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- How did you get to cover Amazon? And actually, how would you break down in waves the story of Amazon?
- How did Amazon change throughout the dot-com bubble?
- Who are some of the key people that helped Amazon gain traction, especially in the early days among the first investors that you can remind?
- How did Amazon manage to get out from the dot-com bubble and become even stronger?
- Do you think there was really a change in pace for Amazon after the dot com bubble?
- What are some of the failures that it’s worth remembering that also caused damage to a lot of money and were very hard to digest for Jeff Bezos?
- What are some of the partnerships that Amazon tried but they didn’t work? Like Amazon trying to approach Apple?
- What’s a bit of the story behind AWS? How was it conceived? Over the years, how actually Amazon grown within?
- What were some of the lessons that Amazon learned throughout the 2010s?
- What was Amazon’s main growth strategy then to really get through those international markets?
- What’s your take on Amazon using data on the platform at the advantage of its own products?
- What’s the focus of Amazon today and of Jeff Bezos as an entrepreneur?
How did you get to cover Amazon? And actually, how would you break down in waves the story of Amazon?
Well, how did I start it? I covered Amazon as a beat reporter for the New York Times, actually, first for Newsweek Magazine. Started covering Amazon in the late 1990s, covering the company for the New York Times, was writing about the first Kindle, the fight with book publishers, and the emergence of cloud computing in the late 2000s, and early 2010s.
I think I just saw maybe a little bit earlier than most people that this company was more interesting than the world thought.
The world initially thought of it as an online book seller and then an unprofitable online retailer, but really, it was a technology company that had established a beachhead and was moving in interesting ways and disrupting the business world as it went.
People thought it was unprofitable. In reality, it was investing its profits in new technologies, and it was all led by a rather ruthless and interesting, and idiosyncratic guy, Jeff Bezos.
So looking for a book project, I pitched it to Bezos, and he allowed me, and this was the first book, The Everything Store, allowed me to talk to his colleagues and family members. The story was fascinating, and then I just got hooked on it.
The first book is the origin story. It’s the story of the rise, and then the near fall during dot-com bust, and then their resurrection, and Bezos’ emergence as a disruptive business visionary. So you asked how I would break it down, I mean, that was just generally naturally how it happened.
The first book came out in 2013, and I thought I was done, but then what happened was this resurrection went much farther.
Amazon was turned into one of the tech giants, the behemoth that is scaring competitors and regulators, and smaller companies, fighting with unions, and expanding internationally.
So that was the second book. It takes us from 2010 to the present. It’s the story of Amazon, the rise in Amazon’s market capitalization from, I don’t know, 500 million now, sorry, 500 billion to over a trillion. It’s also a little bit the story of Amazon coming back down the earth.
We’re talking on a day when the Amazon stock over the last year is probably down by 40%. So it became big and then had to contend, I think, with some of the secondary effects and unintended consequences of its size. It’s also the story of Jeff Bezos’ evolution from the geeky guy that we all remember who was selling books online to one of the titans, the richest people in the world, who’s swirling on a fair amount of controversy.
Yeah. You touched a very interesting point, especially about Amazon of the early days, and I think it’s very important because you said, initially, many people were very skeptical. They looked at Amazon and they thought Amazon was an eCommerce company.
In reality, in part they were correct, meaning that there was a huge change in terms of the way Amazon also changed its own playbook before and after the dot com bubble, right?
How did Amazon change throughout the dot-com bubble?
I think it exceeded desperation. If you go back to 2000-2001, this is material that’s in The Everything Store. It was a huge, huge comeuppance for Jeff Bezos. Remember, he was Times’ Man of the Year at the end of 1999.
Amazon was celebrated. It then very quickly became the poster child for hubris where folks just thought that Silicon Valley had overinvested in these new business models, and all of the air came out of the bubble.
If you remember, even the SEC, the Securities and Exchange Commission, was momentarily investigating Bezos for insider trading. Nothing ever came of it, but if you think back, he was almost criminalized.
There were analysts that were predicting the company would go out of business. So here he was, one-time king of the world, synonymous with internet innovation now ridiculed, but there was something very real, and there was a desperation to figure out how to get out of it.
One of the things he said to his employees back then is, “The only way out of this is to invent our way out.” So when I say desperation or even an ingenuity came out of it, that’s when they started thinking about, “Well, the Amazon Marketplace.”
Okay? So one of the most important things about the history of Amazon is their realization that, “Okay. Selling books or selling things online isn’t that good of a business?”
So they realized that and they said, “Okay. We’re in these desperate straits. How can we take what we do and use it in other ways?” When you look at all the things Amazon’s done, it’s always been an answer to that question, so the Amazon Marketplace, “Well, we sell things.
Maybe we can sell things from other companies or cloud computing. We manage to run an internet operation that gets historic levels of traffic, particularly over the holidays. How can we take that expertise and sell it to other companies? The Kindle.
We have the biggest book-selling business. How can we sell books in another way and make it even more convenient?” So I just think it was the desperation of those years that made them get very good and very strategic and it’s carried through to this day.
Yeah. Actually, I think there was a moment where Amazon was really about, I mean, on the one side, analysts were right in looking at Amazon and thinking it could fail. Especially in the transition throughout the dot-com bubble, they managed with a very lucky timing also to get funding, to actually have enough cash to survive those periods.
Also, I guess, I don’t know if you can confirm the playbook object basis changed substantially because before dot-com bubble, actually, it was investing in a lot of new ventures.
It was very aggressive in terms of investment and placing bets on the internet, and some of those failures are known, but at the time before the crash actually was very, very-
Right. Right, yeah. In the ’90s, I mean, Bezos, he’s always been the most optimistic guy about the changes the internet is bringing. So early on in the ’90s, they just decided,
“Well, we can’t get to everything. So let’s make a bunch of bets for companies that are going to do different parts of this vision of being an everything store.”
They invested in companies selling pet food, pharmaceuticals, and all sorts of stuff. Then what they realized is if they can’t control it, the outcome’s not necessarily going to be good, and they ended up losing a lot of money and losing the snoots.
Who are some of the key people that helped Amazon gain traction, especially in the early days among the first investors that you can remind?
Well, first of all, I think it’s worth noting that a lot of people when Jeff Bezos was making the rounds in 1994 in Seattle, a lot of people said no. He was told that his ideas were bad by a lot of people. So that was interesting. The very first investors were his parents, Jackie and Mike Bezos, and Bezos funded it himself, too.
So that’s why he when the company went public, owned around 40% and now it’s much lower. Of course, his ex-wife, MacKenzie Scott, took about a third of his shares, but the folks, there were a couple of wealthy Seattleites.
There was one investor. Probably the biggest was a guy named Tom Alberg. He was a Seattle venture capitalist who ended up joining the board and helped really bring maturity when Bezos was just a young CEO. He was a VC, a venture capital firm called Madrona, and then famously, John Doerr, the Google board member met with Bezos and liked his exuberance.
This was back in probably 1995 or 1996, and he backed Amazon, but it wasn’t unanimous.
The idea that you could sell things online, not a lot of people thought that that was a good business, and I think Bezos thought, “This is where we’re going to start and there’s no telling what our future could be.”
Yeah. So definitely, John Doerr played a key role initially in the growth of Amazon, I guess also as a key counselor of Bezos as well. Eventually, Amazon did survive and actually managed to survive the first real battle against Barnes & Noble.
How did Amazon manage to get out from the dot-com bubble and become even stronger?
Yeah. So we’re really going back because, of course, we don’t even think of Barnes & Noble and Amazon in the same sentence anymore.
They’re companies with just two vastly different identities, but back in the ’90s when Amazon was just a book seller, Barnes & Noble was the giant. It was also seen by a lot of folks in the book community as the evil empire, which is also ironic because they’re an ally.
They’re seen as an ally now and a hedge against Amazon, but back then, Barnes & Noble was the giant, and there was a question in the business community about when would Barnes & Noble just start selling books online.
At one point, the founder Leon Riggio and his brother went to Seattle and tried to muscle Bezos a little bit, suggesting a sale or a partnership. Bezos met them with Tom Alberg, the venture capitalist who we’re just talking about, and said, “No, thanks.”
Bezos had this conviction, pretty extraordinary I think, that these traditional businesses weren’t going to really be able to get the internet or that the internet would be so disruptive to the way they did things that they wouldn’t really be able to dig in and satisfy customers in the same way.
The idea is if your Barnes & Noble and you’ve got all this real estate, you really want to undermine that investment by just packaging books and shipping them out.
It turned out they were right that Barnes & Noble, and we saw this across the business community, traditional companies were slow to get the internet, took them a decade maybe. So that was the first victory.
Now, like a video game, after it cleared every level, there was a different bad guy, right? So Barnes & Noble might have been the first, but then it was Walmart, and then it was Google, and now it’s probably Microsoft plus Google and probably Apple as well.
Yeah. There was a time when, actually, Jeff Bezos was about to or at least probably thought to retire already after a few years of running Amazon, but then he had to get back to run the company. How were the transition for Jeff Bezos to just get back to the company in the early 2000 and the way he led it going forward?
Do you think there was really a change in pace for Amazon after the dot com bubble?
Yeah. This is an interesting time in Amazon history. We’re talking about probably the year 2000. Bezos and MacKenzie had their first child, Preston Bezos, and there was this idea may be that Jeff was going to lead out a little bit, that they would bring in a professional manager.
I think it was partly personal. It was probably the board nudging him aside back then. Venture capitalists like to do that. The company stock price was cratering.
There was a sense that there was a lot of internal chaos, and then they brought in a professional manager, a guy named Joe Galli from I think it was Black & Decker, but again, this is material in my first Amazon book, The Everything Store. So it’s been a while.
Galli came in. He immediately started to clash with all the young internet whippersnappers that Bezos had hired, and no surprise, Bezos figured that, “Okay. This semi-retirement partnership with this other executive was not going to fly.”
He came back with a full head of steam, and won the battle with the venture capitalists. This was a critical moment because it’s when he really showed them that he could adapt. This is a young Jeff Bezos.
He had done nothing to grow and hire and come up with new ideas, and then after this moment, after the stock price had fallen, after the internet crash, Joe Galli left very quickly, Bezos resumed total control, and he showed himself capable of managing the business during a downturn but also spawning new businesses and new ideas because it’s at that moment that the internet Marketplace starts.
That leads to the idea of fulfillment by Amazon, “What we do in these warehouses we can do for other companies.” That leads very quickly to Prime and the promise of two-day delivery, and then the Kindle.
This is really one of most, I think, remarkable winning streaks in business history, I mean, I think after Apple and the iPod, the iPad, the iPhone.
You have to say this period in Amazon history, Marketplace, Prime, Fulfillment by Amazon, the Kindle and Alexa, oh, and of course, AWS, is remarkable.
Yeah. Before we get to that because, of course, those are extremely successful business units, and AWS has become a company in its own sake because many times Bezos highlighted how to get to those successes, actually. There were many other failures.
What are some of the failures that it’s worth remembering that also caused damage to a lot of money and were very hard to digest for Jeff Bezos?
Yeah. So the early failures, I mean, there were a lot. Bezos was capable of chucking out a new idea every single day. He likes to talk about some of the early attempts to copy eBay as humbling failures.
I mean, Amazon, it’s what led them to Marketplace. So I don’t really know that you would consider it a failure or maybe I’d say in a lot of different cases they learned from their failures and helped them get to things that worked, but I don’t know.
Certainly, there were some product categories early on that they bet big on. Jewelry is one that comes to mind that I don’t think ever really turned into big business for Amazon or there were just very capable. Other companies, independent companies just did it better.
I think the jury’s still out on some things that Amazon’s done. Certainly, Alexa has been a product hit and been important in the industry, but the idea of Alexa as a platform for third-party developers, I think the juries have done that.
Bezos, on his winning streak back in 2013, went on 60 minutes to unveil the Amazon drone. We’re now nearly a decade later and they are not yet darkening our skies. So that’s something that maybe I’d put a little asterisk next to.
Bezos would say that if you try a lot of things, you’re going to fail, and that failure is part of the innovation ecosystem. Then, of course, it goes without saying, and I tell this story in my new book, Amazon Unbound, the Fire Phone was a notorious failure.
It’s just interesting because there’s no more powerful technology platform than the smartphone. You look back and you go, “Amazon really got that wrong,” and in my book, I describe why Bezos himself was the architect of that failure.
Yet you just wonder, “Should they have stuck it out and tried something else and kept going?” because you look at Apple right now at nearly a three trillion dollar market cap and Amazon now all the way back down to close to a one trillion dollar market cap, and it’s all about the power of the smartphone, and Amazon still doesn’t play there.
So it’s an important lesson to emphasize that, of course, innovation is very, very expensive, and in order for a company to come up with successful products, business units, and programs, they need to actually experiment a lot.
Many of those will be cheap. Many other will be very, very expensive. You mentioned the example of the Fire Phone. I mean, I guess I’m not sure how many billions it cost the company, and effort as well directly also from Bezos, but it was a very expensive failure.
Yeah. I think the write-off was only $200 million, but certainly, the investment in time was larger, and then the cost that they continue to pay. I mean, just recently, by the way, they had to disable the ability to purchase Kindle eBooks on the Android app, and it’s because being a subservient to Google and to Apple has put Amazon in the position of constantly having to negotiate for access to their own customers.
So the real cost of the Fire Phone debacle is that Amazon has been in a strategically weakened position.
Yeah. That’s a lesson that we’re learning now that over time, at least for a scaled up company, those that survive and actually drive the companies that are able to control the whole supply chain of data, meaning that if you look at Google and Apple, of course, they own the old platform where the various products are then distributed to users.
It’s something that it’s missing for companies like, for instance, Facebook now rebranded as Meta. So also in part for Amazon, but Amazon, actually, the good thing is also, it has built over the years some distribution advantage, especially by building up the Marketplace because, otherwise, without that, it would’ve been very, very hard to actually maintain sustainable advantage because let’s remember that in the early days, Amazon was built also a lot on top of Google.
I think that there is a part in the book where you explain that, I don’t remember in which country, but anyhow, they were trying to kick things off and they tried to do it without Google Ads, but they realized that it was not possible. They needed Google Ads.
That was in Mexico, right?
Ah, Mexico, yeah.
They had this expensive experiment to try to launch it without any Google advertising. They did billboards and they had ads and newspapers and the traffic wasn’t there.
I think Bezos had said, “Amazon is Amazon in large part because of Google,” but they also had to pay tax. In fact now, one of Google’s biggest problems is that a lot of internet users start their online shopping on Amazon.
So there’s a constant battle between these big companies over the customer.
Yeah. I think probably one area where Amazon successfully built that vertical integration is probably in eBooks because with the Kindle.
The Kindle is an artwork, but then also the format and the standard that the Kindle has created, it’s something that gives Amazon a competitive advantage, though the market for eBooks might be way,
I guess, less interesting than other things like music or apps, which have become a multi-trillion dollar industry.
So it would be interesting to talk actually a bit of the background of the Kindle, how it got developed, what was the vision, also because as you explain in the book, the history of the Kindle crosses the history of also the founder of Tesla.
That’s right. That’s right. This is a historical irony. People think Elon is the founder of Tesla. It was a pair of partners, Martin Eberhard and Marc Tarpenning, who way back in the ’90s had basically an ebook, what was it called?
The rocket ebook, and they met with Bezos and he looked at it and he was contemplating an investment, and then he thought, “The technology’s not quite there,” and they ended up getting an investment from Barnes & Noble, and Bezos was right and it went nowhere, but a couple of years later, it really all started with the iPod and the iTunes Store, and Bezos seeing his music business just get vaporized by digital music and digital downloads, and probably a bit of Napster and piracy as well.
He said, “Okay. Well, we can handle that with music, but our identity is wrapped in books,” and he had seen the rocket ebook early and he thought, “If anybody figures this out, we’re going to see the same decline in our book sales,” and books at that time were the engine powering Amazon’s barely profitable, probably at the time technically unprofitable business model. He thought, “We’ve got to do this.”
So he starts this project inside Amazon. His board thinks he’s nuts. They think he’s got to focus on getting the company the profitability and not investing in crazy new things. He manages it himself. It takes multiple years.
They have a hard time getting the supplies that they need, and he micromanages the design. He’s not a great designer. So the first version of it comes out looking slightly bizarre, like a big clone of a Blackberry, but the intuition was right.
Even though it’s not a big business because, frankly, people don’t read as much as they watch or listen, Amazon drew a mode around its most important business identity-wise, which was the book business.
I will just say, and this is really the story I’m telling at the end of The Everything Store, there was a significant cost because Amazon had to muscle the book publishers to digitize their catalogs, and they did that in a very ruthless and draconian way often with threats.
I think it ended up probably shaping the negative reputation that Amazon carries through to this day about how it operates with partners and in the larger business community.
What are some of the partnerships that Amazon tried but they didn’t work? Like Amazon trying to approach Apple?
Right. I mean, well, way back at the beginning of this, I think that Amazon and Apple talked a little bit about music. This was when the iPod was released, but the iTunes Store hadn’t yet come out. So we’re talking early 2000s, and Amazon wanted to build itself as maybe Amazon could be the store for the iPod, and Apple rejected that. Steve Jobs wanted a holistic experience. Amazon quickly realized that Apple was a danger to its business.
So years later, Steve jobs recognized … He was never interested in books. He thought it was a small business, but he did recognize that the Kindle that Amazon had achieved a digital beachhead and that it could expand there and be a threat to Apple’s interest in music and video. That’s when he ordered the iBooks Store in a competitive response, but Apple never made a digital e-reader, and I think at that point, the company realized that they were going to be rivals.
Going forward, it’s interesting also, I look especially at financials of companies and try to understand their business models. Today, when I look at AWS, of course, as we said, this has become a company in its own sake, and it’s interesting also to notice how the transition from Jeff Bezos to Andy Jassy, actually, was a transition inside the company where the CEO of AWS to cover the other company, which says it all, I guess.
What’s a bit of the story behind AWS? How was it conceived? Over the years, how actually Amazon grown within?
Sure. As I would like to say, success has many parents, and the story I told in The Everything Store, in which I talk to everyone and I’m extremely confident in, it ended up and somehow antagonizing. I think, Andy Jassy, who led it for many years, if you recall, actually, he and Bezos’ wife at the time, MacKenzie, wrote one-star reviews for The Everything Store. It was seen upon publication as a contentious or antagonistic account, which surprised me, and I feel like the antagonism has faded over time and the account is more embraced.
Anyways, here’s how I saw it and chronicled it. As I’ve described, the business of Amazon at that time, the mid 2000s, was trying to find what they were good at and capitalize on it. At the time, they were also opening up.
It was the web 2.0 boom, and Amazon had been the closed world they were beginning to work with developers and create tools for developers, and that were things like allow people to post, to have Amazon sales on their own website or to tap Amazon sales data and bring it out of the company.
So Bezos was really thinking about how could he serve developers, and he went off and in one of his brilliant invention sessions realized, “Actually, the thing that developers need is they need unfettered resources.” He had seen it inside Amazon.
The way you constrain innovation is you limit their computing power or their access to computers or their processing power.
So he thought, “What we need to give developers are building blocks, the pieces to construct their own businesses.” He had brainstorming sessions where he would write on a whiteboard the primitives that developers would need to build their businesses, to run their businesses. So it wasn’t just access to sales data or the ability to sell things on their websites. It was going to be infrastructure and the primitives that they came up with were things like storage and compute power and payments and databases.
Basically, very similar to the Kindle, he just authorized the skunk works process and the board fought him, but at that point, he had accrued the political capital from saving the company after the dot com bust to force it through and his ownership position at the company helped, and he seated this effort.
So AWS, which was a business that already existed to help developers became something else. It became, “We’re going to create the building blocks for developers to run their businesses.” Andy Jassy, at the time, he had been Jeff’s shadow and they’ve been out of a job at Amazon, and Bezos said, “Why don’t you go run this? Come up with the business plan and lead it.”
That’s the story. It launched with S3, which was storage, and EC2, which was cloud, and the teams had gone out and worked on this for years, and they came together and they launched it, and the timing was either lucky or propitious. It was basically the beginning of the resurgence of Silicon Valley. Whole new set of companies were being created around the global financial crisis. So you had Uber and Airbnb and all these companies. Instead of running their computing operations themselves, they did it on Amazon services.
All of the stars aligned. Amazon’s competitors were late to copy it. The business climate was recovering, and the technology worked. Oh, and by the way, Amazon itself ended up being the first tester and eventually the biggest customer so Amazon could grow these things really quickly, and that’s business history.
It’s on track to be, I think, an 80 billion a year business this year, which for something that isn’t 20 years old is absolutely remarkable. It’s probably responsible for a lot of the corporate value that investors have described Amazon today.
I think it’s also worth highlighting that probably AWS is the first attempt of Amazon to really build a platform strategy, even though at enterprise or business level because AWS is first of all a platform, which has a set of tools for doing many things, but it’s a developer platform, and it’s extremely powerful. It’s interesting also to see how most of the profits over the years for Amazon come from AWS and, therefore, AWS is used as a part of the company that subsidizes the other part, which is the the type margin part, which is the eCommerce and the Marketplace.
So on the one side, of course, you have Amazon eCommerce, which is run for scale, and then on the other side the AWS, which is, of course, run on both scale and margins. It’s very interesting development. It’s a crazy story.
It really is. I will say, this idea that AWS subsidizes retail, I mean, I think it’s in some years may be true, but my sense has always been that AWS profits go to building more AWS. I mean, it’s a division that is still in total growth mode. It’s another business Amazon advertising that I think tends to rescue the margins of the retail part of Amazon.
Of course. Advertising Prime and also the third-party seller services, those are all high margins part. The thing is when I say subsidize, it’s also simply because as we can imagine, the Amazon infrastructure, the underlying infrastructure is extremely expensive. So having AWS as underlying infrastructure, I guess I’m not sure about that internally, but you would pay it probably in a different way. I mean, you would have lower expenses, I guess.
Exactly. That’s true. It’s one thing, I think, that frustrates regulators and maybe some analysts. It’s that exchange of value inside Amazon. How much does retail pay for the cloud? How do Amazon white label products benefit from Amazon advertising and high placement and search engine? That’s all totally opaque, right? The world does not know that. If you were to split it all apart and everyone would have to pay fair market rates, then the economics of this company looks a lot different.
What were some of the lessons that Amazon learned throughout the 2010s?
Yeah. Yeah. I have a chapter on this in Amazon Unbound. The first phase of Amazon’s international growth were the obvious countries, Japan, the UK, France, eventually moving out from there, but then it stopped for many years because Amazon was trying to get its house in order and working on things like the Kindle and AWS and eventually Alexa.
Then early in the 2010s, the international expansion resumed. First, it was Spain and Italy, and that was fine. It went pretty well, and then they go to India, and that has been … Well, actually, we should say they tried China in the early 2000s. It was one of the biggest mistakes and failures that the company made, but arguably, Amazon was never going to succeed in China.
Now, we’re seeing that even the internet giants, the tech giants like Alibaba are having a hard time with the government there, but Amazon tried to parlay some of its wisdom, hard wisdom from China into India, and it’s been a 10-year journey.
Similarly, I think, Chine, it’s not all that clear that the government with its nationals tendencies wants an American company there, and the regulatory environment has always been challenging. Amazon’s never been allowed to operate as a retailer. It just has to have a third-party marketplace.
Some of the things that’s done to try to get around that have been penalized. At my sense, they still probably lose a lot of money in India.
They’ve moved subsequently into Mexico, which we talked about, and the international expansion I think has been slow, and that part of the balance sheet has always been challenging for Amazon.
Part of it is just, I think, the overall international sentiment towards US tech companies and part of it is just Amazon’s a business of moving things, moving atoms, getting things to people’s houses, and that transportation systems and infrastructure is just different and less developed in a lot of the world.
In China, of course, it was very, very difficult. There was no incentive to get into market where the government was coming against you. I guess in India and Mexico, of course, they were different markets. So it was very hard internationally, as you said, to expand compared to other European markets, but going forward,
What was Amazon’s main growth strategy then to really get through those international markets?
I mean, I think it started as let’s part the existing model over, how we do things in the US and Western Europe, and then ultimately, there was a daunting realization that after you hit the most developed countries, it was going to be harder.
So in India, they had to do things like find different kinds of transportation and they couldn’t rely on the national postal carrier or the UPSes of the world because they didn’t really operate there or they were less reliable.
India is one of the first countries where, excuse me, we see Amazon really own the last mile. They were relying on UPS and the United States Postal Service in the US. In India, they’re hiring drivers and bicycle messengers.
Now, we see Amazon vans crawling our neighborhoods in the US and in Western Europe, and it’s because Amazon learned how to do it in these other countries. So I think in China, it was critical, realizing the one size fits all eCommerce framework just wasn’t going to work everywhere.
Yeah. There’s also another point, I think the opposite scenario, where at a certain point when they saw the rise of other players like Wish, they tried to implement a model where they enabled Chinese merchants to sell stuff on top of Amazon, but they also had many backlash on that strategy, right? I mean, what happened there?
Okay. So this is the Marketplace, right? Yeah. Okay. So I told the story at Amazon Unbound. The Marketplace was probably the most profitable part of Amazon’s retail business, and this is allowing other companies to sell on Amazon.com.
Then they realized around 2012-2013 that they’re at risk of being outmaneuvered by not just Alibaba in China, but by some startups in the US, which were basically tapping low cost Chinese goods and Chinese sellers.
There’s a vast explosion of entrepreneurship and ingenuity and scrappiness and China, and those companies were allowing those sellers to sell cheap things to customers in the US and Western Europe. Amazon’s Marketplace had primarily been regional or local.
Amazon had to move pretty quickly to open a business or reopen a business in China where they had failed to create a local business and to court Chinese sellers and to say, “Here’s how easy it is to sell on Amazon, and we’ll help you ship your stuff over the West and and to catch up with those other companies.”
So okay. They did that. So suddenly, you had everything from $5 jeans to hover boards, to low-cost electronics flooding to customers in Europe and America. That sounds great, right? Well, there was, as you say, a backlash because Amazon made it really easy. They were moving quickly to try to head off competitors.
Their nightmare, I’m sure, was that Alibaba, the juggernaut of China, would go and establish a beachhead in the US. So they made it really easy for Chinese sellers to sell on Amazon and probably sellers elsewhere, and they didn’t have a lot of guardrails. Suddenly, you had those $5 jeans were ripping after the first time you wore them or the hover boards were exploding in the flames that actually really happened or there were other dangerous products.
Amazon, like a lot of tech companies said, “Oh, we’re just a marketplace. We shouldn’t be held responsible for these things.” There were all sorts of lawsuits.
The press had a field day telling these stories. People’s houses burned down in some cases because of faulty lithium ion batteries, and Amazon ultimately realized that it was going to have to take some responsibility for the products and build some safeguards into the Marketplace, and it’s still struggling with that because once, as companies like Facebook and Google have found out, once you create anarchic anything goes for them, people get used to that and get very good at avoiding any of the rules you want to institute.
So now, it’s a cat mouse game.
How do you see the issue and the various complaints that Amazon, for instance, has been using the data it gathers on the platform on the Marketplace to actually also help its own products, so the Amazon Basics products? I mean, because, of course, there is a key point here, which is also one that I guess some Amazon has been making, which is about also other physical ratings. Do you have information about the store? Which product says more in which part of the store and all this stuff?
What’s your take on Amazon using data on the platform at the advantage of its own products?
Yeah. That’s right. Let’s set the story here. About five years ago, Amazon, it really digs into this common move in retail, which is white label products or private label. They make their own power strips or painkillers and they sell it on Amazon under the Amazon Basics or other brands.
Now, yeah, as you say, all sorts do this. Oftentimes, they look at what’s selling well or they look at industry trends to figure out what to do next. The critique, the complaint against Amazon, and I illustrate this in my book, is that the managers who were responsible for these white private label products, they were getting deep in the data of third parties who were running their businesses on Amazon and looking at, “Okay. In the vast array of multivitamins that you could sell, what’s doing the best here? Where should we go next?”
They looked at a third party retailer, and they said, “Okay. Look, it’s multivitamins for kids.” There’s so many skews, so they could get really detailed into figuring out what works.
Now, Amazon explicitly said they had a policy forbidding that, and they still say that every time they’re asked about it in front of Congress or in front of regulators, but the fact is, and it was illustrated in my book, and it’s been shown elsewhere that the managers who like all managers in Amazon are just striving to stay hired and get their bonuses that they broke the rules, that it was very easy that the internal safeguards weren’t there.
I don’t don’t think Amazon’s ever properly fallen on that sword and admitted that it happened. They’ve tried to scurry out of it, and it’ll be interesting to see because there are a bunch of regulators looking at it, whether they’re really called to account for what was a little bit of internal anarchy at Amazon, and then anything goes like put your hand in the cookie jar attitude in terms of looking at that data.
I don’t know that it necessarily helped Amazon, by the way. Again, it’s not that hard to access public sources of data about what is selling well, but nevertheless, they broke their own rules.
What’s the focus of Amazon today and of Jeff Bezos as an entrepreneur?
Yeah. Yeah. Well, thanks. That’s really where we are now. Bezos has in large part moved on to other things. He’s still chairman of the board, but you just get the sense watching him that he’s really more invested in his private space company, Blue Origin, which lags badly Elon Musk’s SpaceX, but Bezos is spending more time there.
He’s fully invested now in giving away his $200 billion fortune and working on a climate philanthropy. He’s also enjoying life to an extent that he probably hasn’t in the past. He is out there on the town with his partner, Lauren Sanchez.
It’s unclear to me how much time he reserves for Amazon. Jassy says he talks to him regularly. I thought at the beginning that Bezos was going to be a active behind the scenes sponsor at Amazon with the things that interested him like healthcare or the satellite initiative, but my sense is that Bezos has moved on.
He’s an active board member, but no longer an operator at Amazon in any meaningful sense.
So the future for Amazon, I think, is ambiguous right now because the company, as we’ve just been talking about, has thrived by always coming up with something new, by inventing the new thing, by figuring out what they’ve been good at and how that can be used in another way, and Bezos was the inventor-in-chief, and he also drove these things with his own personal capital inside the company. He often in some bad directions but he drove them, and it’s hard for big companies to innovate and disrupt themselves.
So can Jassy do that? I mean, he’s a very respected executive inside Amazon. He’s also operating in a totally different macro climate.
The Amazon stock price is down 40% in a year. That creates all sorts of strains for employees who are compensated with equity, and he’s a little bit less of a charismatic leader than Bezos, and he doesn’t have the halo, the magical halo of being the founder.
So I don’t know. I think it’s interesting. It’s going to be tough for Amazon. We can, though, look back at the sweep of these 25 years and my two books on the company and say it has proven that naysayers wrong in the past. So I still give it a little bit of the benefit of the doubt and feel like maybe there are a couple more tricks up Amazon’s sleeve.
It would be interesting to look at, and I guess the space company is going to be very important focus for him. Again, it is going to be interesting to see what Jeff Bezos is going to be able to achieve from that.
Absolutely. He’s not that old. He’s 58, I think. So he’s still got a couple of ax left in him, at least let’s hope, right? I do think he’s an iconic entrepreneur and has the resources to make a real difference, and that’s where I end the book.
By the way, a podcast that I did for Bloomberg called The Foundering, which you can get wherever you have podcasts, and I told the Amazon story in seven episodes, and that’s where I ended. I really would love to see his feet come back to the ground because I do think, particularly with climate change, he’s going to hopefully make an important difference.
Yeah. Thank you. Thanks, Brad, for joining this conversation. It was a huge pleasure to have you.
Thank you, Gennaro. My pleasure.
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