Bezos, Jeff

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Bezos, Jeff

(1964-)
Amazon.com, Inc.

Overview

Pioneer retailer on the World Wide Web, Jeff Bezos has proven that a fortune can be made by convincing people to rethink the way they shop. With Amazon.com, Bezos has created the world's largest bookstore of available titles with virtually no inventory or property costs. Browsing for a book will never be quite the same again with the online ease and convenience that Amazon provides.

Personal Life

Jeff Bezos was born in Albuquerque, New Mexico, in 1964. His father is an Exxon executive, and Bezos was brought up in affluence and privilege. Until he was 16, Bezos spent his summers rounding up herds and fixing windmills on his grandfather's ranch in tiny Cotulla, Texas. Although he did not pursue a career as a cowboy, there is something about the lure of the frontier that caught Bezos's imagination and spurred his interest in the untapped potential of the Internet. From an early age, Bezos wanted to be an entrepreneur.

He attended Princeton University, where he graduated in 1986 with a Bachelor of Science degree in electrical engineering and computer science (summa cum laude and a member of Phi Beta Kappa). He is married to MacKensie, an aspiring novelist, and has a Labrador retriever named Kamala after a minor Star Trek character. Relocating from New York City to Seattle to create Amazon.com, Bezos set out to found a company that could take advantage of the 230 percent annual growth in Internet usage. When the company went public in 1996, his net worth was valued at more than $500 million. By 2001, with a net worth of $1.23 billion, Fortune magazine named Bezos number five on its list of America's Forty Richest Under Forty. For a time, Amazon grew at a rate of 3,000 percent a year; by mid–2001, the company had sold some $5.9 billion in products to over 32 million customers. When Amazon sold its millionth book, Bezos fulfilled his promise to personally deliver it: a Princess Diana biography to Tokyo. Bezos works in a somewhat rundown section of Seattle, Washington, in a small office with a desk he made of a door nailed to two–by–fours as legs; he built all his company's desks according to this model in Amazon's early days. As he proudly declares, "We spend money only in areas where it matters to our customers." Analytical and methodical, Bezos is also enthusiastic and tireless in promoting his company and the potential of the Internet to change the way people buy. Ironically, however, Bezos confessed to buying about half of his books in regular stores where the browsing helps fulfill a social function. Bezos was named Person of the Year by Time magazine in 1999. In the fall of 2001, he appeared in a Taco Bell commercial promoting the "hand–held" quesadilla, donating his pay to the Special Olympics.

Career Details

When Bezos graduated from Princeton, he headed to Wall Street. Interested in a job with a high–tech start–up company, he joined Fitel, a new company that coupled high tech with high finance by creating software for tracking international stock trades. Under the management of David Shaw, whom Bezos credits for teaching him a great deal about becoming a good manager, Fitel had only 11 employees when Bezos joined the firm. In 1988 Fitel was sold to a Japanese firm, and Bezos joined the Bankers Trust Company, which leads the development of computer systems that helped manage more than $250 billion in assets. In 1990 Bezos moved to D. E. Shaw & Co. where he helped build one of the most successful and technically sophisticated quantitative hedge funds on Wall Street, becoming the company's youngest vice president in 1992.

The genesis for the creation of Amazon.com began in the spring of 1994 when Bezos was struck by the amazing annual growth of Internet usage. Nothing was growing as quickly, and Bezos began to explore the idea of creating a business that would tap into that growth. He decided on Internet retailing and methodically prepared a ranked list of the leading products that could best be sold over the Internet. Books led the list because there are so many items and no existing traditional bookstore could possibly offer 2.5 million titles, as Amazon.com does. The largest bookstore carries fewer than 200,000 titles. Settling on his product, he next considered a location for his business. Bezos carefully and methodically examined his options. He needed a location near a major book wholesaler, within reach of a pool of high–tech talent to make online sales work, and in a small–population state, to avoid sales tax when products were shipped across state lines. Narrowing it down to the western United States, Bezos eventually chose Seattle, Washington. In choosing a name for his company, Bezos was equally precise and analytical. He wanted a name that started with the letter A to head any alphabetical list, would be short and easy to spell, would be internationally recognizable, and most important, would convey a sense of size that his company would offer as the largest bookstore in the world. He finally settled on Amazon.com, after the largest river in the world. Bezos launched Amazon.com in June 1995. Early investors who put up $30,000 in 1994 would be holding Amazon stock worth $4.5 million at the end of 1997. By the end of 1998, the company had revenues of $610 billion. By late 1999, the company holdings were estimated at $8 billion.

Bezos's company was able to grow quickly by ordering the vast majority of Amazon.com books from book wholesalers' warehouses, allowing Bezos to start his company with little capital and relatively no investments in real estate or inventory.

Chronology: Jeff Bezos

1964: Born.

1986: Graduated from Princeton University.

1986: Hired by Fitel.

1988: Hired by Bankers Trust Co.

1990: Promoted to vice president.

1990: Hired by D. E. Shaw & Co.

1992: Promoted to senior vice president.

1995: Founded Amazon.com.

1997: Amazon.com went public.

1998: Amazon.com sold its millionth book.

1998: Amazon.com began trend of offering products other than books, starting with compact discs.

1998: Stepped down as president and chief operating office; remained CEO and chairman.

1999: Named Time magazine's Person of the Year.

2001: Placed fifth on Fortune magazine's list of the Forty Richest Americans Under Forty.

Despite his company's successful growth, analysts predicted that Amazon.com could not survive once the other bookstore giants such as Barnes & Noble and Borders copied Bezos's simple idea. But Bezos claimed that many competing e–commerce sites focused too much effort on marketing mediocre products and creating an attractive–looking Web site, rather than focusing on logistics and customer service. Bezos also brought innovative features to Amazon.com that were soundly and technologically based, such as one–click shopping, forums that allowed readers to post and read both positive and negative reviews of a product, and links to other books by the same author or related topics. Bezos insisted that kind of information offered on the Web site (even negative reviews) was crucial for customers, since "Amazon's business is not selling things; our business is helping customers make purchasing decisions." Bezos also introduced a means of customer analysis that tracks purchases online and later suggests related products that the customer might be interested in purchasing. Although this strategy earned a reprimand for Bezos from the IBM chairman when Bezos identified online what IBM employees were buying, the strategy has reaped rewards for Bezos. Almost 70 percent of the company's revenues in 1999 originated from returning customers.

By 1998 Bezos began a strategy that would eventually serve the company very well; he began offering CD products in addition to books. By September 1999 Bezos announced, "Tomorrow, Amazon.com will be a place where you can find anything." True to his word, Bezos had already been building toward this initiative in 1999. By 2001, Amazon.com had established a formal relationship with the retail stores Toys "R" Us, Circuit City, and Target. Other items were also made available, including music, pet supplies, household goods, electronics, software, an auction service for customers, used items, and a service called "zshops" that searched for hard–to–find items. In 2001 the company also negotiated a deal with Borders to take over the latter's online bookselling operation. Bezos' purpose and aim for the company was to provide online customers with "earth's biggest river, earth's biggest selection." The new partnership with Circuit City allowed Amazon.com to greatly expand its consumer electronic selection, a department that has seen rapid expansion in sales.

Bezos is confident that his company has an advantage over the others because Amazon.com is technologically based and focused exclusively online. Other companies that are real estate based, he predicts, will have a harder time successfully accomplishing both Internet and traditional retailing. Success will depend, according to Bezos, on customer satisfaction and ease of service, which Amazon.com is determined to provide. Although Amazon.com has achieved remarkable success in dominating the online book market, the company has never shown a profit on its books and has accumulated losses of $2.7 billion. His personal wealth of $1.23 billion in 2001 was down from $4.05 billion in 2000. But Bezos insisted that he would continue to grow the company by returning any profits to the company. Bezos has invested in expanding his business rather than increasing the profit margin, following the principle of GBF: "Get Big Fast." Long–term success, according to Bezos, will depend on becoming one of the few "brands that matter." As he has said, "There are always two or three or four brands that matter. With the lead we have today, we should be the number one player."

Jeff Bezos is a pioneer in online retailing who has played an important role in helping to transform the way people shop today. Although skeptics have dismissed the financial viability of conducting large businesses on the Internet, Bezos has shown how it can be done by anticipating what consumers want and skillfully using the best technology to re–imagine the book business. Bezos realized that the Web could offer what a traditional bookstore could never deliver: a "stock" of more than 2.5 million titles. Customers can sample reviews and follow links to other books by the same author or to other books on comparable subjects. Convenience and service, the Amazon.com specialties, are factors that could substantially alter retailing.

Social and Economic Impact

Bezos, in creating a business plan and implementing it with Amazon.com, showed how an upstart company can quickly become an industry leader in the high–tech age. Without the need for great initial investment or inventory but with considerable focus on his market and the demands of online retailing, Bezos almost immediately challenged the largest bookstore giants. Information is the Internet's greatest attribute, and Bezos has shown how his customers' desire for books and other products can be satisfied in a radically different way.

Amazon.com has also established new benchmarks in the publishing industry while raising the level of customer service. Amazon has caused publishers to lower inventory and centralized distribution. The industry can also advance order certain books and pre–sell some titles by getting feedback from readers about what their favorite authors should publish. Through Amazon.com, Bezos has cut prices for the customer up to 40 percent on specially featured books, customized book selections, created reader forums, and provided interactivity between readers and authors. In response to changes in book retailing, traditional bookstores have also changed what they sell, stressing more reasons to visit their stores, such as coffee and pastries, poetry readings, and book signings. Bezos' inclusion of a wide array of products (in addition to books) at Amazon.com has created innumerable possibilities for customers to buy a variety of products online in a speedy fashion, without ever leaving their computers.

By 2001, Amazon.com had, for many, come to represent the best and the most reliable of Internet shopping experiences. But the company had very few friends on Wall Street. In September 2001 the company's per–share stock value had fallen from its peak value of $92 in January 1999 to less than $9. Many considered this to be an ominous sign for other Internet retailers: after all, they argued, if Amazon.com can't succeed, then who can?

In mid–2001 the good news for the company included its outstanding visibility and high volume of Web site traffic, its rising sales (projected to be $4 billion for the year), and its familiarity with the tastes of online shoppers. But the company was still struggling with profitability—it had lost almost $90 million on $1 billion in sales in a recent quarter and laid off 15 percent of its staff in mid–2001. It was also hampered by a marketing plan that failed to explain how it could make money shipping marginal items to customers with three–day deliveries. Finally, there was concern among some investors about the way the company assembled its profit–and–loss columns. While some financial analysts foresee eventual bankruptcy, a majority of advisors continue to hold back doomsday predictions, citing Amazon.com's growth into new areas, especially consumer electronics, as holding out promise for the company's future.