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.

Tomorrow, part II: Bezos' favorite books, why choose “amazon,” the two-month-old Associates Program, and that futuristic concept of “redecorating the store for each customer”...