erik lundegaard

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My 1996 Interview with Jeff Bezos

In October 1996, 15 months into his run as founder and CEO of amazon.com, I interviewed Jeff Bezos for The Seattle Times. It was all new to me: both the Internet and interviewing people. I was actually singularly wrong for the role. I went in ready to talk about literature, about which, it turns out, Bezos didn’t know much, and we wound up talking about technology and business issues, about which I knew even less. The resulting Q&A still feels valuable from an historical perspective ...

So how did you come up with the idea for this company?

In the spring of ’94 I came across this guy named Quartermain. At that time he was collecting statistics on Internet growth. He had a web page where he did this.

Nobody knew, nobody had a clue, how many people were on-line. What you could measure, and what Quartermain was measuring, was the rate of Internet growth. He set up ... sniffers so he could measure, at certain key points going past on the Internet, these packets of data and see what protocol they were in; and if they were in http protocol he knew they were web packets. So because he wasn’t measuring the whole Internet, just these choke points, he didn’t even know what the base usage of the Web was. But he could measure very accurately the rate of growth; and the rate of growth was 2300 percent a year. I had never seen anything grow at 2300 percent a year.

At the time I was working for a very specialized investment bank in New York City called D.E. Shaw and Co. It is, unarguably, the largest quantative hedgefund in the world. What they did was they made lots and lots of tiny little trades—computers decided all the trades—and all the trades were made based on inefficiencies in the equity and bond markets. Totally technologycentric. Very similar to amazon.com in that sense. In other words, amazon.com is not a technology company per se but we’re a completely technologycentric company—we live and die by the computer programs we write—and D.E. Shaw was the same way but in the realm of finance.

I was one of four senior people [at D.E. Shaw] who helped to run that company, ran a couple of the firm’s profit centers; but this startling growth statistic of 2300 percent a year sort of pried me out of there. I said “This is interesting. What kind of businesses can you do on the Web that would actually make sense?” It had to be a business where the value proposition to the customer was incredibly high, because this Web technology was completely in its infancy. It’s immature. There are lots of inconveniences associated with using it: your modem line hangs up on you, your call-waiting clicks in and everything goes crazy, there are so many points on the Internet where things don't work right. Images take a long time to download. So if you’re going to get people to use your service on-line, whatever it is, you have to be offering something with an incredibly strong value-proposition to make them willing to put up with that large level of inconvenience.

I looked at several different areas and finally decided that one of the most promising ones is interactive retailing. Then I made a list of 20 products, and force-ranked them, looking for the first-best product to sell on-line.

In the top five were things like magazine subscriptions, computer hardware, computer software, and music. The reason books really stood out is because there are so many books. Books are totally unusual in that respect—to have so many items in a particular category. There are one and a half million English-language books, different titles, active and in-print at any given time. There are three million titles active and in-print worldwide in all languages. If you look at the number two category in that respect, it’s music, and there are only about 200 thousand active music CDs. Now when you have a huge number of items that’s where computers start to shine because of their sorting and searching and organizing capabilities. Also, it’s back to this idea that you have to have an incredibly strong value proposition. With that many items, you can build a store on-line that literally could not exist in any other way. It would be impossible to have a physical bookstore with 1.5 million titles. The largest physical bookstores in the world only have about 175,000 titles. It would also be impossible to print the amazon.com catalogue and make it into a paper catalogue. If you were to print the amazon.com catalogue it would be the size of seven New York City phone books.

So here we’re offering a service that literally can't be done in any other way, and, because of that, people are willing to put up with this infant technology.

That’s actually one of the huge cost advantages we have over physical bookstores: We don’t have to inventory all the books. Even the ones we do inventory we don’t have to inventory in expensive retail real estate; we inventory in very inexpensive warehouse space.

If you look on our website, every book has its own web page, and one of the things that’s on each book’s web page, is what we call the availability status. So we’re telling our customers what the availability is on each individual title. There are five different availability categories: There are things that are usually shipped within 24 hours; things that are usually shipped within 2-3 days; thngs that are usually shipped within one to two weeks; things that are usually shipped within four to six weeks; and there’s a fifth category, not yet published, shipped when available.

So the books that we actually inventory in our warehouse are the ones that are marked “shipped within 24 hours.” Those are the best-selling books.

Then there are about 400,000 titles—keep in mind that’s more than twice as many titles as you’d find in the largest of the superstores—that we can ship within 2-3 days. Those we get from wholesalers, like Pacific Pipeline, or Ingram, the world’s largest book warehouse is in Roseberg, Oregon, another reason why we’re located in Seattle. They have more titles than in any single warehouse in the country. We use a network of about a dozen different wholesalers to provide us with rapid access to the 400,000 best-selling titles.

Then the next 500,000 titles are either one to two week titles or four to six week titles. Those we get directly from 20,000 different publishers, and, depending upon the publisher, either one-to-two weeks or four-to-six weeks. Then there are these books that are not yet published.

How do you get your list of books together?

We get the bulk of our data from book wholesalers who have computerized inventory data bases of their own, which they use to manage their warehouse operations. We get data from the Library of Congress. And we get data directly from publishers. Any Jeff Bezos, mid-flightpublisher can come to our website and one of the links at the bottom of the home page—there is one that says “Is there an author in the house?” and there’s another one that says “Calling all publishers.” A tiny fraction of the data we actually enter by hand.

Which books are the big sellers?

We sell everything, but we are probably disproportionately strong in literary fiction, science fiction, and computer books, Internet books, things you would expect. But we also sell a huge amount of romance novels. We sell a disproportionately small number of romance novels, but romance is such a huge category. It’s a small piece of a huge pie.

Do you have a favorite book?

It used to be Dune. I’m sort of a techno-geek, propeller-head, science-fiction type, but my wife got me to read Remains of the Day and I liked that a lot. I also like the Penguin edition of Sir Richard Francis Burton's biography.

Bugs in the system?

There aren’t any bugs per se but there are things we want to do better; and there are whole new things that we want to do.

Such as?

We want to increase the amount of customer-to-customer interaction that we have, and increase the amount of customer-to-author interaction. We want to set the store up so we can redecorate the store for each individual who walks in; so you can set up a series of preferences and say, “I never read romance; don’t ever show me any romances.”

What do you mean?

The whole page would be personally designed for you. So if you said, “I really love literary fiction,” well, here’s a great science-ficton novel that we actually think you'd like based on your preferences in literary fiction. Stuff like that. In case you want to broaden out.

It would all be done automatically. It would have to be. The way it might work is you might come in and we present you with a list of 100 books that are in a particular genre, like literary fiction, let’s say, and you would rate the ones you liked the most and disliked the most, and based on what you liked and disliked the computer would be able to form a profile of your particular tastes, and it might try to match you up with people of similar tastes. You call that your affinity group. What are things you haven’t read that people in your affinity group love? And then it would recommend those things to you.

Are there other on-line booksellers?

There are more than a thousand on-line booksellers. We are by far the largest and best-known and the one doing the best job of customer service. There’s Book Stacks Unlimited in Ohio--they only offer about 400,000 titles. We discount our prices and they don’t. We discount the top 300,000 bestsellers from 10 percent to 30 percent. Again, that’s almost twice as many titles as the largest physical bookstores even carry.

We can afford to do that because we have such a lower cost structure. Our desks are made of doors. We spend money on things that matter to customers. We have the world’s best servers—we use digital alpha servers—64-byte machines with a gigabyte of RAM and all this stuff. We hire only the most talented computer programmers.

How will all of this affect physical bookstores?

I think you’ll see a continuation of the trend that’s already in place, which is that physical bookstores are going to compete by becoming better places to be. They'll have better lattes, better sofas, all this stuff. More comfortable environments. I still buy about half of my books from physical bookstores and one of the big reasons is I like being in bookstores. It’s just like TV didn’t put the movies out of business—people still like to go to the movie theater, they like to mingle with their fellow humans—and that’s going to continue to be the case. Good physical bookstores are like the community centers of the late 20th century. Good physical bookstores have great authors come in and you can meet them and shake their hands, and that’s a different thing. You can’t duplicate that on-line.

Now there’s a whole series of stuff that we’re going to do on-line that you could never do in a physical bookstore; and we’re doing some of that now. Any customer, any browser, anyone in the world, can come to amazon.com and review any book on our bookshelves; you can’t do that in a physical bookstore. What are you going to do—put yellow 3M post-its on the spine?

How do you police that?

On a daily basis we have people who read through all the submissions and weed out the ones that are frivilous; but it’s an incredibly small number of people who actually do that. We had God review the Bible. We had J.D. Salinger review Catcher in the Rye. It was very funny. The person who did that one actually had a terrific sense of humor. But we just get rid of it.

But if you want to trash a book, that’s fine with us. If you want to come in and say “I thought this was John Grisham’s worst book ever; he should be embarrassed by foisting this on us. It’s not as good as Time to a Kill, blah blah blah,” that helps people make purchasing decisions; and that’s fine with us.

Our whole editorial department gets together the third Tuesday of every month—or something like that—at one of their houses, and they sit and read through all of these and make the decisions. [There are] eight people in the department.

Why call it “amazon”?

The amazon is the earth’s biggest river and we’re the earth’s biggest bookstore.

How many employees do you have now?

Just over 100. We opened the store almost fifteen months ago, July 16th, 1995, and we’ve been growing at 34 percent a month, which is basically unheard of. That annualizes to more than 3000 percent a year. We’ve been in four different offices in the last fourteen months, always moving because we don’t have enough space—both in terms of our staff and our warehouse space. We’re about to move our warehouse again. We’ve shipped books now to over 95 different countries.

Anything new on the horizon?

We’ve made it possible for any website on the entire Internet to have their own bookstore in association with amazon.com. No matter how small or big your website, you can add a bookstore to it. And we pay you 8 percent of revenues for any order you send us through your bookstore. It costs nothing up front. All you have to do is come to our homepage and fill out an on-line application form; we give you a special ID number and you encode in the URL that you use to point to the books in our catalogue. That special ID number allows us to track where the books came from.

We’ve had this open now for just over two months. It’s called the Associates Program, and we already have over a thousand websites. There's one Associate who has a website that sells meteorites. This guy knows everything about meteorites but you could never set up in the physical world a store that just sold books on meteorites. It would never make any money.

I came up with the idea by trying to figure out “How can amazon.com become experts on all 300,000 Library of Congress narrow niche subject categories?” There’s just no way. But there are such experts out there. And they already have websites. Let them do it.

—October 1996

© 2011 Erik Lundegaard