PDF Summary:The Everything Store, by Brad Stone

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The book also covers a number of Amazon and Bezos’s management techniques and idiosyncrasies. We’ve grouped them into dedicated chapters after the biography.

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• His curiosity and work ethic take him to a variety of jobs: at McDonald’s, breeding hamsters for a neighbor, and starting a summer school for 10-year-olds exploring science to use “new ways of thinking in old areas.”
• In his high school valedictorian speech, Bezos talks about his desire to colonize space to secure humanity’s future. Bezos attends Princeton for college.

1986: Bezos graduates from Princeton and works at Fitel, developing a transatlantic computer network for stock traders.

1989: Bezos spends a few months on a venture sending a customized newsletter to people over fax machine.

1990: Bezos joins D. E. Shaw, a finance firm started by computer science professor David E. Shaw in 1988.

• Shaw views the firm not as a hedge fund but as a technology laboratory that could apply computer science to a variety of problems. He started the firm after leaving Morgan Stanley.

Struck by the Internet

1994: Bezos notices the Web is growing fast - the number of bytes increased by 2057x fold from the previous year, outpacing other internet technologies at the time, like ftp and gopher.

• (Shortform note: the first web browser, Mosaic, was released in...

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July 16, 1995: Amazon goes live, public to all Web users.

• The first week after launch, they take $12,000 in orders and ship $846 worth of books. The next week they take $14,000 in orders and ship $7,000 worth of books.
• There is a large long tail of esoteric books ordered, furthering the belief in the importance of selection. These are books that you could never find in a physical bookstore.
• When the company falls behind in shipments, everyone spends nights in the basement, sitting on the floor packing boxes. Someone makes the (obvious) suggestion of adding packing tables to the warehouse, and Bezos thinks “that was the most brilliant idea I had ever heard in my life.”
• A few weeks later, Jerry Yang and David Filo of Yahoo ask if Amazon would like to be featured on their homepage. They know it’d be like taking a sip through a fire hose, but they decide to accept.
• Popularity begets chaos. Amazon maxes out its line of credit and has no processes to handle returns.

Summer 1995: Bezos wants to raise more money, seeking $1 million from investors each contributing $50k, at a valuation of $5 million.

• Amazon has $139k in assets ($69k in cash), had lost...

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• Amazon continue the IPO process, choosing the bankers Deutsche Bank and Frank Quattrone (whose lead analyst was Bill Gurley, now a VC at Benchmark).
  • They boast of their “negative operating cycle,” receiving money from customers immediately but paying their distributors every few months. In between, they have capital to fund expansion.
  • They boast of a high revenue to fixed cost ratio, meaning a dollar invested in Amazon could provide much better returns than with any physical retailer.
  • Bezos keeps mum on some details, like customer acquisition cost and average purchase order, to prevent rivals from following their game plan.

May 15, 1997: Amazon IPOs, raising $54 million at a starting price of $18 per share.

• The widespread attention helps contribute to a growth of 900% in annual revenue.
• Three days before the IPO, Barnes & Noble sues Amazon, alleging false advertising for being “Earth’s Largest Bookstore.” This has a Streisand effect, drawing even more attention to Amazon.

End of 1997: Amazon has $148 million in revenue, up from $16 million in 1996.

**Spring 1998: Bezos considers it imperative to expand Amazon’s brand beyond books to...

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• new business lines like Amazon Web Services provide earnings to make retail more cost-competitive
• authors have not reached customers directly as ambitiously idealized in 1999

But these legitimate questions illustrate how difficult it is to foresee the future.)

June 1999: with pressures to get the company in order, Bezos agrees to hire a COO, settling on Black and Decker salesman Joe Galli Jr.

• At this time, Bezos is interested in spending more time pursuing other passions like philanthropy, space flight, and raising a family.
• Unfortunately, Galli is largely a failure.
  • He tries to order operational rigor and discipline, causing friction with the entrepreneurial employees.
  • He is not technical, requiring his emails to be printed to be read and seeing Amazon more as a retail company than a technology company.
  • Galli agitated for more authority and wanted to be CEO, while Bezos wants to maintain a firm control over Amazon decisions.
• Galli leaves in July 2000. Bezos realizes he wants to be an active CEO, and Amazon has not had a President or COO since then.

Fall 1999: Amazon is granted a patent for 1-Click purchases.

• Even though...

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• In July 2001, Amazon announces it’s cutting prices of books, music, and videos by 20-30%. Bezos on conference call: “There are two kinds of retailers: those who work to figure how to charge more, and those who work to figure how to charge less, and we’re going to be the second, full stop.”

Later 2001: Amazon senior management has a breakthrough in understanding their business strategy. Jim Collins (author of Good to Great) meets with the exec team offsite and prompts them to consider their flywheel effect:

• Lower prices leads to more customer visits
• More customers increase the volume of sales and attract more third-party sellers
• More third-party sellers increases diversity which increases customers
• More sales means higher return on fixed costs like fulfillment centers and servers
• Higher return means further lower prices
• This makes executives feel like “they finally understand their own business.”

January 2002: Amazon announces Free Super Saver Shipping, for orders above $99.

• This is prompted by free shipping promotions during the 2000 and 2001 holidays, and by surveys showing shipping costs were a major hurdle to...

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• This furthers Bezos’s vision of the Alexandria Project, a bookstore that stocked every book ever written. (But he’s not alone - in 2002, a Google Books project had already begun, and it’s made public in December 2004.)

April 2004: Amazon releases a search engine at A9.com

• A9.com licenses the Google search index but builds features on top of it.
• Amazon is chagrined that Google might offer better search of Amazon than Amazon itself.
• Ultimately this project fails. Google’s hundreds of engineers outpace Amazon’s dozen, and Amazon finds it can’t build a search on top of a rival’s search index.

Spring 2004: Amazon starts selling jewelry. Bezos believes jewelry is Amazon’s next big opportunity - its products are small, prices are high, shipping is cheap.

• It has challenges: jewelry was difficult to display in high detail online; theft in the fulfillment centers was high; jewelry manufacturers clung to high margin prices and refused to budget.
• They decide to let retailers sell on Marketplace, then watch and learn.
• Bezos bristles at following the standard...

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• The name comes from an 18th century chess-playing automaton that appeared to play chess independently but actually concealed a man inside.
• The service comes from an investment Bezos made in the late 1990s in Cambrian Ventures, an incubator founded by founders of Junglee (which had been acquired by Amazon). The founders patent a method of coordinating groups of people worldwide to offer human intelligence tasks, inspired by Napster and the power of networks. When the company fails, Bezos acquires the patent and develops Mechanical Turk in Amazon.
• As is now typical in Amazon services, before release to public customers, Turk’s first customer is Amazon. Turk is first used internally in Amazon to have humans review book scans and check uploaded product images.
• (Today, Turk is not a huge part of the company, but it’s emblematic of the orthogonal technological innovation Amazon attempts in this period.)

March 2006: Amazon relaunches Amazon Web Services, this time offering S3, SQS, and EC2.

• Andy Jassy, Harvard MBA and anomalously not an engineer, leads the effort. He previously shadowed Bezos, sitting in on every meeting and acting effectively as chief of...

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*   (Shortform note: MAPs may have been a stronger strategic move in the past. Before the Internet reaching consumers was expensive, and companies like Williams-Sonoma became large by controlling the distribution to consumers (eg retail stores or catalogues). Because transactions were costly and there were much fewer suppliers than customers, it was higher leverage for companies to build relationships with suppliers, leaving customers as an afterthought. In turn, suppliers were able to enforce policies like MAPs, because there were few winner-take-all players, and suppliers could play retailers off each other as much as retailers could play suppliers off each other.
*   The internet made distribution to customers free, neutralizing the distribution advantage of incumbents. Amazon could now reach customers around the country for nearly no cost, and it used its massive customer relationship to exert unprecedented leverage over suppliers.)

• Wusthof stops supplying Amazon in 2006 and delists itself from Amazon. It returns in 2009, and then terminates with Amazon again in 2011.
  • No matter -** Amazon can still provide Wusthof goods through its Marketplace, by...

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• In negotiation meetings with Toys R Us in 2000 to become Amazon’s exclusive toy supplier, Bezos made a show of keeping one chair open at the table, “for the customer.”
• New product ideas need to be written in the form of a mock press release, starting with what the customer would see and hear about, and working backwards.
• When a user gets an embarrassing email about sex lubricant, Bezos is willing to shut down the entire profitable email channel. “We can build a $100 billion company without sending out a single fucking e-mail.”
• Amazon uses its massive power to cut better deals with suppliers, hurting those businesses but in the belief that low prices make products more affordable to Americans.
  • “Amazon isn’t happening to the book business. The future is happening to the book business.”

Dogfooding Services

Amazon has a history of spinning out services that were initially used only internally, or by dogfooding products that are sold to the public. It believes that if it can build a service that is good enough to satisfy internal Amazon demands, it’ll be good enough for the outside public.

• In 2006, Amazon launches Fulfillment by Amazon: “we...

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Bezos believes teams should figure out how to communicate less, not more. Coordination among people wastes time, and the people closest to a problem should be solving them without discussing them.

Bezos hated seeing TVs mounted in a conference room as signs of clumsy communication. He had them removed and left the mounts hanging for years, “like a warlord leaving the decapitated heads of his enemies as a symbol.”

Around 2003 Bezos stopped having 1-on-1 meetings with his reports, thinking these are more often filled with trivial updates and politics rather than brainstorming and problem solving.

Meeting Cadences

Operating reviews are done twice a year, over the summer and after the holiday season. Teams draw up 6-page documents spelling out their plans for the year ahead. Every doc contains a few tenets at the top, principles that guide the hard decisions.

Once a week on Tuesday, departments meet with managers to review data. The executive team questions every number and asks why things happened.

Once a week on Wednesday, the weekly business review happens run by Wilke. Sixty managers gather to review their departments, talk defects and forecasts.

Bezos doesn’t...