Damn! What a nice, bookish tycoon
The boss of Amazon.com is a cheerful guy who smiles a lot. And so he should, having made pounds 2bn from his online bookstore.
Monday 16 November 1998
You could forgive the founder of Amazon.com - which is yet to move into profit - all this if he were your usual miserable paranoid business mogul. But he's not. He's a very nice guy. It's very irritating.
Four years ago Bezos was a high-flyer on Wall Street. Working in a quantitative hedge fund (don't ask), at 30 he was a senior vice-president and doing very nicely. One day, looking around on the Web, he came across a number. "In the spring of 1994, I found Web usage was growing at 2,200 per cent a year. It's very unusual that something grows that fast," he recalls with a chuckle.
Bezos knew that quite a number of people were already using the Web. So he extrapolated. "Anything with a non-trivial base line growing at 2,200 per cent a year might be invisible today but would be ubiquitous tomorrow. That was the wake-up call."
He carefully analysed 20 different products he thought could be sold on the Net. "You had to be able to build something that offered enough value to the customer for people to want to use this new and infant technology. Really, that meant you had to do something that could only be done online. I picked books primarily because there are so many different [titles] - there were more items in the category than in any other," Bezos explains. "Over three million books are actively in print. No one could build a book store with three million titles. The largest bookstores in the world - and there are only three this big - carry 170,000 titles. Most book shops have 30,000 to 100,000 titles."
Bezos, being something of a nerd (he had studied computer science at Princeton University), invented "regret minimisation". "I projected myself into the future... When I am 80 what do I want to have done? I knew I would never regret having left Wall Street in the middle of the year, having forgone my 1994 bonus. By the time you are 80 you are not going to remember any of those things. But I thought I might regret not being involved in this thing called the Internet. Once I thought about it in that sort of way, I knew I would not regret taking the risk."
The first thing he needed was a base for his business. For many people, the Net is a virtual world, so you can build your business anywhere. But if you want to build a large business, you will need staff. And that means a decent-sized city.
"Our base had to be in a city with a large pool of technical talent. I narrowed it down to four places, and settled on Seattle." Not only is Seattle a pool of technical talent (Microsoft is based there, as are many other computer firms), but it is near the largest book warehouse in the world.
Next, Bezos went for the traditional Silicon Valley approach for his HQ. "We rented a house and the office was in the garage. I wanted some of the start-up legitimacy that comes with starting in a garage." With this he dissolves into laughter yet again. "Now I know why people move out of garages though," he adds, laughing even harder. "It is not that they run out of room, it is that they run out of electrical power. We had so many computers ... that the circuit breakers kept tripping."
In one of the Net's neatest ironies, Barnes and Noble - the world's biggest book firm, Amazon.com's largest competitor in the online book market, and probably the company with the most to lose from the Amazon revolution - proved invaluable for the fledgling company. "We couldn't really bring people to our office, so we held all our early meetings in a cafe two miles away, which just happened to be inside a Barnes and Noble store."
Creating business relationships with suppliers and distributors was a big challenge, but getting book details on to Amazon's computers was a massive, laborious job. "We had over a year to do it. We used a variety of sources and some of it was hand-keyed in. There was no short-cut," Bezos recalls. "It was just a lot of hard work. Sometimes we would get data on the same book from multiple sources, but it would be in conflict so we built all sorts of heuristics [programs] to resolve that kind of ambiguity." Then it was just the minor question of developing the software; testing the product, and getting the ball rolling. For most people this might have meant an advertising campaign, but Jeff Bezos did not even have a marketing budget.
"The Internet was a much smaller place three years ago. It's hard to actually remember... what the Internet was like three years ago. We had 300 beta customers [testing the system]. These were friends. We would e-mail them and would say: `Please come and put our system through its paces, but don't tell anybody what we are doing.' Then [after six weeks], when we finally had all the bugs worked out of the system, we sent an e-mail to [them] to say we were ready and could they please tell their friends about it. And these friends told other friends."
By electronic word of mouth, and by being featured on the very young Yahoo site, Amazon's name spread rapidly. "In July 1995, we had our first real paying customer. It is very exciting when you get your first customer who is not a relative. All the staff were saying: `Do you know this person? I don't know this person. Hey, how about you? Do you know this person?'". Bezos laughs hysterically remembering.
At first all Amazon's computers were set to sound a bell as an order came in, but that soon got switched off. "It got very annoying. In the very beginning it was just half a dozen sales a day, but within a few days it was several tens a day. Within a couple of months it was a hundred or more and then it accelerated. It was compound growth. If things double every day, it doesn't take long to build up big numbers." Things grew much faster than even Bezos expected. "Our business plan does not even begin to resemble what has actually happened. I think one thing we missed was that the Internet was exclusively made up of early adopters at that time. So all the people online, even though it was a relatively small number compared with today, were [those] who liked to try new things.
"We had a unique proposition. On day one we were 10 times the size of the largest bookstores - it was over a million titles. So people were finding obscure books they'd been looking for for years and saying this was unbelievable. And they'd order, not expecting it to really work, thinking they did not have much to lose. And then the book would come and they would really be blown away. And then they would tell all their friends."
As a result Amazon has grown and grown. In just over three years it has serviced 4.5 million customers. Not orders, customers. Sales run at about $600m a year and Amazon is valued at over $6bn. And today, it has its own five giant book warehouses.
So where now for Amazon's so nice boss? Last month he launched Amazon.co.uk, which is growing faster than its parent. It is exciting, but it really is just more of the same.
What excites Jeff Bezos is moving the business along. Four months ago Amazon launched into online CD sales and has already become the world's biggest online music retailer. Next up is videos. But these specific lines are just the start.
"Our strategy is to become an electronic commerce destination. When somebody thinks about buying something online, even if it is something we do not carry, we want them to come to us. We would like to make it easier for people online to find and discover the things they might want to buy online, even if we are not the ones selling them."
Bezos plans to link up with other merchants and direct customers to their sites - no doubt for a fee. But the interview is getting just a little serious. So one last question: "Are you still enjoying creating this business?" "Oh yeah. I love computers, I love business, I love rapidly changing environments. How could I have a better job?" With that he dissolves into yet more helpless laughter.
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