The Everything Store: Jeff Bezos and the Age of Amazon
Little, Brown and Company (2013)
How and why “Amazon may be the most beguiling company that ever existed, and it is just getting started”
Disclaimer: Several reviewers (including MacKenzie Bezos) have challenged the accuracy of some of Stone’s material and I am unqualified to address any of those issues.
* * *
I thoroughly enjoyed reading this book by Brad Stone, one that combines a biography of Jeff Bezos with a biography of his greatest business success thus far, Amazon.com, a commercial empire that he founded in 1994, in his garage in Bellevue (WA), as an online bookstore. He selected the name because it was also the name of the largest river in the world. His BHAG then was to establish the largest “store” in the world, one that offered everything for sale. There seems to be no limit to the possibilities and opportunities that await Bezos’ interest and attention. Based on the material that Brad Stone provides in this book, nothing that Bezos does in months and years to come will surprise me.
Based on what I have learned from the book, I would cherish his personal friendship and welcome the opportunity to work with and for him. However, given my current age and circumstances, neither will happen. That said, I admire his intelligence, energy, integrity, passion, and enthusiasm…all of which Amazon exemplifies throughout its operations. Bezos is a ferocious but principled competitor who boldly embraces new opportunities to nourish his insatiable curiosity, especially if they challenge him to make a best effort. I also think it odd that one of his defining characteristics is a honking laugh that can rattle windows.
Here are two of several especially significant developments that Stone examines. In Chapter 4, he discusses a breakfast meeting that Bezos had with Jim Sinegal, founder and then (2001) CEO of Costco. They met at the Starbucks inside the Bellevue (WA) Barnes & Noble.
Sinegal explained the Costco business model to Bezos: it was all about customer loyalty. “Though the selection of products in individual categories is limited, there are copious quantities of everything there – and it is all dirt cheap. Costco buys in bulk and marks up everything at a standard, across-the-the-board 14 percent, even when it could charge more. It doesn’t advertise at all, and earns most of its gross profit from annual membership fees.”
Sinegal observed, “The membership fee is a one-time 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. It reinforces the value of the concept. Customers know they will find really cheap stuff at Costco.
“My approach has always been that value trumps everything. 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.”
The Monday after that meeting, Bezos met with his senior managers and announced that Amazon.com would immediately be cutting prices of books, music, and videos by 20 to 30 percent. Later during a quarterly conference call with analysts, he observed, “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 out how to charge less, and we are going to be the second, full-stop.”
* * *
The second development occurred later during an offsite in which Jim Collins participated. After several intensive discussions, Collins told Bezos and his colleagues, “You’ve got to decide what you’re great at.”
Stone then explains, “Drawing on Collins’s concept of a fly wheel, or self-reinforcing loops, Bezos and his lieutenants sketched their own virtuous circle, which they believed powered their business. It went something like this: ”Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of foxed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop.” Bezos remains convinced that this is Amazon.com’s “secret sauce.”
During one of my interviews of Collins, he explained it this way:
“Picture a huge, heavy fly wheel — a massive metal disk mounted horizontally on an axle about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds. Now imagine that your task is to get the flywheel rotating on the axle as fast and as long as possible…You’re pushing no harder than during the first rotation, but the flywheel goes faster and faster. Each turn of the flywheel builds upon work done earlier, compounding your investment of effort.”
It is worth noting, also, that compound interest is the “secret sauce” of Warren Buffet’s success as an investor. One winter in Omaha when he was a child and sledding with friends, he observed a snowman that had fallen over and was rolling down the hill, becoming an increasingly larger snowball.
* * *
This may not be the definitive historical account of Jeff Bezos and Amazon but it will certainly do, for now.