Jeff Bezos is the founder and CEO of Amazon.com, the world's largest online retailer of books, CDs, electronics, and more. Although the site experienced explosive growth from the time it was founded in 1995 through the end of the 1990s, analysts in late 1999 began to question the firm's likelihood of achieving profitability. As a result, stock prices plummeted and Bezos found himself having to defend his business model. Some analysts believe Amazon may become profitable in 2002, depending on the direction in which Bezos steers his firm. Although Amazon is best known for selling books online, its ability to assist other companies wishing to engage in e-tailing may well be its eventual focus.
After graduating from Princeton University with degrees in electrical engineering and computer science, Jeff Bezos began working on Wall Street. Bank-er's Trust hired him to develop electronic fund management systems. Eventually, he left there to begin working for hedge fund firm D.E. Shaw & Co., where he became the youngest senior vice president. Despite his success, the 30-year-old Bezos left his job at Shaw in 1994 to pursue his dream of creating an Internet retailer. He moved to Seattle, Washington, and began working on a business plan that would allow him to capitalize on what many analysts were predicting to be explosive growth in Internet use. After researching 20 different products he believed could be sold via the Internet, including magazines, CDs, and computer software, Bezos settled on books, guessing that this sizable market, with its wide range of purchase choices, would be well served by electronic searching and organizing capabilities. Books also were relatively inexpensive, and Bezos concluded that consumers would be more likely to make their first purchase online if the risk was minimal. In addition, the small size of most books made for easier distribution. Bezos liked the fact that market share was distributed among many leading publishers. In fact, industry leader Barnes & Noble held less than 12 percent of the $25 billion book retailing market. He believed this market fragmentation left room for fledgling companies.
Bezos decided to set up shop in Seattle, where he would be close to the warehouse of Ingram, a leading U.S. book distributor, as well as to a large pool of technology professionals. He hired four employees and began working in the garage of his new home to build the software that would operate his online site. Although he initially planned to call his new business Cadabra, Bezos eventually settled on Amazon, believing the name of the largest river in the world conveyed Amazon's potential to reach vast numbers of customers. In July of 1995, Bezos launched Amazon.com, a World Wide Web site that offered books at low prices and allowed visitors to search for books by author, title, subject, or keyword. Once a customer placed an order, Amazon requested the title or titles from the appropriate publisher, who shipped them to Bezos' home. At first, Bezos packaged the orders himself and took them to the post office. Typically, customers received their books within five days of placing an order. Books were shipped to all 50 states and 45 countries throughout the world.
In October, three months after its inception, Amazon achieved its first 100-order day. Shortly thereafter, the site became so busy that the beep heard at the office each time a customer completed an order was turned off because its tone became continual. Throughout Amazon's first year, Bezos worked to continually update the site to increase its user friendliness and customer service options. Many of these options also were designed to garner repeat business for Amazon. For example, customers could choose to sign up for e-mail messages that would let them know when their favorite author released a new title.
During Amazon's second year of operation, Bezos began to look for ways to increase the firm's growth. One of his first moves was to create the "associates" program in July of 1996. This program allowed individual Web site owners and operators to offer links to Amazon from their sites. The associates then received a commission any time a visitor clicked on those links and bought books. To help fund future acquisitions, Bezos secured $10 million in capital from Kleiner Perkins Caufield & Byer in exchange for a minority stake in Amazon and a seat on the board. Advertising efforts included banner bars on some of the most heavily trafficked Web sites, as well more traditional plugs in print sources likely to be perused by book lovers. By the end of 1996, Amazon employed 110 people and its book database had grown to include more than more than 1 million titles. According to Bezos, the breadth of its offerings was key to the site's success, along with the fact that most books were discounted between 10 to 30 percent.
In May of 1997, although it had not earned a profit, Amazon went public, listing its shares for $18 apiece on NASDAQ. In less than a year those shares were worth nearly $100, and Bezos was on his way to becoming a billionaire. Bezos planned to use some of the funds from the offering to enhance Amazon's distribution arm. In October, Amazon became the Internet's first retail operation with one million customers. To commemorate this milestone, Bezos himself personally delivered the site's one-millionth order to a customer's home in Japan. The firm's name recognition was bolstered further when Vice President Al Gore spent a day answering customer service calls. Bezos forged alliances with America Online Inc. and Yahoo Inc., both of which resulted in Amazon's promotion on these high-traffic sites. Growing 20 to 30 percent each month, sales at Amazon neared the $150 million mark, and book offerings grew to roughly 2.5 million. Amazon's success left traditional book retailers scrambling to retain customers. Many chains began staying open later, offering entertainment, hosting book clubs, selling coffee and pastries, and even opening up their own retail Web sites, which Barnes & Noble did in May of 1997. According to the September 1997 issue of Chain Store Age Executive, book retailing had been permanently altered. "Bezos redefined book and information merchandising and distribution. He has changed the way some customers shop and purchase books, and continues to challenge the definition of the traditional book store."
The associates program reached 30,000 members in 1998. Bezos then oversaw the launch of Amazon.com Advantage, a program designed to promote the sales of independent authors and publishers. In April, the firm expanded internationally and also diversified into online video sales when it acquired the United Kingdom's Internet Movie Database. Two months later, after Bezos decided to expand Amazon's product line with CDs, he unveiled Amazon Music, which offered more than 125,000 music titles online. International growth continued with the purchase of Bookpages Ltd., an online bookseller based in the United Kingdom, and ABC Telebook Inc., based in Germany. Both firms eventually were folded into international sites such as Amazon.co.uk and Amazon.co.de. In December of 1998, more than 1 million new customers shopped online at Amazon for holiday gifts. Customers exceeded 6.2 million, securing Amazon's position as the number three U.S. bookseller, behind Barnes & Noble and Borders.
In March of 1999, Amazon launched Amazon Auctions, an online auction house that allows businesses to market products to consumers and consumers to market products to each other. A month later, the site began allowing visitors to create and send free electronic greeting cards. In June, Amazon secured its 10 millionth customer. Expanding his site's offerings even further, Bezos created Amazon Toys and Amazon Electronics. He also launched Amazon zShops, which permitted manufacturers to offer products for sale on Amazon. Bezos conducted a $1.25 billion bond offering to fund an acquisition spree that included stakes in drugstore.com, HomeGrocer.com, Pets.com, Gear.com, and della.com. This move later proved costly as several of the smaller dot-com businesses went bankrupt and Amazon was left with nearly $2 billion in debt.
Eventually, Bezos divided Amazon's offerings into virtual stores that focused on merchandise like software, video games, gifts, and hardware. Customers also were able to sign up for a wish list service. By the end of 1999, Bezos had overseen nine acquisitions and the opening of seven new stores. Amazon had shipped 20 million items to 150 countries across the globe. Bezos was elected "Person of the Year" by Time magazine. According to United Press International, Bezos earned the award because his "vision of the online retailing universe was so complete, his Amazon.com site so elegant and appealing that it became from day one the point of reference for anyone who had anything to sell online."
January of 2000 marked the first cutback in Amazon's history when president and chief operating officer Joseph Galli, a Black & Decker executive hired by Bezos in June of 1999, laid off 150 employees, or roughly two percent of Amazon's workforce. Galli also hired several new managers, determined to tighten the firm's spending practices and budgeting procedures. In April, Amazon.com began selling lawn and patio furniture, as well as health and beauty aids, on its site and also launched Amazon Kitchen, offering kitchen products to customers for the first time. In one of its first moves to offer e-commerce services to other companies, Amazon agreed to work with Wineshopper.com, a California-based Internet upstart seeking to become the leading online wine retailer. In June, Lehman Brothers convertible analyst Ravi Suria released a report critiquing Amazon's financial state. As a result, share prices fell by 19 percent. While Amazon's sales had experienced incredible growth in the late 1990s, investors were becoming increasingly concerned by the firm's failure to earn a profit, its $2 billion debt which cost about $125 million in interest each year, and emerging competition from the likes of Wal-Mart and other major retailers who were opening their own online stores. In 1997, Amazon had lost $27.6 million on sales of $147.8 million. In 1998, it lost $125 million. Although sales reached $1.6 billion in 1999, losses continued to mount, reaching $720 million.
To make matters worse, Galli resigned suddenly to take on the CEO role at VerticalNet, an online business-to-business portal. Stock prices fell to $45 per share as investor confidence faltered. By August, stock prices had plummeted to $28 per share, decreasing 14 percent after the firm's announcement of poor second quarter results. Nevertheless, Amazon continued to operate as the leading online shopping site in the world, serving 17 million people in 160 countries. To bolster its image, the firm began touting its offerings as the "Earth's Biggest Selection" of products, including books, e-cards, online auctions, CDs, videos, DVDs, toys and games, housewares, and electronics. With only 24 percent of sales coming from international operations, Bezos began working to expand the firm's international base. He also changed the firm's focus from pursuing growth at all costs, a philosophy Bezos had dubbed "Get Big Fast," to cutting costs wherever possible, building on the corporate overhaul started by Galli.
Forbes writer Katrina Brooker explained that the success of Bezos's efforts became evident in the third quarter of 2000, when losses of 25 cents per share beat Wall Street predictions of 33 cents per share, and operating losses were nearly halved, decreasing from 22 percent of sales to just 11 percent. Even more important was the fact that the division housing books, music, and video—Amazon's core businesses—netted $25 million on $400 million in revenues. However, despite evidence that Bezos was taking Amazon toward profitability, by the end of 2000 stock remained down roughly 80 percent from its high. Losses for the year totaled $1.4 billion on sales of $2.76 billion.
Determined to quiet his naysayers, Bezos laid off another 1,300 employees early in 2001, or roughly 15 percent of Amazon's total workforce. He also announced his intent to shut down a service center in Seattle and a warehouse in Georgia. Growth projections were trimmed from 40 percent to roughly 25 percent. While most analysts agree that Amazon.com will likely earn a profit and remain a key force in e-tailing, they remain divided over what level of success the firm will achieve. Those bullish on Amazon's future point to deals like the August 2000 alliance with Toysrus.com, which resulted in a Web site that coupled the inventory of Toys 'R' Us with the e-commerce savvy of Amazon. According to the terms of the agreement, Amazon gets not only a fee for allowing the toy giant to use its software, but also a commission on each toy sold on the site. Toys "R" Us benefited as well. Once the new site was in place, holiday sales for Toysrus.com grew more than threefold.
According to Molly Prior in DSN Retailing Today, "the pundits can't help but wonder if the marriage of a pure-player to a bricks-and-clicks category leader is the wave of the future for Internet retailing." However, Amazon's critics point out that despite deals like this and Bezos's cost cutting measures, the firm still spends much more money than it earns, and projected profit margins are no higher than those of traditional retailers. As the giant e-tailer works to find its niche in the ever-changing world of e-commerce, Wall Street likely will continue to watch Bezos, who owns 32 percent of Amazon, very closely.
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SEE ALSO: Amazon.com
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.
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.
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
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.
Sources of Information
Contact at: Amazon.com, Inc.
PO Box 80387
Seattle, WA 98108–0387
Business Phone: (206)346–2992
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Bezos, Jeff 1964–
Chairman, chief executive officer, and president, Amazon.com
Education: Princeton University, BS, 1986.
Family: Son of Miguel Bezos (Exxon engineer) and Jackie Gise Jorgensen; married McKenzie Tuttle (former D. E. Shaw & Company researcher); children: one.
Career: Fitel, 1986–1988; Bankers Trust Company, 1988–1990, software developer; 1990, vice president; D.E. Shaw & Company, 1990–1992; 1992–1994, senior vice president; Amazon.com, 1995–, chairman, CEO, and president.
Awards: Person of the Year, Time, 1999.
Address: Amazon.com, 1200 12th Avenue South, Seattle, Washington 98144; http://www.amazon.com.
■ Jeff Bezos founded Amazon.com in 1995 as an online bookstore. Due to customer demand the company later expanded and added other products to its inventories, including videos, DVDs, electronics, toys, apparel, software, household items, and gourmet food. In an interview published in Dealerscope magazine, Bezos indicated that books were chosen as Amazon.com's first product category "because they offered so much selection"; in the same interview, Bezos stated, "I think the main thing that has differentiated Amazon.com from conventional retailers is its obsessive/compulsive focus on the endto-end customer experience. That includes having the right products, the right selection, and low prices" (January 2003).
Started up in Seattle, Washington, Amazon.com had its first base of operation in the Bezos's garage, which was converted into a workspace initially housing three Sun workstations. Amazon grew to be an international enterprise and eventually expanded to include sites in Canada, the United Kingdom, France, and Japan. Coworkers and chroniclers of the Amazon story characterized Bezos as a visionary and as a
man who on the surface was easygoing but kept his employees on demanding schedules. Bezos demanded quick turnaround time for project completion. He scheduled weekly management meetings which often ran as long as four hours, with managers reporting on new products and pricing and taking on questions from the CEO. Bezos promoted innovative efforts among his employees through the Just Do It program, which rewarded those who came up with and executed ideas that helped the company—without first obtaining permission from their bosses. Bezos was committed to hiring the best employees, always looking for intelligent and innovative individuals.
DEVELOPING ENTREPRENEURIAL SKILLS
Jeff Bezos was a gifted child; at the age of three, tired of sleeping in a crib, he found a screwdriver and took the crib apart. He subsequently tinkered with models and with a Radio Shack electronics kit. Every summer Bezos stayed at his grandfather's ranch, where he would repair windmills and the tractor and brand cattle, among other tasks. An avid young inventor, he created a solar microwave and a door buzzer that alerted him when his siblings were entering his room. When asked who his heroes were in a Time magazine interview, Bezos cited Thomas Edison and Walt Disney. He visited Disney World six times and was impressed with Disney's powerful vision: "He knew exactly what he wanted to build and teamed up with a bunch of really smart people and built it" (December 27, 2003).
Bezos was a model student who was profiled (under an assumed name) in the 1977 book entitled Turning on Bright Minds: A Parent Looks at Gifted Education, by Julie Ray. Bezos was named class valedictorian when he graduated from high school in 1982 and won the Silver Knight Award from the Miami Herald. He graduated summa cum laude from Princeton in 1986, earning Phi Beta Kappa membership.
Bezos's entrepreneurial spirit became evident when he obtained his first post-graduation position at Fitel, a start-up that focused on creating a network for international financial trade. After two years, when Fitel failed to get off the ground, Bezos moved on to Bankers Trust, where he was responsible for developing software applications for pension-fund clients. He eventually became a vice president at Bankers Trust. He then moved on to D. E. Shaw & Company, a financial-trading company on the cutting edge of computer technology. David Shaw, the company's founder, was an inspiration to Bezos. Shaw was likewise impressed with Bezos and rapidly promoted him to senior vice president. In an interview with Time, Shaw characterized Bezos as "sort of an entrepreneurial odd-jobs kind of a person" (December 27, 2003). In 1994 Bezos left D. E. Shaw, having decided to build and operate his own company.
AMAZON.COM: THE EARLY YEARS
Bezos had paid close attention to the rapid rise of the World Wide Web, noting in 1994 that it was growing at an annual rate of 2,300 percent, and therein looked for a purer entrepreneurial outlet. He began his research by making a list of the top 20 mail-order companies, observing that there were no book mail-order companies because a comprehensive catalog would have needed to be thousands of pages long and thus expensive to mail. Bezos decided that an Internet-based company would have the capability to offer a substantially wider selection of printed matter to consumers. Thus, he made a thorough study of the book business, beginning by attending the American Booksellers' Association's annual convention.
When Bezos told Shaw that he was leaving to launch an online book business, Shaw advised him to take some time to reconsider. Bezos eventually came to his decision in a characteristically creative way. He told Time that he pictured himself at 80 years of age and was certain that he would regret neither missing out on a six-figure Christmas bonus nor having tried to build an online business and failing. He stated, "In fact, I'd have been proud of myself for having taken that risk and tried to participate in that thing called the Internet that I thought was going to be such a big deal. And I knew if I didn't try this, I would reget it. And that would be inescapable" (December 27, 1999).
Bezos's parents supported his decision, investing the $300,000 they had saved for retirement in their son's venture (which was later amply rewarded; they became billionaires). Bezos initially planned to name his company Abracadabra; that name was later scrapped in favor of Amazon, inspired by the river. Bezos and his wife, McKenzie, moved to Seattle to start the company and persuaded the highly successful programmer Shel Kaphan to be among the first employees hired. Bezos officially founded Amazon.com in 1994. In June 1995 the first Web site was tested. On July 16, 1995, Amazon.com was made available to consumers in every state and 45 other countries. Sales were immediate. Bezos told Time, "Within the first few days, I knew it was going to be huge" (December 27, 1999). The media noticed and reported on Amazon, and as a result of the publicity the company's consumer base rapidly increased. Bezos owned and operated his own warehouses for the book inventory; as of 2003 Amazon had six.
After the Web site was launched, it was fine-tuned by Bezos and his employees to include features such as one-click shopping and customer reviews. Investors were able to buy stock in Amazon.com beginning in 1997 when the company went public. Over the next few years Bezos expanded the company by launching Web sites in Canada, the United Kingdom, Germany, France, and Japan.
Bezos constantly tapped into exactly what his customers wanted. He told Dealerscope, "We were doing such a good job with books, and we started getting these e-mails, initially for other media categories, like music, DVDs, or VHS" (January 2003). Bezos then actively asked customers what they wanted Amazon to sell, which led to further expansion into products such as electronics, toys, kitchenware, and gourmet foods. In early 2003 Bezos reported that electronic products were the second-largest category of items sold, after books.
On the surface Bezos was easygoing with a sense of humor. On the other hand, employees and chroniclers found that he was adamant in his expectations of quick turnaround time on project completion and high productivity, as well as of innovativeness and intelligence. At managers' meetings Bezos personally asked his team questions about new Amazon initiatives. He was a hands-on leader and reviewed everything from press releases that quoted him to average customer contacts per order to breakdowns of e-mail contracts and other details of the business. In a 2003 Fortune magazine article, Fred Vogelstein reported that 20 of Amazon's 50 top executives left between 2001 and 2003. Consequently, Bezos was characterized as a relentless recruiter of talented, innovative individuals. Bezos and personnel managers were known to thoroughly examine prospective employees' college transcripts and SAT scores. According to Bezos, "People here like to invent, and as a result other people who like to invent are attracted here. And people who don't like to invent are uncomfortable here. So it's self-reinforcing" (May 26, 2003).
To encourage new ideas, Bezos instituted the Just Do It program, wherein the winners were those who proceeded with projects that they felt would help the company without first asking their bosses' permission. Bezos believed in the benefits of communication with customers and listened to and used their ideas for expansion. Via the Web site Amazon customers were encouraged to recommend their favorite books and products through reviews, and many compiled lists of their favorite items.
Bezos looked to growth and expansion of Amazon.com through partnerships with other companies. In 1999 Amazon partnered with Sotheby's to provide online auctions of items ranging from fine art to collectibles. Additionally, Amazon acquired the International Movie Database and bought the companies Back to Basics and Tool Crib of the North. Amazon.com partnered with Toys "R" Us in 2000 to establish a cobranded toy and video-game store.
In 2000 Bezos and his company were put to the ultimate test. At a time when many dot-com companies were going out of business, Amazon's stock price fell from $106 in December 1999 to $41.50 in September 2000. To deal with this crisis, Bezos was forced to lay off 1,300 employees in February 2001. He also cut back on products, eliminating those that had yet to prove profitable for the company.
In 2001 Amazon formed an agreement with Borders to provide inventory, order fulfillment, and customer service for Borders.com. Funds also came into Amazon via cooperation with America Online and the purchase of assets from Egghead.com. Through the efforts of Bezos and his team Amazon turned a profit in the last quarter of 2001. Continuing expansion efforts in 2002, Amazon started selling clothing from established names such as The Gap, Land's End, and Nordstrom. In January 2004 Amazon.co.uk, the company's United Kingdom site, formed an agreement with the British Library to make rare and out-of-print books available for sale online.
Amazon not only survived the crisis of 2000 but flourished. For the fourth quarter of 2003 the company posted a net income of $73.2 million. The Wall Street Journal reported that in 2003 Amazon reported an annual net profit for the first time. Between January 2003 and 2004 company stock prices tripled.
See also entry on Amazon.com, Inc. in International Directory of Company Histories.
sources for further information
De Jonge, Peter, "Riding the Wild, Perilous Waters of Amazon.com," New York Times, March 12, 1999.
Keefe, Collin, "Jeff Bezos: Founder and CEO, Amazon.com," Dealerscope, January 2003, p. 76.
Quittner, Joshua, "An Eye on the Future," Time, December 27, 1999, pp. 55–56.
Saunders, Rebecca, Business the Amazon.com Way: Secrets of the World's Most Astonishing Web Business, Milford, Conn.: Capstone USA, 1999.
Vogelstein, Fred, "Mighty Amazon," Fortune, May 26, 2003, p. 60.
Weill, David, and Denise M. Bonilla, Leaders of the Information Age, New York, N.Y.: H. W. Wilson, 2003.
Wingfield, Nick, "Amazon Reports Annual Net Profit for the First Time," Wall Street Journal, January 28, 1994.
E-commerce is indeed getting a lot of attention and at its center is Jeff Bezos (pronounced bay-zohs), founder, chief executive office (CEO), and head cheerleader for Amazon.com, the Internet bookselling company he founded in 1995. With about $1 million in capital, most borrowed from friends and family, Bezos built a multibillion-dollar empire in about five years and in doing so, revolutionized the way commerce is done on the Internet.
Jeffrey Preston Bezos was born January 12, 1964, in Albuquerque, New Mexico. A year later, his parents divorced and since then he has never had contact with his biological father. Three years later, his mother, Jackie Gise, married Michael Bezos, who fled his native Cuba when he was fifteen years old.
"In early 1996 we were called Amazon.con, in '97 Amazon.toast, and in 1999 it was Amazon.bomb. Then there was my personal favorite: Amazon.org, because clearly we're not for profit.… It still gets a ton of attention. I mean, you're still talking to me."
Much of Jeff Bezos's relentless drive and ambition likely came from his new father, who was raised in a Catholic mission. Mike Bezos always strove to better himself, learning English and working various odd jobs to pay for his education at the University of New Mexico at Albuquerque. After college, he became an engineer with Exxon Corporation, causing the family to move to Texas. After several years, another job transfer brought them to Florida, where Jeff Bezos attended Palmetto High School in Miami. Bezos was popular in school and became class president and valedictorian in his senior year.
Bezos always had a knack for figuring out how things work. In Jeff Bezos: King of Amazon, author Josepha Sherman writes, "From the time he was a toddler, Bezos was busy trying to change his world. He felt he was too old to sleep in a 'baby' crib, so he found a screwdriver and took the crib apart. Instead of getting mad, Bezos's family encouraged him."
Bezos had a younger sister, Christina, and brother, Mark. When the young siblings learned to walk, they loved going into their brother's room because of all the fascinating "toys". To warn him that the children were coming, Jeff attached an alarm to his bedroom door that made a loud buzzing sound when someone entered.
When Bezos was twelve he wanted something called an Infinity Cube. The device was a set of small motorized mirrors that reflected off one another so the images seemed to go on endlessly. It cost $20 but Bezos did not have enough money to buy it. Instead, he purchased mirrors and other parts with what money he had and constructed his own reflecting cube. He built other inventions, including amateur robots. At one point he had so much clutter in his bedroom, his parents made him move all of his half-finished devices and experiments into the garage.
There are many similar stories surrounding Bezos's childhood years. He spent countless hours building models and an assortment of electronics kits. He worked on science projects, often coming up with his own "inventions." By the time he reached high school, he had turned the family garage into his personal science and electronics laboratory. Ironically, Bezos later would launch Amazon.com from his own garage.
After graduating with honors from high school, Bezos decided to follow in the footsteps of Stephen Hawking and enroll in the physics program at Princeton University. He soon realized, however, that the subject was too difficult for him, so he switched to a double major in electronics and computer science. Bezos discovered he excelled at creating software programs. In 1986, he graduated with highest honors and Phi Beta Kappa (membership in a national honor society), earning degrees in electrical engineering and the still new field of computer science.
Bezos turned down several job offers from large corporations and instead took a position with a newly formed fiber optic company, Fitel. His task was to help the company build a computer network specifically for international finance. In 1988, he took a job developing systems for managing investment funds at Banker's Trust in New York City. After two years, he moved to the Wall Street investment firm of D. E. Shaw & Company as a computer specialist. In 1992, at age twenty-eight, he became Shaw's youngest ever vice president; two years later he was promoted to senior vice president.
Bezos and Disney
At various times, Jeff Bezos dreamed of becoming a cowboy or an astronaut. He was a devoted Star Trek fan and went as far as naming his dog Kamala after a minor character from an episode of Star Trek: The Next Generation. His heroes included American inventor Thomas Edison (1847-1931 ), astrophysicist Stephen Hawking (1942-), and Walt Disney (see entry), although he was no Mickey Mouse fan. Instead, he was fascinated with how Disney came up with the electronics and animatronics used in Disney World in Orlando, Florida.
"The thing that always amazed me [about Disney] was how powerful his vision was," Bezos said in a Time article. "He knew exactly what he wanted to build and teamed up with a bunch of really smart people and built it. Everyone thought it wouldn't work, and he had to persuade the banks to lend him $400 million. But he did it." Many friends and family members would likely say the same thing about Bezos and the way he took Amazon.com from an idea to a multibillion-dollar enterprise. Bezos, however, did it much quicker than Disney.
From Idea to Reality
While at Shaw Bezos developed the idea that would eventually become Amazon.com. In 1994, he read an article about how the World Wide Web was growing by 2,300 percent a year. He knew he had to tap into such a great potential for commerce but was unsure what type of business would work best. He researched mail-order companies, believing their products would sell well on the Internet. After drawing up a list of twenty popular mail-order items, Bezos finally settled on books since the millions of titles in print offered an enormous potential for sales.
On July 6,1995, Bezos launched Amazon.com, named after the South American river, with financial and moral support from family and friends. The company operated out of the garage of the Bezos's two-bedroom home in suburban Seattle, Washington. With almost no publicity, sales took off immediately. "Within the first few days, I knew this was going to be huge," Bezos told Time. "It was obvious that we were onto something much bigger than we ever dared to hope."
Person of the Year
By the end of 1999, Amazon.com had become a multibillion-dollar corporation offering 3.5 million titles for sale. It had expanded into a variety of other merchandise, including music and videos, and had set up operations in Europe. Bezos's personal fortune alone was estimated at $10.5 billion. In the crowning achievement of his career, Time magazine named Bezos its "Person of the Year" for 1999, proclaiming him king of cybercommerce.
With success came adversity. The company became involved in several notable lawsuits filed by Barnes & Noble and Wal-Mart. But none of the problems compared to the biggest challenge of all: making the company profitable. Amazon.com lost money every year, including $1.4 billion in 2000. In 2001, the company laid off thirteen hundred workers and instituted other cost-cutting measures. The belt-tightening worked and Amazon.com posted its first ever net profit of $5.1 million for the fourth quarter of 2001.
Despite his hectic schedule, the head of the world's largest bookstore still finds time to read. Jeff Bezos buys about ten books a month although he reads only three. His favorites include The Remains of the Day by Kazuo Ishiguro, Dune by Frank Herbert, and Built to Last: Successful Habits of Visionary Companies by James C. Collins and Jerry I. Porras.
For the future, Bezos plans to make Amazon.com a place people can buy anything they want on-line. And now that the company is firmly rooted, Bezos and his wife MacKenzie want to turn their attention to charitable work. "At some point, we want to figure out how to do philanthropic work that's highly leveraged," said Bezos. "It's very easy to give away money ineffectively. But doing it well requires at least as much attention and energy as building a successful company."
For Further Information
Saunders, Rebecca. Business the Amazon.com Way. London: Capstone Ltd., 1999.
Sherman, Josepha. Jeff Bezos: King of Amazon. Brookfield, CT: Twenty-First Century Books, 2001.
Spector, Robert. Amazon.com —Get Big Fast: Inside the Revolutionary Business Model That Changed the World. New York: HarperBusiness, 2000.
Appelbaum, Alec. "Amazon's Juggling Act." Money (March 1, 2001): p. 35+.
"Bedtime for Bezos? His Company is at a Critical Crossroads, but Jeff Bezos is Sticking to His Plan." Newsweek (April 9, 2001): p. 36.
Brooker, Katrina. "Beautiful Dreamer." Fortune (December 18, 2000): p. 234+.
"Cruising Inside Amazon: It's Like a Three-Ring Circus that Adds More Rings Each Day." Time (December 27, 1999): p. 68+.
Hargrave, Sean. "Amazon: (Strategic Play)." New Media Age (February 14, 2002): pp. 28-31.
McCarthy, Michael. "Virtual Reality (Amazon.com's Rise to Success)." ADWEEK Western Advertising News (June 14, 1999): p. 31.
Quittner, Joshua." An Eye on the Future: Jeff Bezos Merely Wants Amazon, com to be Earth's Biggest Bookstore." Time (December 27,1999): 56+.
Amazon.com, Inc. [On-line] http://www.amazon.com (accessed on August 15, 2002).
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. Bezos caught the online wave at the right time and must compete with the many imitators who wish to similarly succeed in selling products over the Internet.
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' 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 an aspiring novelist, MacKensie, and shares his home with 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, Bezos's net worth was valued at more than $500 million. Amazon is growing at a rate of 3,000 percent a year, and Bezos expects to reach $1 billion in annual sales by the year 2000. 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 confesses to buying about half of his books in regular stores where the browsing helps fulfill a social function.
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 on-line 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 importantly, 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. The company, with 600 employees, ships books at a rate of about $150 million a year, which equals approximately 30 traditional chain bookstore superstores. The secret behind Amazon's amazing quick growth is that the vast majority of books ordered are then purchased from book wholesalers' warehouses, which allowed Bezos to start his company with little capital and does not require large investments in real estate or inventory.
Chronology: Jeff Bezos
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: Started Amazon.com.
1997: Amazon.com went public.
1998: Amazon.com sold its millionth book.
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. So far, however, the analysts have been proven wrong. Bezos is confident that his company has an advantage over the others because Amazon.com is technologically based and focused exclusively on-line. 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. Eventually, Bezos anticipates moving onto other information-based products such as CDs and videos. Although Amazon.com has achieved remarkable success in dominating the online book market, the company lost $30 million in 1997 and expects to lose the same amount in 1998 before showing a small profit in 1999. Bezos has invested his profits in expanding his business, 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 on-line 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 his customers 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 specialty, 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 on-line retailing, Bezos almost immediately challenged the largest bookstore giants. Information is the Internet's greatest attribute, and Bezos has shown how his customers' need for books 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. For the customer, Bezos through Amazon.com has cut prices up to 40 percent on special featured books, has customized book selections, has created reader forums, and has 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.
Sources of Information
Contact at: Amazon.com, Inc.
1515 2nd Ave.
Seattle, WA 98101
Business Phone: (206)622-2335
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