While many concede that the Internet boom has gone bust, Jeff Bezos thinks it is still in its nascent stages. And, as the founder and chief executive officer of Amazon.com, one of the most successful companies to emerge in the Internet era, he makes a compelling argument.
This story first appeared in the November 17, 2003 issue of WWD. Subscribe Today.
Bezos gave a rousing keynote speech charting the genesis of the Internet, Amazon’s progress within it and expounding on his conceit that we are still in “Day One” of the Internet revolution. He said his staff continually asks him whether the day is drawing to a close and the company might be getting ready to enter Day Two. His reply is always no — “The snooze alarm hasn’t even gone off yet.”
While many liken the dot-com boom to the Gold Rush, Bezos contends it’s the wrong analogy.
“With the Gold Rush, when you take the last nugget of gold out of the ground, it’s over….But the Internet is very different because the gold is not actual nuggets, it’s ideas and inventions,” explained Bezos. “And take one invention out of the ground, so to speak, and you often get two more that are produced as a result of that. So it’s a very different thing. It just doesn’t end in the same kind of time frame. In fact, it can be expanding.”
Bezos instead looks to electricity, or more specifically, the electrical appliances, as the more apt metaphor. In the old days people used to have to unscrew their lightbulbs in order to screw in their kitchen appliances — from toasters to washing machines. He showed an ad for electrical appliances from an old Sears catalogue that proclaimed, “Use your electricity for MORE than light!”
“It seems so unbelievable to me that you had to choose between making a piece of toast or having your lightbulb screwed in,” said Bezos. “But that’s exactly what most Internet users today have to do, make a choice of whether they want to use their phone line for a telephone call or they want to use their phone line to have their Internet browser up and working. So it’s exactly the same thing and our children are going to be just as amused as we are. They’re going to say, ‘You mean you had to decide whether to talk to somebody or whether to use the Web? That’s weird.’”
Bezos also spoke to the evolution of electricity and how initially it was used only to produce light, until people began to realize that it had other valuable uses, much like the Internet.
In 1995, when Amazon.com opened its virtual doors, the search box wasn’t visible to users and the company rigged a bell to ring whenever a sale was completed. My, how things have changed.
Now the company invests approximately $200 million a year on technology in order to fine- tune and perfect the technical aspects of the site, like personalization and collaborative filtering.
He credits his company’s success in part to its customer-focused ethos, versus one that is competitor focused.
“What we’ve really tried to do is to base our strategy, at all times, on what we think the customers’ needs and wants are,” said Bezos. “In such a whirlwind of activity, the only stable center of all this activity has been the customers’ needs, which have changed relatively slowly. So, by basing our strategy on the customers’ needs, we’ve been able to figure out a lot of things and make this Web site perform at a high level. I think that’s one of the big differentiators between Amazon.com and some of the other companies that aren’t around [anymore]. We have been genuinely customer obsessed.”
This “obsession” began when Barnes & Noble launched its Web site because, according to Bezos, “they had 30,000 employees and we had 125.” People in the industry thought Amazon would go the way of most dot-coms and collapse under the pressure of such a competitor; however, that’s not what happened.
Bezos gave the following directive to his staff: “I said, ‘Look, I want you to wake up every morning terrified but don’t wake up terrified of our competitors. Wake up terrified of our customers. Because those are the folks who give us money, and we’re never going to get our competitors to give us any.’”
Part of Amazon’s customer awareness lies in its feedback feature, which allows the company to tweak its offering according to customer complaints or suggestions. “The great thing is, we get so much feedback from customers, and we have for years,” said Bezos. “There is something wonderful about operating online, which is that e-mail, which is how we receive most of our feedback from customers, does a strange thing to the human being — it turns off the politeness gene. Which means that you get very honest feedback and that’s why all of our stores, over time, get better.
“We listen, we learn and then we try to invent on behalf of customers. We try to remember it’s not their job to invent for themselves.”
In addition, Bezos eschews the idea of copying competitors’ innovations, opting instead to perhaps be inspired by them, but then improve upon them. Yet, given that Amazon sells everything from video games to socks, its competitor base is larger and more diverse than many other Internet companies.
With Amazon’s 37 million “active” customers — those who have made a purchase in the last 12 months — Bezos’ customer-driven approach is clearly working.
“The main drivers for us are free cash flow and unit growth,” said Bezos. “So we are, on a trailing 12-month basis, doing roughly $5 billion a year in sales and the last 12 months we generated $245 million in free cash flow. It’s a high-fixed-cost, low-variable-cost business. And so it took about $4 billion in annual sales for the business to cover its fixed costs and, what you’ve seen happen more recently is we’ve gone past that level, in that the free cash flow is starting to fall over that dam. So we’re very excited about that and that’s the primary financial metric that we focus the company on. But that is an output metric. The input metric that we focus on, that drives the free cash flow, is the customer experience.”
The company also is focused on growth, however, having started an electronics division four years ago, which, according to Bezos, is now almost a billion-dollar business. More recently, Amazon launched an apparel store, which has grown significantly since its inception 11 months ago. It began with 26 retail partners and now has about 150 partners. It also sells approximately 1,500 brands and has 600,000 customers — its retail partners include Nordstrom, Gap and Lands’ End. Yet, Amazon lets the retailers handle their fulfillment.
“[Apparel] is a very complex business in terms of the supply chain and understanding fashion and making sure that you have the right things and trying to predict what people are going to want to buy when,” said Bezos. “It’s a very difficult job. That’s not something we have any expertise in and really our area of expertise is hard enough that we don’t need to add that to a set of skills that we someday must learn. But we do think that we can bring the e-commerce experience to a new level in this category over the coming years and that’s certainly what we’re going to be trying to do.”
Apparel aside, Amazon also is committed to fine-tuning its existing virtual shopping experience. Within the last several weeks, it launched a feature called “Search Inside the Book,” which allows readers to in fact search the entire text of a book for specific words or phrases.
When asked if he would ever consider opening a physical store, Bezos’ response was an unequivocal “no.” He sees the opportunities on the Internet as being so vast, and thinks his company’s expertise is best suited to honing the platform it has created online.
“We have so much opportunity online, there’s so much to do, and we’re still so bad, even at selling books, that we will get better at this over time,” said Bezos. “And so the opportunity there is so large and, if you look at our business, it’s horrendously complicated, just as physical-world retailing is horrendously complicated. There are so many details, so many things to do well. The difference between having a great store and having a mediocre store is the execution of a thousand things. And, we don’t know anything about those things because the details are all different.”
Yet, since part of Amazon’s allure is its pricing, the subject arose as to whether Bezos is concerned about price bots — robots that scan the Internet for the lowest price. Bezos believes that the balance of power on the Internet is shifting from the marketer to the consumer and that this will continue to be the case for another decade or so.
“Am I worried about price bots?” he asked rhetorically. “Yes, but I’m worried about price bots the way Boeing is worried about gravity. In other words, it’s a part of the landscape.”
Also part of that landscape is riding out the wave of consumer empowerment. Bezos thinks it’s imperative that companies shift their energies, as well.
“So a company, say, that is an excellent marketing company, that has traditionally put 70 percent of its energy into marketing and 30 percent of its energy into product development, they might start to shift that ratio,” explained Bezos. “They might start to become 60 percent marketing, put 60 percent of their energy, time and dollars into marketing and 40 percent into product development. Then 50-50 and, over time, it may even flip around to where people are putting most of their time, not into shouting about their products, but into building great products.”
And those are just several of the reasons why Bezos thinks that the Internet revolution is still in its first stages.
“It is absolutely Day One,” said Bezos. “The best stuff has yet to be invented and we’re incredibly excited about the future.”