Table of Contents Title Page Copyright Page Dedication Chapter 1 - One Click Is Not Enough Chapter 2 - Portrait of the Entrepreneur as a Young Man Chapter 3 - Jeff Gets a Job Chapter 4 - Jeff Discovers the Internet Chapter 5 - Three Nerds and an Accountant Chapter 6 - How to Build a Better Bookstore Chapter 7 - Growing Pains Chapter 8 - Money to Burn Through Chapter 9 - Growing Up Chapter 10 - Who You Calling a Bookstore? Chapter 11 - The Crash Chapter 12 - Bezos Bets Big on the Kindle Chapter 13 - Is Amazon Killing the Bookstore? Chapter 14 - A Cool Guy with a Funny Laugh Chapter 15 - But What Kind of Manager Is He? Chapter 16 - Head in the Clouds Chapter 17 - Step by Step, Courageously Notes Index PORTFOLIO / PENGUIN Published by the Penguin Group Penguin Group (USA) Inc., 375 Hudson Street, New York, New York 10014, U.S.A. • Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario, Canada M4P 2Y3 (a division of Pearson Penguin Canada Inc.) • Penguin Books Ltd, 80 Strand, London WC2R 0RL, England • Penguin Ireland, 25 St. Stephen’s Green, Dublin 2, Ireland (a division of Penguin Books Ltd) • Penguin Books Australia Ltd, 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd) • Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park, New Delhi–110 017, India • Penguin Group (NZ), 67 Apollo Drive, Rosedale, Auckland 0632, New Zealand (a division of Pearson New Zealand Ltd) • Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R 0RL, England First published in 2011 by Portfolio / Penguin, a member of Penguin Group (USA) Inc. Copyright © Richard L. Brandt, 2011 All rights reserved LIBRARY OF CONGRESS CATALOGING IN PUBLICATION DATA Brandt, Richard L. One click : Jeff Bezos and the rise of Amazon.com / Richard L. Brandt. p. cm. ISBN : 978-1-101-51623-2 1. Bezos, Jeffrey. 2. Booksellers and bookselling—United States—Biography. 3. Businessmen—United States—Biography. 4. Amazon.com (Firm)—History. 5. Internet bookstores—United States—History. 6. Electronic commerce—United States—History. I. Title. Z473.B47B75 2011 381’.4500202854678—dc23 [B] 2011019057 Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book. The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law. Please purchase only authorized electronic editions and do not participate in or encourage electronic piracy of copyrightable materials. Your support of the author’s rights is appreciated. http://us.penguingroup.com To Kim and Leila, for everything. To Al Zuckerman, for being a great agent. To Courtney Young, for being a great editor. And to the memory of Lindy Howe, who always had faith in me. Chapter 1 One Click Is Not Enough To be Earth’s most customer-centric company where people can find and discover anything they want to buy online. —Amazon.com Mission Statement On September 22, 1994, two months after incorporating Amazon.com and ten months before launching the company, Jeff Bezos decided to learn how to sell books. So he took a course on how to start a bookstore, sponsored by the American Booksellers Association. Some forty to fifty aspiring booksellers, from young people starting out to retired couples thinking about a second career, attended the four-day course at the Benson Hotel in Portland. They sat through courses on topics such as bookstore financial operations, customer service, and handling inventory. One of the instructors was Richard Howorth, owner of Square Books in Oxford, Mississippi. Howorth is a fanatic about customer service (which happens to be the only way to compete with Amazon.com and the chain stores to this day). To emphasize the importance of service, he related the story of his most extreme example of taking care of a customer. One of the store’s managers walked into Howorth’s upstairs office to tell him a customer had a complaint. Howorth strolled downstairs to find out what the problem was. The customer angrily told him that she had parked her car in front of the store, and dirt from potted plants on the store’s balcony had somehow fallen on her car. So Howorth offered to wash her car for her. They climbed into her car and drove to a service station with a car wash. But the service station was closed for repairs. She became more irate. Howorth then suggested they drive to his house, where he collected a bucket, soap, and a hose and washed the car himself. As she drove him back to the store, her attitude changed. She became downright pleasant. In fact, she came back to the store later that afternoon and bought a bunch of books. Bezos later told an executive at the American Booksellers Association that he was impressed with the story and was determined to make customer service “the cornerstone of Amazon.com.” Bezos considered it his most important weapon. “We know that if we can keep our competitors focused on us, while we stay focused on the customer, that ultimately we’ll turn out all right,” he has said. Interestingly, Jeff’s idea of customer service is different than that held by Howorth, who says personal, face-to-face service with the customer is what’s most important. In the Internet game, customer service is mostly done by unemotional computers. “I’ll bet he hasn’t washed a customer’s car,” Howorth says of Bezos, perhaps with just a touch of bitterness. In fact, for all his professed dedication to serving the customer, Bezos’s obsession seems to be restricted to building an incredible Web site and to making sure deliveries arrive when promised. It’s hard to even find a customer service number on Amazon.com. Bezos wants everything to be done via email. Amazon’s customer service started with Bezos himself answering the emails, and by 1999 was manned by five hundred of these “customer care” representatives packed into cubicles and tied to their telephones and email accounts to answer questions from customers. The people handling these emails are generally overqualified, underpaid people with no experience in bookselling. From the beginning, disaffected academics were popular because they were well-read and could supposedly help find books on a huge variety of topics. They were paid about $10 to $13 an hour, but with the potential of promotions and stock options dangled before their glazed eyes. Not everyone found Nirvana in this environment. Richard Howard, for example, has a master’s degree in literature but decided to take the entry-level customer care job at Amazon in 1998 with hopes of moving into Editorial, where he could write reviews of books. What he found was a work mill with four “Customer Service Tier 1 E-Mail Representatives” to a cubicle. Supervisors listened in on calls to monitor performance, and rated the workers by how many emails or phone calls they could answer per minute. Howard chronicled his experience for a Seattle newspaper in an article titled “How I ‘Escaped’ from Amazon.cult.” Human interaction was treated almost as a necessary evil. Howard was given a “Blurb Index,” a list of hundreds of short, canned answers to cover virtually any question a customer might ask, which he felt were designed to create “a blandly conventional zone of contact between [Amazon’s] agents and customers.” When Howard got a call from a customer one day asking how to find a copy of James Michener’s Centennial because the customer was interested in Civil War–era fiction, Howard suggested Gore Vidal’s Lincoln as a better alternative —just the type of thing a knowledgeable employee in a good bookstore might do. Howard spent three or four minutes on the call, he said, and was reprimanded by his supervisor. After three and a half weeks on the job he was fired for not being productive enough. He took a contract job at Microsoft instead. What the starry-eyed customer service representatives with visions of huge stock options found when starting their jobs at Amazon was long hours and options for just one hundred Amazon shares, as long as they performed well for three years. The best could answer a dozen emails a minute. Those who dropped below seven were often fired. The Washington Post did an exposé of this “dark” side of Amazon and quoted one customer service rep as saying, “We’re supposed to care deeply about customers, provided we can care deeply about them at an incredible rate of speed.” The customer service reps also had to learn the UNIX software system the company used, and had to take a three-week training course at Amazon to learn how everything worked, including how orders for books were submitted, how they were delivered to the warehouse, how they were shelved, how to match orders to the packed books, and how to choose the best shipping method. The most frequent questions came from people who needed help ordering a book on the site or wanted to know where the book they had ordered was. But Bezos knew he would never be able to offer the kind of service one gets from a physical store staffed by human helpers. “We’re never going to have sofas; we’re never going to have lattes,” he told BusinessWeek magazine in June 1997. Where Bezos really managed to shine was in creating a great online experience with very little human interaction with customers. The site had to be simple, fast, and intuitive. It had to offer an unprecedented number of books at the cheapest price possible and deliver them quickly. The whole thing just had to work without problems so that people left the site happy. That seems to be enough for most people. “When we do make a customer unhappy at some point,” Bezos was later to explain, “these people come out of the woodwork and say, ‘Well, actually that wasn’t my experience.’ Word-of-mouth is very powerful.” That’s especially true on the Internet, where word-of-mouth is viral. On the Internet, says Bezos, “Everybody is a publisher.” They blog and they email, and they can turn nasty very quickly. Email, he says, “has some magical ability to turn off the politeness gene in the human being . . . you get these very candid pieces of feedback that tell you exactly how you can improve your service. If I walk into a restaurant and am served a bad meal, I just leave; I never go find the chef and grab him by the collar and say, ‘You know, you really shouldn’t be cooking.’ ” But there have been a few occasions when emails and words spread virally through the Internet were intended to grab Bezos by his virtual collar to yell at him. Bezos has not always anticipated what it means to provide great customer service. In the early days, Amazon had a policy of emptying out customers’ shopping carts if they remained idle for thirty days. It seemed reasonable at the time to assume the customer wasn’t going to buy the items, an assumption that turned out to be wrong. One customer sent an angry email saying that he had spent hours filling the online cart with items he wanted, then suddenly found one day that his basket had been emptied without any warning. In his email, he said it was a stupid policy. The programmers went back to the files in the database and recovered the items for him. They also eliminated the thirty-day deletion practice. “It probably was a stupid policy,” Bezos was later to admit in a speech. Sometimes the company was not able to live up to its promises. In the early days, the overworked staff might miss the promised shipping dates. In order to make up for it, the shipping costs would be refunded whenever a customer complained. As Amazon grew, Bezos’s dedication to doing what’s right for the customer began to slip. He often caught hell for it from customers and had to recant. In 1998, reporters discovered that Amazon had started charging publishers $10,000 to feature books on its home page under headings such as “New and Notable” and “Destined for Greatness” with heavy editorial support from Amazon, including a profile of, or interview with, the author. Bezos reportedly told his staff it was okay to put placement up for bids. “If Publisher X gives us a better deal [on a new title] than Publisher Y,” said Bezos, “and we predict that the customer is going to like both of these books equally but there’s only a slot to show one, let’s show the one where we make more money.” So what’s the big deal? After all, bookstores have long accepted payola to give prime real estate in their stores to new titles. But this was Amazon, the company about which Bezos has boasted, “We may be the most customer- obsessed company to ever occupy planet Earth.” This was the company that was supposed to always put customers first, offering the best titles to suit their tastes. Who’s to say that the customer would “like both of these books equally” when it