Brad Stone’s “The Everything Store”: Book Review, Notes + Analysis

Poor Ash’s Almanack > Book Reviews > Business / Finance > Entrepreneurs

Overall Rating: ★★★★★★ (6/7) (standout for its category)

Per-Hour Learning Potential / Utility: ★★★★★★ (6/7)

Readability: ★★★★★★★ (7/7)

Challenge Level: 1/5 (None) | ~355 pages ex-notes (416 official)

Blurb/Description: the story of Amazon.

Summary: a thorough description covering the genesis of everything from Prime to Marketplace to AWS, as well as some misadventures along the way..

Amazon isn’t happening to the book business. The future is happening to the book business. - Jeff Bezos Click To Tweet

Stone does a great job of exploring not only Amazon the company, but also Bezos the man.  Although there is of course some risk of  storytelling, a lot of angles of Bezos mirror earlier disruptive entrepreneurs like Sam Walton, and I think there’s a lot to learn here.

Highlights: well-written, engaging, and detailed (but in an interesting rather than boring way). Stone is a solid writer. 

Lowlights: MacKenzie Bezos (Jeff’s wife) thinks it’s a horrible book with numerous factual inaccuracies.  That is worth considering.

Mental Model / ART Thinking Points:  scheman-order impacts,confirmation biasdisaggregationmemoryutilityopportunity costs, one to many, incentiveslocal vs. global optimizationoverconfidence,luck vs. skillpath-dependencysunk costscommitment bias,network effectszero sum games, n-order impactsdiscrete vs. recurring payoffs, one to many, empathycognition vs. intuition

You should buy a copy of The Everything Store if: you want to understand how one guy has, more or less, systematically upended industry after industry.

Reading Tips: none

Pairs Well With:

The Great A&P by Marc Levinson (GAP review + notes)

Made in America by Sam Walton (WMT review + notes)

Pour Your Heart Into It by Howard Schultz ( PYH review + notes)

The Halo Effect by Phil Rosenzweig ( Halo review + notes)

my essay “Takeaways From 150 Years of Retail Dominance

More Detailed Notes + Analysis (SPOILERS BELOW):

IMPORTANT: the below commentary DOES NOT SUBSTITUTE for READING THE BOOK.  Full stop. This commentary is NOT a comprehensive summary of the lessons of the book, or intended to be comprehensive.  It was primarily created for my own personal reference.

Much of the below will be utterly incomprehensible if you have not read the book, or if you do not have the book on hand to reference.  Even if it was comprehensive, you would be depriving yourself of the vast majority of the learning opportunity by only reading the “Cliff Notes.”  Do so at your own peril.

I provide these notes and analysis for five use cases.  First, they may help you decide which books you should put on your shelf, based on a quick review of some of the ideas discussed.  

Second, as I discuss in the memory mental model, time-delayed re-encoding strengthens memory, and notes can also serve as a “cue” to enhance recall.  However, taking notes is a time consuming process that many busy students and professionals opt out of, so hopefully these notes can serve as a starting point to which you can append your own thoughts, marginalia, insights, etc.

Third, perhaps most importantly of all, I contextualize authors’ points with points from other books that either serve to strengthen, or weaken, the arguments made.  I also point out how specific examples tie in to specific mental models, which you are encouraged to read, thereby enriching your understanding and accelerating your learning.  Combining two and three, I recommend that you read these notes while the book’s still fresh in your mind – after a few days, perhaps.

Fourth, they will hopefully serve as a “discovery mechanism” for further related reading.

Fifth and finally, they will hopefully serve as an index for you to return to at a future point in time, to identify sections of the book worth rereading to help you better address current challenges and opportunities in your life – or to reinterpret and reimagine elements of the book in a light you didn’t see previously because you weren’t familiar with all the other models or books discussed in the third use case.

Bezos on  n-order impacts:

There is so much stuff that has yet to be invented. There’s so much new that’s going to happen. People don’t have any idea yet how impactful the Internet is going to be and that this is still Day 1 in such a big way. - Jeff Bezos Click To Tweet

Bezos was an enthusiastic, driven, and intelligent child from an early age, but one of the consistent themes throughout the book is the Alan Kay quote on  schema:

Point of view is worth 80 IQ points. - Alan Kay Click To Tweet

Bezos walked away with lessons from everyone he met (but he was also fiercely independent and didn’t care what others thought). 

In this sense, he’s exactly like Sam Walton (see Walton’s “ Made in America – WMT review + notes).

Bezos avoided confirmation bias and  ideology: he changed his opinions to fit the facts rather than vice versa, and thought analytically about everything, including women – one person described him as the “most introspective/methodical guy I’ve ever met.”  He’s clearly great at  disaggregation.

Bezos recorded his ideas in a notebook as if they might float out of his mind: clearly, he understands the  memory mental model.  As explored by many books – Daniel Schacter’s The Seven Sins of Memory (7SOM review + notes), Don Norman’s The Design of Everyday Things (DOET review + notes), and even Laurence Gonzales’s Deep Survival (DpSv review + notes), working memory is biologically limited to about 5 – 7 items.  As Gonzales puts it in “ Deep Survival:

“The fact that new information […] forces things out of working memory means that we can’t pay active attention to too many things at once.”

Schacter and other experts note the importance of time-delayed re-encoding (which is made much easier by being able to go back to thoughts before they’re pushed out of working memory and perhaps lost forever).

Meanwhile, the uniquely human phenomenon of  intuition – the cross-linking of many disparate ideas – is mediated by REM  sleep (as explored thoroughly in Dr. Matthew Walker’s Why We Sleep– Sleep review + notes), but the fundamental precursor is having that information available in memory.  As Kip Tindell notes in Uncontainable (UCT review + notes):

Intuition does not come to an unprepared mind.

In fact, that’s Foundation Principle #6 at The Container Store.

Anyway, back to Amazon.  Bezos is believed to be an ISTJ (source: Internet, not the book).  Ironically, he dated his wife McKenzie for merely three months prior to proposing to her, and they were married three months later… and (at least so far) have lived happily ever after.

The book starts with a brief description of Bezos’s childhood then segues into his time at secretive quant shop DESCO, a Renaissance-like environment where computer scientists applied themselves to trading without any previous knowledge of finance.  

DESCO, however, viewed itself as a problem solver rather than a hedge fund, and began investigating the possibility of internet businesses. They developed Juno (an ad-supported email service that was a precurosor to Yahoo! Mail and GMail) as well as an E-TRADE-like business that was eventually sold to Merrill Lynch.

Shaw (the founder) and Bezos discussed the possibility of an “everything store” that disintermediated traditional retailers.  Bezos determined quickly that a true “everything store” was impractical, but books worked because they were A) a commodity (you don’t need to inspect the physical product), B) extensive (3MM titles – more than any bookstore could carry), and C) the supply market was consolidated (two main distributors, so it was easy to get into the market without having to make thousands of individual relationships.  Again,  disaggregation.

In deciding whether or not to continue his lucrative Wall Street career or go after this opportunity, Bezos utilized a “regret-minimization framework”: that basically evolves, among other things, marginal utility and  opportunity costs:

“when you are in the thick of things, you can get confused by small stuff.  I knew when I was eighty that I would never, for example, think about why I walked away from my 1994 Wall Street bonus right in the middle of the year at the worst possible time.  

That kind of thing just isn’t something you worry about when you’re eighty years old. At the same time, I knew that I might sincerely regret not having participated in this thing called the Internet that I thought was going to be a revolutionizing event.  

When I thought about it that way… it was incredibly easy to make the decision.”

If you’re curious on the base rates of what people regret (and treasure) at the end of their lives, check out Karl Pillemer’s “30 Lessons for Living”(30L review) – it’s a helpful starting point in working through the above sort of analysis.  This is also a great example of “adding vantage points,” as explored by Shawn Achor in The Happiness Advantage (THA review + notes).

Similarly, the “Begin with the End in Mind” habit in Stephen Covey’s landmark The 7 Habits of Highly Effective People (7H review + notes) is explored with a similar exercise: literally think about what you want written on your tombstone and in your obituary.

Bezos moved to Seattle and utilized some personal savings and some modest family money to get the business started.  His management philosophy was pretty consistent from the earlier days, as an early job posting (in August 1994) for a developer position called for:

“experience designing and building large and complex (yet maintainable) systems, and you should be able to do so in about one-third the time that most competent people think possible.”  

No pressure though!  Either the job posting or the book (unclear) cites another Alan Kay quote:

It’s easier to invent the future than to predict it. - Alan Kay Click To Tweet

There’s the standard garage story: Bezos built desks out of $60 blond wood doors from Home Depot (and the company, to this day, still uses such desks).  Ironically, meetings and coffee were often held at a nearby Barnes & Noble. Bezos took a 4-day bookselling course from the American Bookselling Association.  

It was very much a jerry-rigged operations: SPARC servers were hooked up to extension cords plugged into sockets around the house to balance the power load… you couldn’t run a vacuum or a hair dryer.  I’m surprised Bezos didn’t get a visit from FBI agents looking for marijuana.

Selling books online wasn’t a wholly new idea – one to many – but Jeff planned on doing better.  At first, Amazon held no physical inventory, simply taking in customer orders and then passing the orders along to distributors.  

One loophole that was helpful in starting: while distributors required a 10-book minimum to order, they didn’t require that to ship, so Amazon would order the one book customers actually wanted, then another nine that were out of print or unavailable.  

Amazon found itself benefiting from the “long tail” – hard-to-find books that nonetheless remained of interest to some readers – and in later years, it is strongly implied (by the book) that Amazon singlehandedly boosted the sales of publishers’ backlists, which physical stores are less inclined to carry.

A key litmus test came early on when book publishers were angry at Amazon for allowing negative reviews on its site.  A problem of competing incentives, as well as  local vs. global optimization.  Bezos’s point of view:

“We saw it very differently… we don’t make money when we sell things.  We make money when we help customers make purchase decisions.”  

To this end, a big push at the company over time was personalization; they realized that they could actually have a more intimate relationship with customers online than they could in person, and give better recommendations – algorithmic recommendations later supplanted most of their editorial content, anyway.

Working at Amazon, even in the early days, was stressful and intense; Bezos didn’t really believe in work-life balance.  As one employee noted wryly:

You can’t do a job like that on caffeine… you have to do it on carbs. - an early Amazon employee Click To Tweet

Free Advil was later cited as a cherished office perk.  (For reasons explored in my  dose-dependencymental model, it’s probably a good thing that it was Advil and not Tylenol, given how many headaches people probably had.)

In an oft-told anecdote, Amazon didn’t even, at first, have packing tables; employees would pack books on the floor (bad for your back). One brilliant employee suggested: hey, why not tables?  Bezos still tells the story today.

Yahoo!, a listing page for popular content on the internet, found them a week after launch and that sort of turned on the firehose.  Amazon was also an early adopter of the affiliate program (which I have, full disclosure, made a few hundred bucks from during the course of my life).  Kleiner Perkins was the first “real” investor and with this infusion of capital, Jeff adopted the motto Get Big Fast.

Bezos had little tolerance for traditional ways of doing anything; marketing VPs at the company were “doomed.”  The arrival of very sharp CFO Joy Covey proved to be a valuable asset. The company also benefited from its negative working capital business model, wherein it received payment immediately from customers, but didn’t have to pay suppliers until later.

When speaking to an HBS class, which proceeded to do a “case study” on Amazon, Bezos was told by some students that he had no chance of competing against Barnes and Noble.  Bezos replied, humbly, that the student might be right, but:

You might be underestimating the degree to which established brick-and-mortar business, or any company used to doing things a certain way, will find it hard to be nimble or to focus attention on a new channel. - Jeff Bezos Click To Tweet

This is, of course, a phenomenon that has been replicated over time – see Clayton Christensen’s The Innovator’s Dilemma (InD review + notes) for a number of examples.  See also The Great A&P (GAP review + notes) by Marc Levinson.

As I discuss in Ten Commandments From 1.5 Centuries of American Retail Dominance (And Failure), this is a common trend.  While there are disruptive entrepreneurs like Sam Walton, who “made it his personal mission” to ensure constant change at Wal-Mart, this is very much not the norm: many successful businesses are content to sit on their laurels.

Or, as Howard Schultz puts it in the Starbucks origin story –Pour Your Heart Into It (PYH review + notes) –

We’re seldom motivated to seek self-renewal… even when life seems perfect, you have to take risks and jump to the next level, or you’ll spiral downhill into complacency without even realizing it.

Back to The Everything Store.  Amazon/Bezos wasn’t immune from bad decision and overconfidence: during the internet bubble, when everyone (including Amazon) was awash in cheap capital, Amazon acquired and invested in a bunch of companies that more or less didn’t work out.

Bezos brought in a lot of former Wal-Mart executives and clearly respected the Wal-Mart story; Stone highlights a passage from the end of the Walton bio:

“Could a Wal-Mart type story still occur in this day and age?  My answer is of course it could happen again. Somewhere out there right now there’s someone – probably hundreds of thousands of someones – with good enough ideas to go all the way.  

It will be done again, over and over, providing that someone wants it badly enough to do what it takes to get there. It’s all a matter of attitude and the capacity to constantly study and question the management of business.

Again, the aforementioned Made in America (WMT review + notes) by Sam Walton is worth reading in context with TES.

The next events also demonstrate that Bezos wasn’t immune to bad ideas and overconfidence: for example, his attempt at competing with eBay failed miserably, the expansion into toys and electronics (categories that were very different from books) was not necessarily a failure but was certainly very challenging at first; jewelry flopped; the hiring of Joe Galli as COO was a disaster, and Bezos’s obsession with the “Noah’s Ark” idea (having one or two of every product in an Amazon FC) was no bueno.

He appears to have been bold but willing to cut his losses when things weren’t going well; i.e. ignoring sunk costs and avoiding commitment bias. Notably, he was (personally, not via Amazon) an early investor in Google…

Joy Covey may have saved the company with a well-timed convertible debt offering in Europe; post the internet bubble, capital was no longer free and Amazon’s seemingly reckless pace of expansion (coupled with sorely lacking competency in some areas like distribution) left it in a precarious financial position.

Luck vs. skill and path-dependency: if things had broke another way and the capital markets had been less friendly, Amazon Prime might not exist today (and, consequently, my checking account would have another 0 at the end of it, and this site wouldn’t exist because I wouldn’t have been able to source a boatload of books with close to zero activation energy).  😛

Amazon did eventually (in 2002) manage to deliver its first profitable quarter, on a GAAP (not Adjusted) basis.

I’m skipping around a bit here, as some of this stuff came chronologically earlier, but: the launch of Marketplace in 2000 (internally a very contentious decision) obviously proved to be a big long-term winner (perhaps tied with Prime for the most important development in the history of the core retail business).  It’s a clear network effects business.

Interestingly, while Marketplace is great for Amazon and for customers, it may or may not be great for sellers on the platform – toward the end of the book, there are some complaints from sellers that it’s a “race to zero” where you have to capture the buy button – but why shouldn’t it be? – if all you’re doing is distributing commodity product using someone else’s logistics and customer acquisition, unless you have structural advantages in sourcing cost, whoever has the lowest margin requirement wins… and there’s no “loss leader” play here like there is with stores.  See  zero-sum games and  n-order impacts.

At the same time, Amazon messed around with “partnerships” wherein it ran e-commerce back-end infrastructure for retailers, and it was beneficial to the balance sheet by bringing in cash, but these were awkward.  Back to the  commitment bias thing; this is basically the idea behind startups’ “fail fast” mentality: the  growth mindset and a/b testing applied to business…

A few notable things in my mind: there were some nice comparisons and contrasts in the Amazon-Walmart meeting on p. 118; both companies had their own methods of A/B testing, for exanemple… but Bezos was behind in understanding retail, and used his time with Lee Scott to “sponge up”useful info about retail.  Nice parallel to Sam Walton, who (in Made in America – WMT review + notes) was described by many as a:

“master of taking the best out of everything and adapting it to his own needs.”

Meanwhile, on the issue of decentralization vs. centralization, the topic is more complex than often cited – while Bezos later tried (and, it seems, failed) with the “two-pizza” initiative (trying to restrict team sizes to one that could be fed with no more than two pizzas), around the year 2000, former Apple executive Diego Piacenti noted that:

“people at various levels were making decentralized decisions to move quickly and the process wasn’t strong.”

Such as the strikingly incongruous fact that Amazon had a call center in an opulent building in the financial district of The Hague.

Bezos also learned a lot from Jim Sinegal of Costco; Sinegal, interestingly, echoed Sam Walton:

I’ve always had the opinion that we have shamelessly stolen any good ideas.”  

One to many.  Sinegal also told Bezos:

“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.”

Discrete vs. recurring payoffs as well as  disaggregation in the customer value proposition context (i.e. Peter Thiel X|Y – see the model.)

One of the more interesting aspects about Bezos is that despite his DESCO pedigree and his very strong focus on facts/logic, he’s also, n some sense, very story-driven.

He clearly had an appreciation for Wal-Mart, and later in the book, it is revealed that he also heavily weights customer anecdotes as “random audits” of the company’s offerings, often escalating customer concerns sent to his email with a simple “?” that means “FIX THIS NOW AND EXPLAIN HOW IT HAPPENED.”

One of the more curious things about Bezos, though, is that (at least in the 2000s – but perhaps later), he had an affinity for the Jim Collins book Good to Great.  It’s worth mentioning the methodology of Good to Great is seriously questioned by Phil Rosenzweig’s excellent The Halo Effect – Halo review + notes – Rosenzweig’s premise is that authors like Collins are guilty of storytelling:

“We don’t want to read just that Lego’s sales were sharply down; we want an explanation of what happened.  

It can’t just have been bad luck – there must have been some reason why a proud company… suddenly did so badly.”  

[…]

So many of the things that we – managers, journalists, professors, and consultants – commonly think contribute to company performance are often attributions based on performance.

Rosenzweig is a useful counter if you read a lot of books like “ The Everything Store” – because it shows you a bigger sample size and alerts you to the possibility that by connecting the winning dots, you might be falling prey to the Baltimore stockbroker problem discussed by Jordan Ellenberg in “ How Not To Be Wrong ( HNW review + notes).

Anyway.  Bezos, by the time The Everything Store was conceptualized, did at least understand the dangers of connect-the-dots storytelling, but nonetheless latched onto the Collins concept of the “flywheel” (which I admit is a compelling bit of imagery, whether or not his methodology was sound).

The major takeaway from this appears to have been that Amazon decided to take the Costco/Wal-Mart approach of not spending dollars on marketing that could instead be spent on improving the customer value proposition – this led to free shipping, and then customer segmentation (those who were willing to wait longer got free shipping, i.e Super Saver).  

Anyway, so now we’re at the point in 2002 where Amazon has reported its first profitable quarter, and clears $1B in sales during a non-holiday period, and so on… but rather than gloat, Bezos had this approach, according to Stone:

“Bezos told [the publicist] he would rather frame the negative stories like Barron’s infamous Amazon.bomb cover.  

When people wrote or said positive things about Amazon, he wanted employees to remember the Barron’s article and remain scared.”  

Loss aversion as a motivator?  I don’t have a full picture of intrinsic vs. extrinsic motivation yet, but it’s a topic to explore.

The book transitions to discussing more of Jeff’s childhood, going into some more details about his mother having him as a teenager then remarrying the man who Bezos would come to view as his real father (he was out of contact with his biological father until Stone, the author, found him in a bicycle shop in Arizona and told him who his son was.)

Bezos always had a desire to go into space… he was a very competitive child, and he “liked to be counted on.” There’s a cute anecdote about him, at 10 or 11, running some mortality statistics and telling his grandmother that her smoking habit would take nine years off her life, at which Grandma started crying and Grandpa took Jeff aside and told him quietly:

“Jeff, one day you’ll understand it’s harder to be kind than clever.” 

On empathy.  I liked that line.  Anyway, his plans always included becoming wealthy because he wanted to get to outer space and was inspired by NASA.

Back to Amazon – the distribution centers were a cluster, because A) they were really designed by and for Wal-Mart executives, and B) the company was growing really rapidly so everything was chaotic.

Bezos brought in Jeff Wilke, a MS/MBA from MIT who hired a bunch of engineers and generally smart people rather than retail distribution experts to fix things up. Particularly interesting was the discussion from pgs. 172 – 174 about the “episodic” way in which the DCs ran; one step was a big bottleneck.

The Goal (Goal review + notes) is referenced, and Bezos/Wilke/and friends eventually figured out that the only way to do what they needed to do was to design their own hardware and software.

Meanwhile, Bezos decided that middle management was bad, partly influenced by seeing unhappy Microsoft nearby in Seattle – he viewed communication as a sign of dysfunction – and this is where two-pizza teams come into the picture (not clear whether this actually ended up working out, for the most part.)  He also decided Powerpoint sucked and started forcing everyone to write six-page narrative reports, as well as phrase new products and features the way they would in press releases.

Several interesting business developments occurred during this time.  FIrst, via an employee suggestion box type thing, an engineer named Ward came up with the idea of Amazon Prime – i.e. essentially the inversion of Super Saver.  Amazon also played chicken (and won) with UPS by shifting package volume to FedEx and the USPS.

While Amazon’s jewelry initiative didn’t do so hot, they did start having an interesting competitive advantage via Marketplace – That was something we did quite well,” said retail manager Randy Miller.  And an interesting mixture of trying stuff with a low  opportunity cost:

“If [we didn’t] know anything about the business, launch it through the Marketplace, bring retailers in, watch what they do and what they sell, understand it, and then get into it.”  

Bezos proclaimed that Amazon was the “unstore” (is that where Legere gets Uncarrier from?  I’ll have to investigate…)

Going back to Prime though – the interesting thing is that there was, at least the way Stone describes it, close to zero financial analysis backing the project (which, to be fair, would have in some senses been let’s-pull-numbers-out-of-our-butt anyway.)  

It was clear that costs would be very high… and the financial analysis didn’t justify it… but Bezos “was going on gut and experience” per Stone.   Cognition vs. intuition.

Having seen Super Saver Shipping and One-Click change customer behavior, he strongly believed that Prime would accelerate the flywheel – and indeed, an executive described the customer response to signing up for Prime as:

going from dial-up to broadband.”  

Meanwhile, Google starts to emerge as a threat, with Bezos warning employees, “you can climb the mountain, but you can’t move it.”  At this point (mid-2000s), Amazon viewed itself as a tech company, but most people viewed it as a retailer. Bezos, like Walton, was focused on battling the “institutional no” and continually evolving.  

He hired PhD Udi Manber and thought highly enough of him that he made an exception to his normal “no 1×1 meetings” rule (since Bezos thought 1×1 meetings led to too much wasted time and politics). Manber began running the A9 (algorithms) team, coming up with innovations like Search Inside Book. 

(As a side note, this team, based in Palo Alto, went through some legal and organizational contortions to avoid touching the customer and therefore triggering sales tax.) Manber tried and failed to beat Google in search, and eventually joined them.

Amazon, at this time, was also struggling with back-end architecture held together by “duct tape and WD40 engineering.”  (Random aside: I once met WD-40 CEO Garry Ridge on a non-deal roadshow, and I remember his compact book Helping People Win At Work being interesting.)

Deals with Target and Borders only increased the strain on their infrastructure. Amazon decided to move to a modular, service-oriented architecture.  

Transitioning to the new stack took three years and caused “all kinds of excruciating pain among its network engineers,” who were forced to carry pagers to respond promptly to the numerous problems.

There is an amusing anecdote about Kal Raman, who had a very brief but impactful tenure… he had a lot of Ziva David style malapropisms like “you all must be smoking cracks.”

Anyway, a meeting with Tim O’Reilly (who suggested Amazon adopt APIs) led to AWS.  (Meanwhile, Bezos created a chief of staff position to help him extend his reach, and Bezos acquired-ish the predecessor to MTurk (moderately interesting story but not worth recounting here.)  Here’s the backstory on AWS: the provisioning of computing power was, internally, a bottleneck for Amazon.

At the time, Bezos was interested in a book called Creation – the basis of a video game wherein intelligent life could be built off simple building blocks called “primitives.”  Bezos believed the same thing should happen with its infrastructure – break it down into atomic components – and thus were born EC2 (Elastic Compute Cloud) and S3 (Simple Storage Service), the former out of a seemingly two-man office in South Africa, and the latter out of a small team in Seattle.  AWS was priced negative margin at first, but took off.  Kind of  disaggregation again.

221 provides an interesting insight into Bezos’s mindset: he, to quote Stone,

didn’t want to make Steve Jobs’s mistake of pricing the iPhone in a way that was so fantastically profitable that the smartphone market became a magnet for competition…

Bezos believed that high margins justified rivals’ investments in R&D and attracted more competition, while low margins attracted customers and were more defensible.” 

(Calls to mind the Peter Thiel X|Y Framework.)

AWS was 4 years ahead of Azure and 6 years ahead of Google Compute Engine, which are almost shocking numbers for a company with not a lot of historical experience in these kinds of things (vs. Microsoft and Google).  

AWS thus became the de-facto back-end for startups, and VCs would give AWS gift certificates to their entrepreneurs… Amazon noted that it was an interesting competitive advantage to have everyone who was doing cool stuff on your platform.

Amazon’s other technological development of note was the Kindle: it was not a new idea; in the late 1990s and early 2000s, the “Rocketbook” (made by another company) appeared to be on the path to success, but then an IP troll bought the company for its patents and either ran it into the ground, Did Fraud, or both (not important).  

Amazon, around the time Rocketbook went up in flames, started secretly developing Kindle – the goal was, importantly, to disrupt its own business before anyone else could (inspired, it seems, by Clayton Christensen’s The Innovator’s Dilemma – InD review + notes)

Interestingly, from pg. 230 – 231, even Bezos had blind spots – the amusing anecdote is when he stated the Kindle was intended for “one-handed reading,” not understanding (when his executives laughed) what they were envisioning the other hand doing, but the real valuable anecdote is that Amazon ceded the digital music business to Apple’s iTunes (initially) because Bezos loved books but didn’t really “get” music.  Even Bezos had  schema bottlenecks.

He did learn from Apple, though – the reason he decided to do hardware (over protests from internal stakeholders) is that he thought Amazon needed to control the reading experience from end to end.

The devices needed content, so Amazon started cozying up to book publishers, alternatively cajoling and threatening, without (at first) telling them of the Kindle’s existence.  

They got more aggressive over time, at one point cutting off sales of publishers’ backlists on Amazon (causing sales to drop by 40%!) and eventually secured enough commitments for e-books.  They then proceeded to blindside the publishing industry by announcing $9.99 e-book pricing and more or less wrecking their economics; Apple responded by trying to get into the market and illegally collude/fix prices, but this is relatively uninteresting…

Amazon’s perception among the investor community in 2007 was not where it is a decade later (today): as one analyst noted, in 2007, he:

“was laughed out of portfolio managers’ offices… people thought Amazon was some kind of nonprofit scam.”

Rick Dalzell, Bezos’s longtime right-hand man, reflected:

“Jeff does a couple of things better than anyone I’ve ever worked for.  He embraces the truth. A lot of people talk about the truth, but they don’t engage their decision-making around the best truth at the time.  

The second thing is that he is not tethered by conventional thinking. What is amazing to me is that he is bound only by the laws of physics. He can’t change those.  Everything else he views as open to discussion.”

On status quo bias and  intellectual humility and  confirmation bias.

After a relatively quiet period on the M&A front, Amazon returned to bigger-ticket M&A later in the 2000s.  Bezos proved to be a ruthless negotiator: when trying to acquire Zappos, they had a satellite site (Endless.com) that was literally bribing customers by paying them $5 per order, and the company later engaged in similar behavior when trying to acquire Diapers.com (it was estimated by Diapers.com management that Amazon might have been burning $100MM/qtr in the diapers category – a shocking amount.)  

(See also Tony Hsieh’s Delivering Happiness – which I read and enjoyed but haven’t reviewed for PAA because it’s somewhere at the back of my closet, probably under a pile of dozens of other books.)

Wal-Mart tried this tactic against Amazon about a decade too late, lowering prices on some high-profile bestselling books, but… it didn’t help. Nor did big box retailers banding together in some sort of ironic “Main Street Fairness” association to eventually force Amazon to pay sales tax – the flywheel was spinning too fast by this point.

Meanwhile, Amazon started encroaching on the publishing industry, hiring industry executives and releasing Kindle Direct Publishing as well as Createspace for physical books (which I think was acquired under a different name).  They also got into liquidation of used goods, competing with eBay power sellers (Amazon Warehouse Deals), and got into video via the acquisition of Lovefilm (again with some hard negotiating).

The earlier-referenced “?” escalation email from Bezos highlights his strong focus on the customer experience, often surfaced via anecdotes – for example, he once demanded answers from the marketing department when he learned that some customers were embarrassed by automated marketing emails they received about lubricants after they had been browsing that category on Amazon.

At this point the book goes into reflection mode, and there are a couple money quotes.  One friend noted:

“The rest of us try to muddle around with complicated contradictory goals and it makes it harder for people to help us.  Jeff is very clear and simple about his goals, and the way he articulates them makes it easy for others, because it’s consistent.

And, finally, from Bezos himself:

“We don’t have a single big advantage… we have to weave a rope of many small advantages.”  

Munger-like. 

So is Bezos a Hedgehog or a Fox?  Hedgehog-like is the focus on customer value proposition and strong underlying belief in the Internet… but on the whole, he seems much more Fox-like.  Is it even a useful categorization? Who knows.

First Read: 2014

Last Read: summer 2017

Number of Times Read: 3

Planning to Read Again?: maybe

 

Review Date: summer 2017

Notes Date: summer 2017