, Federal Express or fax machines.
Bezos began with a list of 20 products to sell on the Internet and narrowed it down to books. Then he set up shop in Seattle in the garage of his rented home, with four employees. Bezos wrote the software for the bookselling operation as the rented furniture was being delivered.
Since his garage was uncomfortable (no heat, stuffed with computers and myriad cables and extension cords), he held business meetings at the nearby Barnes and Noble store because it was convenient, not to spy on the enemy. He launched the website in July 1995 and advertised by word of mouth. Orders for books (mostly obscure titles at first) trickled in from a handful of customers, then hundreds of customers, and soon thousands of customers each day. For a start-up on the relatively unknown world wide web, Amazon.com’s sales of $511,000 in 1995 were impressive, but they were minuscule compared with the growth over the following years. In 1996 sales reached $15.7 million. In 1997, when there were 614 employees on the payroll and the company had moved to a 17,000-square-foot office, sales topped $147 million—an 841 percent growth from the year before.
Finally sniffing the threat, Barnes and Noble launched its own online bookstore in May of that year. George Colony, chief executive of Forrester Research, acknowledged that Amazon.com had had a good run but declared that the free ride was over. He dubbed the company Amazon.toast as Barnes and Noble sued Amazon over its original slogan, “The earth’s largest bookseller.”
Colony and other doomsayers were wrong. Amazon grew faster than ever, trouncing Barnes and Noble and other booksellers that arrived on the Net. It not only sealed its position as the largest bookseller online but became a powerful force in off-line bookselling, barking at the heels of the number one and two book sellers, Barnes and Noble and Borders.
Meanwhile, Amazon.com’s valuation based on its stock price was ten times higher than that of Barnes and Noble. Bezos took the company public in 1997, and it shot up from $18 a share to $100 a share a year later. A year after that, the price doubled again. (It has now split three times.)
Amazon.com’s stock performance is particularly unusual given the fact that the company has yet to make a nickel in profit. Bezos has been consistently unapologetic about this, pointing out he is investing in infrastructure, marketing and expansion, but some analysts have predicted that Amazon.com’s bubble will burst.
Besides its lack of profitability, Amazon.com has also been criticized for its unconventional sales and marketing techniques. Publishers are rankled by the computerized ranking of books and the site’s reviews (some negative) of titles. There have also been complaints that publishers were paying for recommendations of their books.
Rather than cut back, Bezos added more product lines to Amazon.com, including music, toys, electronic products, video games, videos and DVDs. In 1999, he added auctions and zShops, a section of the site where large and small web retailers sell everything from buffalo meat to a $6,000 bottle of Château Margaux (Amazon.com takes a cut of all sales). The combination of new and old business will account for sales of $1 billion this year.
It should come as no surprise that as a child Bezos was isolated and interested in science fiction and model radio kits. He played football and baseball, but only because his parents made him. His summers were unusual: He lived at his grandfather’s ranch in Cotulla, Texas, where he mended fences and herded, branded and castrated cattle. But when he wasn’t cowboying, Bezos built circuit boards, robots and assorted science fiction experiments. Later, when the family moved to Houston, he discovered a computer at his high school and used it to play Star Trek games.
When Bezos headed to Princeton in 1982, he planned to major in physics, but he switched to electrical engineering and computer science when he realized other students were more likely to become the next Einsteins.
After graduating, he worked at Fitel fiber optics as associate director of technology and development. Next, he created systems for managing investment funds at Banker’s Trust. After that, he was a computer specialist working in hedge funds at D.E. Shaw & Co. in New York.
He viewed his successive jobs as training for what he wanted to do all along: start his own company. He didn’t know what type of business to start until, in 1994, he read that the web was growing at a rate of 2,300 percent each year. Nothing else grows that fast, he thought. Further research convinced him that the web would totally change shopping.
Bezos fretted over leaving his high-paying job, but decided to do so after he concocted something he calls a regret minimization system. Basically, he looked at the decision and tried to predict if he would regret it later in his life. “I thought there was a real chance that I would regret not having tried to participate in this thing called the Internet. That’s how I decided.”
When he decided to sell on the Internet, Bezos left New York with his wife, MacKenzie, a writer he met at D.E. Shaw & Co. (she was an administrative assistant working on her first novel).
The couple headed to Seattle and Bezos founded Amazon.com. Five years later, it has become the big kid on the Internet block, with new titles added almost daily. Besides the new products and stores within his store, his recent investments include Drugstore.com, Pets.com, HomeGrocer.com, and the Internet Movie Database. Bezos’ businesses boast 12 million users—a number that is still growing.
With web shopping growing in popularity, Playboy sent Contributing Editor David Sheff to meet with the father of e-commerce. Sheff, whose last Playboy Interview was with Congressman Barney Frank, headed to Amazon.com’s Seattle headquarters. Here’s his report:
“For a billionaire, Bezos is surprisingly laid-back. He is affable, funny and relaxed. He only recently upgraded his car, from an aging Honda to a practical Volvo. He dresses in khaki pants, shirt sleeves rolled up.
“While Bezos clearly enjoys talking about the Net, he also seems inspired by his childhood. He wistfully recalled when he hung out on his grandfather’s cattle ranch in Texas, where the temperature often reached 100-plus degrees in the shade. He is most passionate when he talks about business, of course, but few people know that he has a great sense of humor. He startles people with his frequent laugh—a loud honking sound. And yes, he’s more than a bit nerdy. After all, who but a true egghead would name his dog after an obscure Star Trek character?”
DS: Amazon.com is the most successful store online, but it has yet to show a profit. How long can you go without making money?
Bezos: We are famously unprofitable. Many companies expect to be unprofitable at first. We think it would be incredibly shortsighted to try to optimize for short-term profitability when we face innumerable opportunities, all of which require investment.
DS: But at some point, investors will insist on profits.
Bezos: Which will come.
DS: How far in the future?
Bezos: When they will come is fairly straightforward. You have to look at the ratio of mature businesses to new opportunities at Amazon.com. When that ratio starts to get higher, it begins to make more sense to focus more on short-term profitability. Right now, we have one business that is semimature, our U.S. book business. But we are investing in the UK, Germany and other countries; in music, videos, toys, electronics; and in completely new business models with auctions and our zShops. There is more coming that we haven’t yet announced. Investing in all these new opportunities is good business, as far as I’m concerned.
DS: You started off as a bookstore. Now you’re selling everything from toys to food. What won’t you sell?
Bezos: Firearms. Living creatures. Body parts. [laughs] Actually Pets.com, which is not Amazon.com but is a company we work with, is going to start selling fish. Apparently they can be delivered safely and reliably. So there will in fact be living creatures. But still no body parts.
DS: Why not firearms?
Bezos: We don’t want to sell them. There are a lot of things to sell. We’ll let other people sell guns.
DS: How did you decide to branch out from books? Did you always plan to sell toys and music and other products?
Bezos: If we were very successful, we thought we would try other things. But at first, all we knew is that we were going to sell books.
DS: After books, how did you decide which products to sell?
Bezos: We do something really revolutionary: We ask our customers. We do! [laughs] We occasionally send an e-mail message to a thousand or so randomly selected customers. We ask what they would like to see us sell. We find that if we improve their lives in one dimension, they give us permission to help them in another dimension.
DS: Is it possible to diversify too much? Can you be all things to all people?
Bezos: It’s important to understand what type of business we are. It’s reasonable to be confused by our strategy if you assume that we are trying to be a bookstore and a toy store and a video store and the rest. We’re not. We are trying to be a customer store.
DS: One that sells books, music, movies—
Bezos: Here’s the way it works: If you put you at the center of the universe, you need a vast collection of things, because you are not just about books. Books may be an important part of your life, but it is not all you are about. We want to be there to help you make purchasing decisions. We’ll provide some of the products ourselves, but not everything. A lot of what we will do is find and discover things for people. There are huge numbers of third-party sellers that come through Amazon.com, whether through our auctions or our zShops. We also have partnerships with companies like Drugstore.com, HomeGrocer.com and Pets.com.
DS: Why would people go to Amazon.com for anything other than books? Why wouldn’t one go to specialty websites—eToys or Toys R Us for toys, eBay for auctions, CDNow for music?
Bezos: People underestimate how richly varied e-commerce will be on the Internet. We call all these businesses “Internet companies” now, but in ten years they’ll just be companies. People will shop in different ways. Companies of all shapes and sizes, using many different strategies, with different focuses on different customer segments, will thrive. It’s just like in the rest of the world. There are department stores and chains and independent stores and big stores and small stores. All these companies can be successful. The Net will be just as—or even more—varied.
DS: How will the online world change the physical world? You once said that there will be no strip malls in the future.
Bezos: Strip malls are a symbol for marginal, low-experience stores that nobody really wants to go to. Over time, say within ten years, maybe 15 percent of commerce will move online. Will that have a big impact on the physical world? Absolutely. What will that effect be? It will force stores to get better. The ones that don’t get better will go by the wayside. Stores will have to have better-trained people. They will have to be cleaner and better lit. They will have to provide something unique. The stores no one wants to go to will disappear. I don’t say everything will change, though. People will still go out. They like to interact with other human beings. The Net is pretty cool, but the physical world is the best medium ever. There are many things you can do with physical stuff that you can’t do with a computer. So the environments are going to coexist nicely. And it’s all good news if you are the customer. More choices, more competition, better service.
DS: Aren’t you trying to become the one-stop shopping place online—that is, the Wal-Mart of the Net?
Bezos: In trying to figure us out, people say we are the fill-in-the-blank of the Internet. The truth is we are and aspire to be the Amazon.com of the Internet. There is no analogue in the physical world. Are we a department store? Department stores have a very limited selection. A big mass merchandiser like a K-Mart or Target will have maybe 120,000 different products in a store. That’s actually not very many. We are limitless. We have virtually every product that exists because we are not constrained by physical limitations. Next, we can do something that no physical store can do. We can personalize our store for you. They can’t do that in a physical store; They can’t run around and rearrange the shelves to accommodate every customer who walks in. But you can do that on the Net. That’s another thing that makes Amazon.com fundamentally different. If we have 12 million customers, we can have 12 million stores. Another difference is that our core business isn’t selling things. Our core business is helping people make purchase decisions.
DS: In other words, you are trying to sell them things.
Bezos: It’s more complicated than that. Look at the reviews we have with our listings of books. We’ll duplicate and modify that system for the other products—toys, whatever. We review products negatively, and we publish negative reviews by customers. When we started doing this, some people—especially book publishers and the occasional author—were incensed. I got hostile letters that said, “Maybe you don’t understand your business. You make money when you sell things.” They asked, “Why in the world would you allow negative reviews?”
DS: Why do you?
Bezos: Because over time people figure out that the reviews are a good way to help them make the right purchasing decisions. People like that; they come back because of it. Some of my proudest moments are when customers tell me that we talked them out of buying something. It’s a huge service for customers. With most things, the amount you pay for the product isn’t the biggest cost; it is the time you spend with the product afterward. You can spend $20 on a book, but that’s nothing compared with the eight hours of your life that you are going to give to this thing.
DS: But how trustworthy are your reviews? People can manipulate the reviews, including the number of stars that books are given.
Bezos: Obviously the reviews have to be trustworthy to be useful. When someone posts one that isn’t sincere, you usually can tell. Some are very funny. We had God review the Bible. J.D. Salinger chimed in about The Catcher in the Rye, which I find highly unlikely. Charlotte Brontë reviewed Jane Austen and said she was pissed off that Austen had two movies and a miniseries in a single year and she had nothing. We clean out the fake ones. Our customers usually notice them and tell us. But most people are honest when they write the reviews.
DS: How about when the people reviewing have a vested interest in selling the book or product?
Bezos: When people have a vested interest, they often say so. We encourage authors to weigh in on their own books. One of my favorite reviews started out, “This is the best book my brother ever wrote.” Of course there are exceptions, but you can usually tell whether a review is thoughtful, flippant or biased. There are going to be a few people who are sophisticated enough to organize campaigns, but that will be the exception.
DS: There were complaints that publishers were paying you to recommend their books. Isn’t that enough to make customers distrust your recommendations and reviews?
Bezos: First of all, we have never been paid to put up good reviews. Reviews have always been and remain independent. What happened was that we initially accepted payment for placements on the site. That is, a publisher could pay us to prominently feature a book. It’s standard practice in the book business. Still, in response to feedback, we now disclose when people pay for a slot on a page. No other stores disclose that. There’s no indication that bookstores are paid to place a book by the cash register or in the window, but we thought, What’s wrong with disclosing it? Now we do.
DS: How does the engine for book recommendations work?
Bezos: By collaborative filtering. It is a statistical technique that looks at your past purchase stream and finds other people whose past purchase streams are similar. Think of the people it finds as your electronic soul mates. Then we look at that aggregation and see what things your electronic soul mates have bought that you haven’t. Those are the books we recommend. And it works.
DS: You talk a lot about the customer experience, but isn’t price the key factor when it comes to where people shop on the Internet?
Bezos: We have data indicating that customers rank selection as our most valuable asset. Ease of use and convenience are second and price is third. Anything that’s in the top three is important—price is super important, but selection is most important.
DS: How important is your brand name? People argue whether brands are more or less important on the Net.
Bezos: The companies that rely on brand loyalty are insane. Customers will be loyal to you because you don’t take them up on it. It is one of those paradoxes. There is no resting on your laurels. If you assume anything, you are doing a disservice to your customers and they shouldn’t be loyal to you. Our customers are loyal to us right up until the second that somebody else offers them better service. We live or die based on the customer experience. Here’s the thing: Online, the balance of power shifts away from the company and goes toward the customer. Our secret is that we have not been competitor obsessed. We have been customer obsessed, while our competitors have been Amazon.com obsessed.
DS: But were you at least a little nervous when Barnes and Noble, the number one bookseller, decided to challenge you on the Net?
Bezos: Not that nervous, because small companies have one huge advantage over big companies, which is that they have nothing to lose. It’s one of the things that we try to hold on to as we get bigger. I mean, in the scheme of things, we are still a tiny company.
DS: Tiny? With sales of $1 billion?
Bezos: We are big for an Internet company but tiny for a real-world company. We have to be careful, though. As companies get bigger, they have something to lose. When they do, the natural tendency is to get risk-aversive. They lose their boldness. They lose the spirit to innovate. They lose their pioneering qualities. I am bound and determined not to let that happen to Amazon.com.
DS: But the arrival of the major booksellers on the Internet had to worry you. When Barnes and Noble went online, George Colony said that you were Amazon.toast.
Bezos: Some people thought we were toast, and they had a logical argument. Amazon.com had two good years—most companies don’t get a two-year window without any real competition—but then the fun was over. We were about to get creamed by the big guys. Barnes and Noble had a powerful, trusted brand name. Also, they had huge purchasing power. We were tiny. We had 125 employees and 340,000 customers and our revenues were 50 times smaller than Barnes and Noble’s. To put it in perspective, they had 30,000 employees and 10.7 million customers. Now we are only three times smaller than Barnes and Noble in terms of revenue. It’s because we didn’t look over our shoulder. We looked ahead, focused on our customers and obsessively did whatever we could to make them happy. I ask our folks here to wake up scared every morning with their sheets drenched in sweat. But I also ask them to be precise about what it is they are scared of—not our competitors, but our customers.
DS: You say you’re not the big guy, but that’s not how many small bookstore owners feel. How guilty do you feel about putting them out of business?
Bezos: That question is a little bit like, “When did you stop beating your wife?”
DS: The point is that before Amazon.com, small bookstores were in fear of Barnes and Noble, Borders and the other superstores. Now many blame you for pushing them out of business or at least making it tougher.
Bezos: I would debate that they think that. The biggest competitive threat to independent booksellers is big chain bookstores that open right across the street. E-commerce is a tiny fraction of sales today.
DS: But it is growing quickly.
Bezos: And I would argue that we are much more competitive with the big chains than with the independents. In fact, I consider us to be an independent. We think like an independent. We are one store.
DS: One independent bookstore owner says, “For Bezos, books are product. For us, books are passion.”
Bezos: That person doesn’t know me. Books are definitely a passion for me, too, though they are not the reason that Amazon.com started with books.
DS: Why did you start with them?
Bezos: When I decided to do this, there were only a few types of Internet companies. There were ISPs, people helping other people get online. There were tool companies like Netscape. And there were the first content companies, like HotWired. Yahoo had started but it was just two guys at Stanford doing this directory because they didn’t really want to work on their Ph.D.s. It seemed to me that the next stage would be transaction-based companies. So I thought, Let’s do a retail company. I made a list of 20 different products to sell online.
DS: What was being sold online at that point?
Bezos: Not much, though there was the Internet Shopping Network, which was selling computer stuff. There was already a bookstore called Future Fantasy Books out of Palo Alto, which sold science fiction. In fact, the first online bookstore started 17 years ago. Someone set it up in Chicago on 300-baud modems. It was way too early.
DS: What changed?
Bezos: In 1994 we passed the elbow in the curve and millions of people were shortly going to have access because of the web and Netscape. I looked at popular products in mail order and saw that books were way down the list. Why? If you were to print a catalog with all the available books, it would be larger than 50 New York City phone books. You are not going to mail that around 12 times a year. Yet here was a technology that could put the whole catalog in the hands of customers. The largest physical superstores have about 170,000 titles; Amazon.com, even when we launched, had over a million. Today we have over 18 million items, including toys and electronics and out-of-print books and on and on. So the notion of infinite shelf space became key. With books, I decided I could create true value for customers.
DS: You were working as a banker. How risky was the move?
Bezos: Well, my boss and good friend David Shaw was very respectful but said Amazon.com might be a good idea for somebody who didn’t already have a good job. We went for a walk in Central Park in New York and he asked me to think about it for 48 hours. I went away to be alone and was trying to figure out how to think about this kind of life decision. Once I found the right framework, the decision was incredibly easy.
DS: What was the framework?
Bezos: I call it regret minimization. You project yourself to age 80 and look back on your life. You want to minimize the number of regrets. In the short term, you can get confused about small stuff. I was walking away from my Wall Street bonus. But then I thought, At 80, am I going to remember whether I did or didn’t get my Wall Street bonus? No, but I thought there was a real chance that I would regret not having tried to participate in this thing called the Internet. That’s how I decided.
DS: So you headed west. Why did you choose Seattle?
Bezos: The two primary factors in deciding where to go were that I wanted to be near a major book warehouse and near a pool of technical talent. Seattle had both.
DS: Were you married by then?
Bezos: Yes, I was. I came to Seattle with my wife.
DS: You allegedly went on a lot of blind dates. Is that how you met her?
Bezos: No. I met her after all those blind dates.
DS: Why the blind dates?
Bezos: I am not the kind of person women fall in love with. I sort of grow on them, like a fungus. I need to either work alongside somebody or take a series of classes with her—you know, get to know her over a period of time to let her see that my goofiness is actually an attribute, not a fatal flaw. But I did go on a lot of blind dates, none of which were successful because of this problem. Over time, I developed a set of criteria. At the top of the list of important traits was resourcefulness. I learned that if you tell people you want resourcefulness—which is an abstract idea—they don’t really get it. So I had to figure out a way to explain resourcefulness.
DS: Which you did how?
Bezos: I told my friends that my future wife would have to be able to get me out of a Third World prison. People got it.
DS: So then how did you meet MacKenzie?
Bezos: At work. It was a more comfortable way to meet and get to know each other. Part of the problem with blind dates is that it’s hard for both sides to be completely relaxed. And if you are completely relaxed, it’s in this weird sort of way, almost like job-interview relaxed. It is not great.
DS: Would MacKenzie be able to get you out of a foreign prison?
Bezos: Yes. The people trying to keep me in wouldn’t have a chance.
DS: We read that she is a writer. Fiction or nonfiction?
Bezos: She is working on her first novel.
DS: Which will be displayed prominently on Amazon.com?
Bezos: I would make no such presumption. If there were any undue influence, she would kill me.
DS: But she was pleased to come to Seattle?
Bezos: Yes. We flew to Fort Worth, where my dad gave us a 1988 Chevy Blazer. I wrote the first draft of the business plan in the car on the way. I initially incorporated under the name Cadabra.
DS: As in abracadabra?
Bezos: Yes, but I called my lawyer to give him the name so he could file the incorporation papers. He said, “Cadaver?” I knew that would be a bad name right away. Things are alphabetized online, so I wanted an A word. I went through the A’s in the dictionary. I wanted something that conveyed size, too, and Amazon is the earth’s biggest river.
DS: How did you initially fill the orders?
Bezos: We thought we would sell a book a day for a long time. But the wholesalers have a ten-book minimum. I tried to persuade them to waive the ten-book minimum, but they said no, it was too much work to send out less than ten books. But we found a loophole. 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.” One of these days we’re going to get all those lichen books dumped onto our front lawn.
DS: Is it true that you had your business meetings at Barnes and Noble?
Bezos: Yes, because our office in the garage was not an appealing space. We didn’t really want to bring people there, so we would go to a local café, which just happened to be inside Barnes and Noble. We weren’t trying to be cute.
DS: In the beginning, how did people learn about Amazon.com?
Bezos: By word of mouth. Before we opened for business, we did a six-week beta test. About 300 friends and family members ordered real stuff and we charged their credit cards and tested the system. On July 15, we sent e-mail to those 300 friends and family. We said to them, “Thanks for helping us test the system.” Until then, we had asked them to keep it secret. Then we said, “Please tell everyone you know.” They spread the word. At that time, there wasn’t that much on the Internet. If something new and cool appeared, everybody knew about it. Within a week, I got an e-mail message from Jerry Yang or David Filo at Yahoo, saying they had run across our site and thought it was really cool. Whichever one called asked if we minded if it was put up on Yahoo’s “What’s Cool” page. We said, “Sure.” They put it on and that generated a lot of traffic. Because the name started with the letter A, it was at the top of the “What’s Cool” page. Word of mouth is incredibly powerful online because of list servers, which enable people to send e-mail to massive numbers of recipients. Some professor somewhere maintained a mailing list that went out to 50,000 people. He told them about us. That kind of word of mouth. And Usenet news-groups. Online, word of mouth changes. In the old world, someone might tell five people, but in the new world, you can tell 5,000. But be careful, because it works both ways. If you make a customer unhappy, he can tell 5,000 people, too.
DS: Who actually did the shipping for the books?
Bezos: We did, and killed ourselves doing it. We would do our normal jobs and then go down in the basement and pack and ship books. Eventually we moved to a real office with a 400-square-foot warehouse. Four hundred square feet is about the size of a one-car garage. We’d order the books from the distributors—along with the lichen books when we needed to do that—and the books would show up the next day on our loading dock. Then we would take them into the basement and get down on our hands and knees and pack them all. I bring up the hands and knees part because it is an example of how stupid I was in the middle of this. It was killing us. Our knees were getting raw. I said to someone, “God, this is killing my knees.” That person said, “Yeah, we’ve really got to do something about this.” Finally I said, “I know what we should do! We need knee pads.” He looked at me like I was from Mars, like, “Oh my God, our CEO is a complete moron.” He said, “How about some packing tables? “Ahhh.” [laughs] It was the most brilliant idea I had ever heard. The next day we got a bunch of packing tables.
DS: What were people ordering?
Bezos: Obscure books at first. But then people saw how convenient it was to order less-obscure books and they came to Amazon.com for those, too. It kept growing and growing. If anybody had predicted what has actually happened, he would have been institutionalized. No reasonable person would have predicted this.
DS: In 1997, you went public, and your stock took off. How has its roller-coaster ride affected you?
Bezos: The stock of Internet companies in general and Amazon.com in particular are incredibly volatile. I encourage people here to spend no time thinking about the short-term stock price. If our stock goes up 30 percent in a month, there’s the danger that you’ll start to feel 30 percent smarter. That kind of arrogance can lead to the downfall of companies. The volatility works in both directions. When the stock goes down 30 percent, you’re going to have to feel 30 percent dumber. That won’t feel good. So in general, it’s better not to think about it.
DS: Is it realistic to ask your employees to ignore the stock price when a major part of their benefits are options?
Bezos: It is realistic to ask. I’d rather have them focused on value. Options are a long-term deal. Especially with the web, it is way too easy to check stock prices every minute and it is a complete waste of time. Related to this, I think it’s unfortunate that so many people have taken up day trading. In a bull market, it is easy to convince yourself that you are smart. But it’s just gambling. Most of those people are going to lose a lot of money over time.
DS: When Amazon’s stock has been at its peaks, the valuation was enormous—more than Sears, Roebuck, more than Barnes and Noble. Does that concern you?
Bezos: It’s meaningless except for investors. I don’t believe Amazon.com or any Internet company is an appropriate investment for any short-term investor. If you are a small investor, the number one factor in your investment portfolio should be your ability to get a good night’s sleep.
DS: Some analysts insist that the Internet has brought with it a whole new paradigm. There are relatively fewer limitations.
Bezos: I actually believe that the Internet is a whole new paradigm. It’s a bigger deal than people realize. Over the next 100 years, it is going to turn out that the Internet changes one or two things society-wide. When you dramatically improve the ability of people to communicate, you have to expect important things to happen. But I’m not stupid enough to ignore the past. I know it will take time. New technology comes out and people always overuse it. When desktop publishing first became available, everybody started making their own newsletters. Because you could use a hundred fonts, people did, and the newsletters looked like crap. Now PowerPoint presentations often get overused in the same way. Just because you can have everything swirl and twist, should you? People will learn.
DS: Even during the stock market dips, your on-paper worth is in the billions. Does it amuse you to have more money than Ross Perot, Rupert Murdoch or David Rockefeller?
Bezos: I do?
DS: According to Forbes, yes.
Bezos: Here’s what I think about that: All those figures go immediately to zero for everybody who has Amazon.com stock if we don’t continue to do a good job. I think it’s very useful to keep that topmost in mind. [laughs] I bought a really nice house, which is pretty great, but nothing has changed fundamentally. I think people overestimate the degree to which lottery winners’ lives change. Certainly people at Amazon.com, including me, were a kind of lottery winner. But since people’s personalities are largely set by the time they’re 25, winning the lottery doesn’t change them that much.
DS: Does it make a nerd less nerdy?
Bezos: I’m afraid not.
DS: Were you always a nerd?
Bezos: I was much nerdier when I was a kid. I got somewhat better as I got older.
DS: What form did it take?
Bezos: I had a Radio Shack 101 Electronics Kit. It made a big impression on me when I was a kid. It’s a board that’s about two feet long and one foot wide with a bunch of components set into these little spring things. With a bunch of wires, you can make all these different circuits. For whatever reason, I was always interested in science. I always participated in the science fairs and different science projects at school. I wanted to be a physicist. When I was younger, I watched Star Trek instead of Sesame Street. I’m still nerdy, but I’m less socially awkward. When I was in elementary school, I was painfully awkward. I got beat up a lot.
Bezos: I would always tell people what I thought, even if they were much taller and stronger. I was truly clueless about many things. To counteract this, my parents forced me to play Little League football, which in Texas is a big deal. I was dead set against it, but I actually enjoyed it. They forced me because they wanted me to do something, not just to be in my room reading. Little League baseball, too.
DS: But you preferred—
Bezos: Star Trek, definitely. With my friends, I would play Star Trek.
DS: Were you Captain Kirk?
Bezos: No, I was always Spock. If I couldn’t be Spock, I would also settle for being the computer. Kirk says, “Computer” and the computer—me—would say [in a perfect imitation of the voice of the computer on Star Trek] “Working.” Then Kirk would ask a question and the computer would answer it in that sculpted voice. My dad made little wooden phasers for us that shot rubber bands. We made communicators. My dog today is named after a minor Star Trek character from The Next Generation, Kamala. It is from an episode called “The Perfect Mate.” Kamala was the perfect mate. And my dog is a very sweet dog.
DS: Did you ever get into trouble?
Bezos: Sure, but I was hard to punish as a child because I was very happy to go to my room and read. They couldn’t say, “You can’t go to your room. You’re not allowed to read!” The cognitive dissonance in that would be overwhelming for a parent. My parents were generally supportive of whatever I was doing. My mom was incredibly hardworking. She’d herd my brother, sister and me all around. Some days she drove me to Radio Shack multiple times. A familiar rant would be, “Won’t you please get your parts list sorted out before we go so I only have to take you once!”
DS: You worked at McDonald’s. What did you learn there?
Bezos: It was my first real job. I was an acne-faced 15-year-old, and they didn’t let me anywhere near the cash registers. I always worked in the back with the cook, which was sort of fun. I was surprised how hard the job was. The buzzers would go off and you had to run. You were juggling a lot of stuff. McDonald’s technology has improved. You’d have to run over and pull out the french fries, and then the toaster buzzer would go off and the buns were ready, and then you would have to flip the burgers. Every once in a while, all the buzzers would go off simultaneously. So that was my McDonald’s experience.
DS: Which made you want to head to Princeton to study particle physics—
Bezos: I went to Princeton to be where Einstein was. It is an extraordinary department. I learned a valuable lesson there: I learned that I am not smart enough to be a good physicist.
DS: Was it crushing?
Bezos: No. But it was good to figure out early. At first I did well in physics, but the class narrowed from about 300 people to 40. It was the group of people who really wanted to be physicists. I looked around one day and realized that there were at least three people in the class who were going to be the ones who would do something extraordinary. They were wired differently. The things I had to work so hard on came so easily to them. I am sure they went to places where their unusually large and well-wired brains are helpful.
DS: What led to computer science?
Bezos: I was taking computer science and electrical engineering classes and really loving it. So I switched. I had a real passion for computer science.
DS: Did you plan to go into computer science as a job?
Bezos: By the time I graduated from Princeton, I knew I wanted to be an entrepreneur. I even thought about starting a company straight out of school. By the way, I think that is a really bad idea, if anyone is interested. It has worked for a few people, but it’s a losing gamble.
DS: So your better sense prevailed.
Bezos: Yes. Mostly I didn’t have any good ideas. But other people graduating in my class were starting companies that I could have joined. I did interviews with Intel, Bell Laboratories and Andersen Consulting but decided that the right thing to do was try to get some experience in a small company. I went to a start-up in New York City. I found a company with 11 people and joined. It made a system for helping to clear and settle the transactions after a stock trade is made. It wasn’t a great success, though it wasn’t a dismal failure, either. I stayed for two years and then went to a big company, Banker’s Trust.
DS: How did your computer science background apply?
Bezos: I was basically on the technology side, working on a product called BT World, the portfolio-analysis workstations used by the bank’s major pension-trust clients. That was a unique business in that it was easier to do the work than explain to people what I did. Then I left Banker’s Trust and went to D.E. Shaw & Co., the fund company, where I worked with an incredibly smart group of people. David Shaw is one of the smartest people I have ever met. I was there for about four and a half years and loved it. Loved the creativity and the energy and the brightness of the people. I left to start Amazon.
DS: Was there a seminal moment at which you decided?
Bezos: There was a moment. It was discovering the startling fact that web usage was growing at 2300 percent a year. Things don’t grow that fast. It just doesn’t happen. When I read it, I didn’t believe it. I was skeptical, so I delved into the methodology of the report. It was the spring of 1994. The web growth hadn’t broken into the mainstream media at that point. It was just about to. Believe it or not, it was illegal to do commerce over the Internet in the spring of 1994. There was already a plan to remove that restriction, but it shows how early it was in the development of the Net. So I decided to try it. And here we are.
DS: Besides Amazon.com, what other net companies have done it right?
Bezos: Microsoft has done a fantastic job. They’ve taken some criticism for some of their Net efforts, but not for the important ones. It’s amazing how quickly they adapt. I have a lot of respect for that company, mostly because they’ve done such a great job of hiring. The depth of the team they’ve built stands out over time—brainy people all the way down.
Dell has also done a great job online in a different way. Dell had more traditional methods of distribution and came online and did it right. Michael Dell gets it. He built a team of people who get it.
By and large, most companies that have done a good job in the physical world—well-managed companies—have not done a good job online. The reason is pretty simple: The set of skills and competencies you need to be a fantastic physical world company are completely different than the ones you need to be a fantastic online retailer.
DS: What’s a good example?
Bezos: There are several examples, but I’ll decline to mention them.
DS: Besides e-commerce, in what other ways will people make money on the Net? Will subscription sites work? Advertising?
Bezos: All of those models will work to one degree or another and probably some new models that haven’t yet been figured out. Everything is going to work, but the question is how much. Subscriptions haven’t worked well yet, though there are a few exceptions, including the Wall Street Journal. Long term, however, there will be subscriptions to valuable content. Advertising won’t completely pay the bills, so customers will pay for certain types of content.
DS: Thus far, Microsoft’s Slate magazine is a famous failure.
Bezos: People are used to paying for content in physical form. Psychologically they’re not used to paying for it in electronic form. Though it’s irrational, I expect my content on the web to be free. But look at TV. People certainly thought it should be free, but now people don’t think about paying for premium content such as HBO. It took some time before people were willing to do that and it will take some time on the web. Also, content providers haven’t done a great job transporting their content into a form that is highly usable online. There’s a lot of free stuff, so the information you provide has to be ten times better. It can’t be 50 percent better. It has to be a lot better. The companies that have been successful charging for content online have content that just isn’t available off-line. Also, the display technology isn’t as good. I’d much rather read The Wall Street Journal on paper. It’s easier on my eyes, it’s portable and I can sit back and drink a cup of coffee while I’m reading. On the other hand, when you’re traveling, it might be easier to read the Journal online.
DS: Does this mean you disagree with those who say print is dead?
Bezos: It’s not a question of if, it’s when. Paper will go away eventually, but it will take a lot longer. It goes back to display technology. It has a long way to go. For instance, I read magazines when I’m on the StairMaster. It’s still a lot easier to read them in paper form. When they make something flexible that you can roll up and stuff in your back pocket and the screen is better than paper, I’ll use it.
DS: Will computers become unessential for web surfing?
Bezos: They already are in some ways—with PDAs, for instance. It’s really semantics. It depends on your definition of a computer. PDAs are a type of computer. Cell phones that can connect to the web are a type of computer. But I think there will be everything, including general purpose machines like the computers on our desktops. There also will be web tablets. You might have two or three that are full-time Internet access devices. Instead of calling for movie times on the phone, you’ll immediately check the movie times on an instant-on web pad.
DS: Will books be downloaded instead of delivered in their paper form?
Bezos: Not immediately but eventually. The generation of electronic books available today is not the generation that’s going to work. In fact, it’s probably the generation before the generation before the generation. It’s just a question of when. There are two things holding it back, both quite rational. One is fear of piracy on the part of the publishers, and the other is the display quality. Paper is a great display device. It’s high resolution, high contrast. It doesn’t require batteries and is highly portable. You can write on it. It has these great features, and computer displays are not there.
DS: What other technologies are coming?
Bezos: Everything you can imagine is going to happen to one degree or another. Whatever comes along—more sophisticated techniques for personalizing the site, agents to help do the shopping for you at more sophisticated levels—will be used if they have value for customers. When I meet somebody new, my first question is, “How can we make the experience better for you?” It takes a significant amount of effort to get people to say negative things in person; they want to be polite. But I’ve learned how to get people to tell the truth. Still, the best way to get people to tell you the truth is to solicit their input by e-mail. E-mail turns off the politeness gene in the human being.
DS: Because it’s anonymous?
Bezos: Even if it’s not anonymous. I’ve found that people can be more rude in e-mail than in regular mail. In a letter they can be rude, but a letter is a little more formal. You edit yourself and say, “Do I really want to be that nasty?” But you pound out e-mail and send it off. I am convinced that we have received more honest feedback from customers in four years than probably any other company has received in 20 years.
DS: Can you give us an example of the feedback?
Bezos: Two or three years ago, I got a message from an 80-year-old woman. She said, “I love your service, but I have to wait for my son to come over to open the packages.” We used to use a material that was very strong to protect the books, but opening the packages was like breaking into a bank vault. We set about figuring out a way to have the packages arrive securely while ensuring that a mortal could open them without using a jackhammer.
DS: Was “one click” a response to a customer?
Bezos: No. That one was planned. Our number one goal is to be the earth’s most customer-centered company. The traditional meaning is what you would expect: listening to your customers, figuring out what they want and giving it to them. We do that, I hope. But the next step is to innovate on their behalf. It’s not their job to tell you what they need. After that comes finding a way to serve customers that is specific to the Internet. Increasingly, we will put each customer in the center of his or her own universe. In personalizing, we are two percent of where we will be ten years from now.
DS: What will be different?
Bezos: What we do now is to greet someone when they return. “Welcome back, so-and-so.” We can offer them some recommendations based specifically on their interests, which we’ve learned from a buying history. But instead of having a small piece of our store like that—individualized—every page should be customized like that. We’re getting better at it. There may be some important books that you should read—books that would resonate with you and have an impact on your life. If the crucial books were the same for everyone, there would be no problem. But everyone is different. We will develop the technology necessary to let people have that kind of deep discovery experience on our site. The goal is to accelerate the discovery process. Humans have the powerful need to discover, explore. If we can accelerate the discovery process, we’re providing a great service.