Jeff
Bezos, the founder and CEO of Amazon.com, is the
most
famous son of the e-commerce revolution. The company he created became the
best-known online brand in the world. After graduating, Bezos worked for a
variety of investment firms. By 1992 he had made it to vice-president, yet he gave up
his Wall Street career to chase a dream. Amazon.com opened for business in July
1995, and soon became the
flagship for the New Economy. When the tide turned against dot-com stocks in 2000, Amazon.com looked as if
it might be washed up. Yet Bezos battened down the hatches and by the following
year seemed once more to be steaming ahead towards profitability. Never afraid
to branch out from its core business of books, in 2006 Amazon.com offered shoppers
over 30 different product
categories.
BACKGROUND
AND RISE
Born on 12 January
1964 in Albuquerque, New Mexico, Jeffrey Preston Bezos was a clever child. At a
very early age he took a screwdriver to his cot and dismantled it. This set a
pattern. When his grandfather bought him a Radio Shack electronics kit, he
concocted a ‘burglar alarm’ to keep his siblings out of his bedroom. Moving on
to the garage, the venue of choice for so many budding entrepreneurs, he built
a microwave oven driven by solar power. There is no record of how well it
cooked. Mike Bezos, Jeff’s father, was an engineer
with Exxon, and the family moved several times because of his work.
Jeff attended high school in Miami
and spent most summer on his grandfather’s Texas ranch, living the life of a
cattle rancher and driving the tractors.
DEFINING
MOMENTS
In 1986, after
graduating in electrical engineering and computer science from Princeton, Bezos
headed for Fitel, a high-tech start-up company in New York, where he built a
computer network for financial trading. After Fitel he joined Bankers Trust,
becoming their youngest vice president in 1990. From there he moved to D.E.
Shaw & Co. The Wall Street firm interviewed him on the strength of a
recommendation from one of its partners, who suggested, ‘he is going to make
someone a lot of money someday.’ At Shaw, Bezos described his role as a ‘sort
of an entrepreneurial odd-jobs kind of a person’, looking for business
opportunities in the insurance, software, and Internet sectors. He excelled in
the role, becoming senior vice-president in 1992. Then came his epiphany.
Sitting at his computer in the office surfing the Internet, Bezos came across
an astounding fact. According to usage statistics, the Internet was growing at
a rate of 2,300% a year. Online commerce, he realized, was a natural next step.
Being a combination of Wall Street insider and computer nerd, he was perfectly
positioned to cash in. Bezos compiled a list of 20 products suitable for
selling online, including CDs, magazines, PC software and hardware—and books.
The shortlist was quickly whittled down to two: books and music. In the end, he
plumped for books. His logic was twofold. With more than 1.3 million books in
print as against 300,000 music titles, there were simply more to sell. Perhaps
more important, the major book publishers appeared less intimidating than their
record company counterparts. The six major record companies had a stranglehold
on the popular music distribution business, but the biggest book chain, Barnes
& Noble, had only 12% of the industry’s total sales.
Quitting his job,
Bezos headed out to Seattle. ‘I will change the economics of the book
industry,’ he is reputed to have told one venture capitalist. Ironically, some
of the fundraising took place in the coffee shop of a Barnes & Noble
bookstore. With no state tax, a wealth of high-tech talent, and a major book
distributor on the doorstep—Ingram’s warehouse in Oregon—Seattle seemed a
perfect place to start his new business. In the garage of his rented home,
Bezos and his first three employees set up their computers and began writing
software for the new business. He originally planned to call the company
Cadabra. Fortunately, his friends convinced him that, while the name might have
magic connotations, it sounded very similar to ‘cadaver’. Instead, Bezos opted
for Amazon, after the world’s largest river. The company, according to its
website, ‘opened its virtual doors in July 1995 with a mission to use the
Internet to transform book buying into the fastest, easiest, and most enjoyable
shopping experience possible.’ By the beginning of 1999, Amazon.com, Inc. had a
market capitalization of $6 billion—more than the combined value of Barnes
& Noble and Borders, its two largest bookstore competitors. The fourth
quarter of 1998 brought net sales of $252.9 million, an increase of 283% over
the same period in 1997. With Amazon awash with revenue, analysts seemed
unperturbed by the absence of profits. Bezos, meanwhile, was a model of
reassurance. Amazon would reach $1 billion in sales by 2000, he confidently asserted,
and sure enough it did. Yet details about when Amazon would make a profit were
hazier. Amazon was, said Bezos, still in ‘an investment phase’. For a while, investors
were more than happy to go along for the ride.
Then, in June 2000,
cracks began to appear in the almost unanimous support enjoyed by the star
child of the Internet revolution. Holly Becker, e-commerce analyst at Lehman
Brothers and a long-time Amazon believer, switched her recommendation on the
company from a buy to a neutral. She was, she said, ‘throwing in the towel on
Amazon’. Many saw Becker’s change of heart as a turning point in the company’s
fortunes. Yet Bezos may well have the last laugh. With some 21 million
satisfied customers in the first two quarters of 2001, revenue over the same
period up by 16%, and a strategic alliance with Internet Service Provider AOL
in the bag, Warren Jenson, Amazon.com’s chief financial officer, correctly
predicted operating profitability in the fourth quarter of 2001. Customer
satisfaction was officially recognized when Amazon achieved the highest ever scores
for a service industry in 2001 and 2002. The Amazon range is growing too, with
the introduction of toys and electronics in 2000 and jewellery in 2004. Bezos, however,
came under fire for holding back the broader development of e-commerce when he
applied for patents to protect Amazon’s ‘Honour’ online payment system and
system for allocating advertising space from multiple bidders. After several
roller-coaster years, the group announced its first full-year profit in January
2004. Whether Bezos will go down in the business history books as the creator
of a viable and long-lived Internet business, or simply as an e-business
pioneer, remains to be seen.
Amazon is the totem
stock of the Internet evangelists. Critics tell you that through smoke and
mirrors, PR, and puff, one man has succeeded in making a fortune through hyping
his online business tounthought-of heights. What he created, after all, was
nothing more or less than a virtual bookshop, and one that in its first five
years didn’t turn a profit. But Amazon.com isn’t a bellwether stock without
reason. Bezos is the quintessential dot-com icon. He proved to the business
world that the Internet was about more than knowledge. He proved that it is
possible to overcome fears about purchasing online, to drive down transaction
costs, and to build an international e-commerce business over the Internet.
Bezos is one of the great business pioneers. He had the courage to attempt
something that people doubted could be done. Amazon has firmly entrenched
itself as a dominant force in e-commerce and, as a result of product additions
and strategic alliances, is now a virtual marketplace. The question is whether
it can profitably exploit its position consistently.
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