The River Of Retail

th-1I’ve just traveled back in time, to a more innocent age. I did it by reading a book about Amazon.com. “By the time you read this book,” opines business writer Robert Spector in the finale of his AMAZON.COM: GET BIG FAST, “Amazon.com will have changed in some profound way.” Man, did he get that right – because HarperBusiness published this tome way back in 2000, when Jeff Bezos’s website was just five years old and nobody’d ever heard of an “Internet bubble.” By the time I read this book, Amazon (the by-now-anachronistic “.com” was quietly dropped in March 2012) was barely recognizable.

Business books like this one are churned out mainly for eager MBA candidates and execs on the make who are busy taking notes or marking up the pages; Mr. Shelton helpfully provides summational “takeaways” at the end of each chapter so readers don’t even have to uncap their pens. The writing won’t win any awards – the market calls for simple, straightforward, didactic prose – and the book is poorly (hurriedly?) edited and proofed: dropped connectors, “baited breath,” “technocolor,” multiple introductions of the same event. But you do get a look at Amazon.com just as it was becoming an actual power, from a reporter who is still marveling at this new Internets thing. “The real winners,” writes Mr. Spector from 2000, “will be the so-called ‘clicks-and-mortar’ retailers that combine a physical presence with a virtual presence…the future belongs to these multichannel operations.” “One day,” he predicts, “we will even see Amazon.com in the physical world, either with stores or kiosks,” and in New York City, for the 2014 holiday season, his farfetched Hail-Mary concoction will have actually come true.

th-2Mr. Spector is much better at describing what has already taken place: the famed creation story in which Bezos quits his cushy job at D. E. Shaw & Co. – he’s flat-out brilliant – and, entranced with the mind-reeling growth of the Internet, uses Spocklike logic to choose an entry-point product (books) and a city from which to base his startup (Seattle). We watch as Bezos assembles a team of equally smart people who know nothing about retailing, yet build a crude infrastructure and go live on July 16, 1995. In a time period so compressed that it ate people up (you had to be young and driven to work there), Amazon.com became a constant exercise in scaling out, in keeping up with an unprecedented growth rate, in whacking the largest moles anybody had ever seen. The Amazonians fill more and more warehouse space and toss away their initial plan to be a store that is only virtual. They go public and charm investors by admitting they plan to lose money as far out as the eye can see, throwing every penny into getting big fast. They enter Britain and Germany by buying existing e-sellers and giving them an Amazon storefront. They add music and video to the mix and start a website buying spree. They hire executives from Wal-Mart and other retailers for adult supervision over the distribution chain. Within five years, they’ve survived their first soul-searing holiday rush and built one of the most famous brands in the world. In January 2000, they change their logo to the famous “smile arrow” that connects A to Z in the company name: we intend, they announce, to sell everything (except firearms, living creatures, pornography or tobacco). When Bezos holds up an unusual food product at a press conference, Mr. Spector is obviously getting his first look at what he calls an “edible (presumably)” turducken. And that’s where this book leaves them.

The author basically lionizes Jeff Bezos, who is named Time’s Man of the Year for 1999. Although Mr. Spector does note some early missteps – charging publishers for favorable placement on the site, just like Barnes & Noble and Borders had for years, only failing to tell customers about the sponsorships; Purchase Circles, which could let you see what others at your company are buying, which was TMI for outraged corporations like IBM; an unflattering fight with a lesbian bookstore in Minneapolis which had been using the name Amazon since 1970; and selling English-language copies of MEIN KAMPF from the US site to customers in Germany, where the book is banned – and reports some groaning from afar about working conditions, we never get a fully rounded view. For that we need thirteen more years to pass, and the publication of a very different book.

thTHE EVERYTHING STORE by Brad Stone isn’t written for business students: it’s a more major piece of narrative nonfiction. Mr. Stone has the benefit of the ensuing years in which Amazon has grown into a global colossus, large enough to push around his own publisher, Hachette (proprietor of this book’s Little, Brown imprint) and agitate for a larger piece of the pie, delaying or denying shipment of Hachette titles in the process. The dustup has only recently been resolved; click on the book cover to see how much Amazon has relented since I wrote this. I bought my copy, during the standoff, from Powell’s Books. (Fun fact: both Larry Kirshbaum, who ran an in-house publishing program at Amazon, and David Naggar, who presided over its settlement with Hachette, are former executives at the Warner Communications books group, which morphed into this particular member of the Big Five publishers.)

Amazon’s not a cute startup any more. But this is no Hachette job (sorry): though he does not talk to Bezos in person specifically for this book (as a business journalist he’s had the pleasure more than once), Mr. Stone does acknowledge the founder’s help in giving the go-ahead for “innumerable interviews with his friends, family and employees.” Bezos’s hesitation seems to be that he feels it’s still too soon to tell Amazon’s story comprehensively (I do not believe it has anything to do with the identity of the publisher), and the company is indeed a quickly rolling stone; it won’t be much longer before this book too is out of date.

Meanwhile, though, we get a ripping yarn about a scarily intelligent, scarily ambitious, scarily obsessed man who saw the face of the future back when everybody thought he was just a bookseller. Jeff Bezos reminds us naturally of Steve Jobs: the same driven personality, the same steely mind, the same screaming impatience with anything short of perfection, even the same “reality distortion field” that worked its will on every aspect of the innovative companies they built. They were both adopted by loving foster parents, and each man grew rich and famous without their biological fathers being aware of their relationship. It is clear from reading his story that Amazon as we know it wouldn’t exist without Jeff Bezos — the same existential importance as Steve Jobs had to Apple.

We inevitably go over some of the same territory as does Mr. Spector, but THE EVERYTHING STORE has caught up barely a quarter of the way in. Bezos’s vision was 20-20 even when he seemed to be the only guy with eyesight, back when the new company was called Cadabra (it sounded like “cadaver” to people on the phone. Another candidate was a little too on-the-nose: type in “Relentless.com” and, to this day, you’ll go straight to Amazon). You can’t succeed without having the guts to fail, and Bezos suffered some spectacular flops, primarily during Amazon’s big buildout during the dot-com boom, when the company wasted most of $2.2 billion in bond offerings in buying up smaller players that didn’t pan out. Its share price peaked on March 10, 2000, a few months after Jeff had been named Time magazine’s Man Of The Year, and Job One suddenly became simple survival.

th-3Amazon benefited both from Jeff’s foresight and the naiveté of others, to whom online commerce was viewed as a novelty, a technological fad that would eventually go away. Rather than do the hard, expensive work themselves, companies like Toys ‘R’ Us engaged Amazon to run their online presences. Later Circuit City, Borders and Target all entered into similar partnerships, but all they were doing was ceding advantage to Amazon. (About half of the in-person Borders stores were actually quite profitable when the company entered bankruptcy, but they were locked into too many pricey 15- and 20-year leases, more cannon fodder for Amazon’s lean, lithe business model.)

For anybody who is still surprised at the ruthlessness with which Amazon opposed Hachette (price wars are commonplace among other retailers but anathema to the cozy book industry, which sells its product on consignment and financially continues to press its historic advantage as the gatekeeper separating author and audience), one need only look back to 2002. Amazon’s contract with the United Parcel Service was up, but the shipper was facing union negotiations and felt it had no wiggle room. Amazon had already cultivated a relationship with Federal Express and that, coupled with driving its own trucks directly to the U.S. Postal Service, gave the retailer the necessary leverage. Amazon’s Jeff Wilke called supply-chain manager Bruce Jones and said, “Bruce, turn them off.” Within hours, unnoticeable by Amazon customers, its business with UPS simply dried up. A couple days later, Amazon received a bulk discount at UPS and taught the company “an enduring lesson about the power of scale and the reality of Darwinian survival in the world of big business,” writes Mr. Stone.

The flip side of that, of course, is that Amazon created a new revenue stream for the book industry by refining its desultory tentative steps into electronic documents. E-readers existed before Amazon’s Kindle debuted in 2007, but they were oriented toward the publishers, clunky and expensive. Amazon upended the industry by continuing to think about the customer (purchase of a Kindle book is even simpler than buying a paper copy on the Amazon site), and now it has a two-thirds share of the e-book market, which is not quite one third of all books sold in the US, a percentage which is likely to grow.

Much of this commotion seems intuitive, but only in hindsight. The fact is that Jeff Bezos is continuing to play a chess game against his competition — which is not only other retailers but also other technology firms — by thinking many moves in advance. The placement of Fulfillment Centers (i.e., warehouses) across the country is customer-centric, but not just for what Amazon sells today. These vast units are not tucked in the middle of nowhere: they’re near large cities, which will help Bezos achieve same-day service and gain the ability to deliver perishable groceries to most of the nation. Those infamous Amazon drones that Jeff proudly showed to 60 MINUTES sound crazy right now. But once so did Kindle, free shipping with a paid subscription, streaming audio and video as part of that same package, renting out server capacity, and a long, long list of other realities Jeff has basically willed into being. The notion of Amazon itself was judged to be nuts many, many times by graybeards who are still eating their words.

Mr. Stone concludes his book with a charming, lyrical bit of reporting. He tracked down and befriended Jeff’s biological father, 69-year-old Ted Jorgensen, who is the well-liked proprietor of the Roadrunner Bike Center in Glendale, Arizona. Mr. Stone explained who Jeff grew up to be, and Jorgensen’s eyes “filled with emotion and disbelief.” He sent letters via mail and e-mail to Jeff and his mother, and after a few months, the founder replied graciously and kindly. “He wrote,” reports Mr. Stone, “that he empathized with the impossibly difficult choices that his teenage parents were forced to make…he said that he harbors no ill will…and then he wished his long-lost biological father the very best.” There simply wasn’t room in Bezos’s makeup to waste time sifting through the past. It takes all his formidable skill to try his best to keep up with the future.

Advertisements

One Response to The River Of Retail

  1. onewithclay says:

    Tom, great article, with a fun kick at the end since I grew up in Glendale, Arizona. I await the next post with technocolor-baited breath! 🙂

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: