[FoRK] more on the dread pirate

Eugen Leitl eugen at leitl.org
Thu Apr 5 05:55:56 PDT 2012


Inside Amazon's Idea Machine: How Bezos Decodes The Customer

This story appears in the April 23rd, 2012 issue of FORBES magazine.

A few months ago Amazon reached what its founder and CEO Jeff Bezos demurely
tells me was “an interesting milestone.” The retailing giant, so ubiquitously
associated with books, then music and video, now has tens of millions of
products in stock—and a majority are nonmedia goods: drills, dress shoes,
tennis rackets and almost anything else that a human can ship. Adults may
still mentally link Amazon with Barnes & Noble, but to teenage customers,
Amazon is now synonymous with store.

Forbes Special Feature: America’s Best And Worst CEOs Jeff Bezos’ Top Ten
Leadership Lessons

That turning point might be Bezos’ greatest accomplishment. In officially
transforming Amazon from an online bookstore that sells other stuff to a
retailer—and business ser­vices provider—that once sold mostly books, he has
taken one of the original Internet bonanzas and created a success story all
over again. Its stock is up 397% in the last five years.

With a net worth of some $19 billion, the 48-year-old is one of the 30
richest men in the world. Yet he still dashes around Amazon with the
intensity of a startup boss trying to make his first payroll, as well as the
glee of a teenager discovering all the fun you can have at overnight camp.
“I’m a legitimately happy person,” Bezos explains on a recent, rainy Friday
morning at Amazon’s Seattle headquarters. “My wife says: ‘If Jeff is unhappy,
just wait five minutes.’”

What’s not to be happy about? He’s the number one CEO in America. The passing
of Steve Jobs has left him, without question, as the corporate chief that
others most want to meet, emulate and deify. And his primacy can be proven
with numbers: FORBES’ ranking of top CEOs—using a bang-for-the-buck
methodology that factors in sustained performance, modest compensation and
the ability to pull ahead of one’s peers—has Bezos comfortably in the top
spot. Indeed, he’s in the highest 5% in every single metric.

Across numerous e-mail back-and-forths and face-to-face questions with Bezos,
I’ve come to understand why. More than a century ago another legendary
retailer, Chicago’s Marshall Field, championed the fatalist’s slogan: “The
customer is always right.” Bezos, perhaps more than anyone, has taken that
mantra into the digital era, incrementally cracking one of the business’s
great mysteries: figuring what customers want before the cash register rings
and then making those insights pay off. In an era when high-flying tech
companies outdo each other with worker perks, no-frills Bezos is proving the
potency of another model: coddling his 164 million customers, not his 56,000

Jeff Bezos’ managers at Amazon find him formidable enough. But the figure
that overwhelms their lives goes by the internal nickname “the empty chair.”
Bezos periodically leaves one seat open at a conference table and informs all
attendees that they should consider that seat occupied by their customer,
“the most important person in the room.”

If the empty chair is the ultimate boss at Amazon, then Bezos is its
billionaire enforcer, the guardian of what he calls the “culture of metrics”
that tries to give that inanimate object a loud, clear voice. Amazon tracks
its performance against about 500 measurable goals. Nearly 80% relate to
customer objectives. Some Amazonians try to reduce out-of-stock merchandise.
Others race to build a bigger library of downloadable movies. Intricate
algorithms turn one group of shoppers’ past habits into custom
recommendations for new customers. Hourly bestseller lists identify what’s
hot. Weekly reviews keep track of who is on course—and where corrective
attention is needed.

Amazon is so confident of its ability to personalize the site for each user
that the company hardly ever creates classic customer-segment personas, such
as “soccer moms” or “gearheads.” Such marketing standbys are too imprecise
for Team Bezos.

Michael Prince for FORBES

Feisty debates over what metrics to watch are Amazon’s way of life. “There’s
an incredible amount of challenging the other person,” says Manfred Bluemel,
a former senior market researcher at Amazon. “You want to have absolute
certainty about what you are saying. If you can stand a barrage of questions,
then you have picked the right metric. But you had better have your stuff
together. The best number wins.”

Bezos is even stricter about what customers don’t want. They hate delays,
defects and out-of-stock products, so the metrics patrol at Amazon constantly
tracks such numbers, looking to make them as rare as possible. Even the
tiniest delay in loading a Web page isn’t trivial. Amazon has metrics showing
that a 0.1 second delay in page rendering can translate into a 1% drop in
customer activity.

Former executives all have stories about Bezos’ obsessive focus on the
customer. Simon Murdoch, the former head of Amazon’s British operations,
remembers offering customers in the U.K. next-day delivery if their order was
in by 4 p.m.; Bezos personally hammered him to extend that delivery window to
6 p.m., 7 p.m. and later, even if it meant radical changes in warehouse
hours. (Today Amazon offers same-day delivery for much of Britain and ten
U.S. cities if the order gets in that morning.) Another one-time insider
remembers a relentless push for sturdier-than-usual cardboard so customers
could reuse its boxes for other shipments or presents, creating goodwill and
putting Amazon’s name in front of a second set of potential customers.

Tina Patterson, a senior Amazon brand manager from 2007 to 2011, recalls
tense moments previewing television ads for the soon-to-launch Kindle. Early
versions included a whimsical snippet where a Kindle-carrying reader
transformed into a brave matador, tossed into the air by a charging bull.
Everyone giggled—except Bezos. He hit the rewind button and silently replayed
the matador scene. Then he turned to the group and adopted a grade-school
teacher’s somber voice: “I know it’s cute, and lots of people will think the
bull is funny. But the customer right there is getting his ass kicked. We
can’t let him get hurt.”

Bezos’ zealous protection has paid off. Each year the University of Michigan
calculates a customer-satisfaction index for 225 of America’s largest
companies. Amazon has led the online retailing category for years and has
repeatedly placed in the top 10 among all companies. Currently only Heinz,
Clorox, Apple and three car brands topped Amazon.

But great customer service doesn’t fully explain Amazon’s extraordinary
success. Other high-touch online retailers can’t match the $48 billion in
sales Amazon did last year. Meanwhile, traditional retailers like Target and
Costco play up customer service too—yet their combined market capitalization
trails Amazon’s $98 billion.

For Bezos a data-driven customer focus lets him take risks to innovate,
secure in the belief that he’s doing the right thing. “We are comfortable
planting seeds and waiting for them to grow into trees,” says Bezos. “We
don’t focus on the optics of the next quarter; we focus on what is going to
be good for customers. I think this aspect of our culture is rare.”

Amazon’s Kindle, for example, came into being because Bezos, internalizing
hundreds of data points, believed millions of people would want a crisp
e-book reader that could download any book in 60 seconds or less. He set that
delivery target without getting pinned down by technical issues about the
right compression ratios or transmission speeds for book files. Engineers
were free to solve technical challenges as they saw fit. They just needed to
make it right for consumers. It took years for Amazon to master the hardware
necessary to build such devices, but Bezos didn’t blink. When one finance
executive asked how much he was prepared to spend on the project, the CEO
shot back: “How much do we have?” Amazon CEO Jeff Bezos introduces the Kindle

Amazon CEO Jeff Bezos introduces the Kindle Fire tablet in New York,
September 28, 2011. 

That kind of thinking has transformed Amazon. After wild swings associated
with the dot-com boom and crash, Amazon’s performance was essentially flat
between mid-2003 and early 2007, in lockstep with the industries it was
associated with: books, music and the like. Then Amazon took off afresh, as
investors realized that Bezos had been quietly building a multitude of new
growth engines inside his company. All were rooted in the same theory: If
Amazon lets customers set the specs, it could conquer any number of consumer
products and services. Bezos also decided to court business customers (and
freak out his own engineers) by turning Amazon’s internal software
architecture inside out and selling access to it. The boss’ new diktat
upended Amazon’s approach to tasks ranging from quality assurance to
interteam communication.

In 2006 he launched Amazon Web Services as a standalone business. It rang up
an estimated $1 billion in revenue last year, with $2 billion in its sights,
thanks to an even faster growth rate than Amazon’s main storefront. It serves
customers ranging from NASA to Netflix with dozens of cheap, on-demand
computer services via the “cloud.” During the Cassini space probe’s
exploration of Saturn, raw data for 180,000 photos were processed on Amazon’s
computers within five hours, at a cost of less than $200, says Tomas
Soderstrom of NASA’s Jet Propulsion Lab. Doing the job in-house could have
taken 15 days, he says.

Last October’s launch of the Kindle Fire, a computing tablet that can play
music and videos, has again hurt short-term profitability. Amazon’s selling
price of $199 doesn’t appear to cover costs. Bezos isn’t perturbed. He calls
the Fire “the most successful product we’ve ever launched.” To him the
bullish case for the Fire is obvious. If it induces owners to buy more from
Amazon, the costs of spreading these tablets globally will be well worth it.

This renewed Amazon is basically a personal manifestation of Bezos, who is
equal parts quant and dreamer. Growing up in Houston and Miami, Bezos never
paused for a traditional retailer’s apprenticeship—i.e., selling things.
Rather, he crunched numbers, once proudly telling his grandmother that he had
calculated how much her cigarette habit was shortening her life. He went to
Princeton to study physics and ended up in computer science, which led to a
brief, lucrative career on Wall Street.

The dreamer side of Bezos wants to be at the frontier. His teenage hope was
to become an astronaut, and he pushed himself to be high-school valedictorian
to improve his chances. He spent summers as a teenager on his grandfather’s
25,000-acre ranch in Texas, fixing machines, working with cattle and learning
about self-reliance.

The respect for that ethic explains why Amazon screens its job candidates for
a strong bias to action and an ability to work through ambiguity. Both help
identify people who can innovate fast and do right by the customer. One
popular interviewing tack: asking candidates to create an action plan as
brand managers in an area where they lack any direct knowledge—and then being
told they have no budget.

Stumped candidates will find their path into Amazon slipping away. Those who
cobble together guerrilla answers—informal polls through free online tools
such as SurveyMonkey—tend to thrive at Amazon. They are the same people who
might have challenged Bezos in math class and also succeeded on Grandpa’s

Efficiency—cheapness, in the eyes of Amazon’s detractors—is as much a part of
the Amazon culture as the empty chair. In fact, Bezos links the two. In his
2009 letter to shareholders, Bezos declared that Amazon had begun waging war
on muda, the Japanese word for waste. The more he could get rid of needless
costs, the easier it would be to deliver rock-bottom prices to customers.
This crusade, he wrote, was “incredibly energizing.”

During interviews for this story Bezos cited Amazon’s recent success in
improving its warehouse usage 23%, “recapturing 6 million square feet of
underutilized space.” He also takes pride in Amazon’s work to presort
packages for carriers such as FedEx, so shipments aren’t delayed by the
carriers’ need to carry out further “sortation.”

Sortation? “We use that word so frequently that it rolls off our tongues,”
Bezos says with a smile. “But it’s not a common word, is it?”

The company’s executives feel the pinch. Bezos keeps an eerily tight rein on
expenses, eschewing color printers in favor of trusty old black-and-white
models. No one flies first class (though Bezos sometimes rents private jets
at his own expense). Experiments are hatched and managed by the smallest
teams possible; if it takes more than two pizzas to feed a work group, Bezos
once observed, then the team is too big. Offices still get cheap desks made
of particleboard door blanks, a 1990s holdover that Bezos refuses to change.

Managers may grumble, but they learn to bring sandpaper to work so their
merino sweaters don’t get shredded by splinters. None of the company’s five
top officers earns more than $175,000 in cash a year. Bezos last year took
$81,840 in salary and hasn’t had a raise since 1998. He has raised at least
$750 million since 2010 by selling Amazon shares, but that’s how you make
your money at his company. Stock and options are the big honeypots; many on
the leadership team have $20 million or more in unvested shares.

This mind-set is an outlier in an industry that views talent as a delicate
asset in need of constant pampering; in Silicon Valley perks like free
on-site massages are as rote as a pot of coffee in the kitchen area. At
Glassdoor.com, where current and former employees rate their companies as a
place to work, Amazon generates a middling 3.1 out of 5, putting it somewhere
between Delta Airlines (3.2) and Burger King (3.0).

Steve Yegge, a Google employee and former Amazon engineer, chronicled his
frustrations last October in a 4,500-word Internet posting that has attracted
more than 100,000 readers. He complained about the decor at Amazon, the food,
the pay and the need to do grungy tasks at times. He portrayed his former
boss as Dread Pirate Bezos, who issues mandates that cause people to
“scramble like ants being pounded with a rubber mallet.”

Yet Yegge also saluted Bezos’ ability to push massive changes through the
organization, in particular the initiatives that led to Amazon Web Services.
Those small two-pizza-or-less innovation teams are nimble, and because
they’re cost-effective, Bezos can deploy dozens. Even Google hasn’t been able
to react so quickly with its own Web services, Yegge added. That comparison
alarmed him—when Yegge quit lean-and-mean Amazon, it was in favor of opulent
Google, where free shuttle buses with Wi-Fi whisk employees to their jobs.

Amazon, started in a garage and nurtured in a rundown stretch of Seattle
waterfront, is now settling into its fifth headquarters, in Seattle’s
elegantly rehabbed South Lake Union district. The company’s new campus
consists of nearly a dozen shiny glass and steel buildings, complete with
courtyards, cafes, restaurants and a little bit of public artwork on display.

Jeff Bezos should be there a long time. He just turned 48 in January and
could easily run Amazon another two decades. That’s good for stability. It
could be a challenge in terms of retaining other executives with aspirations
of becoming a CEO. Bezos says he knows when to avoid meddling so that his
project leaders can find their own paths. Yet it’s congenitally hard for
founders to be hands-off for long—an effort to bring in a chief operating
officer to work directly under Bezos didn’t work out a decade ago.

How much power can Bezos share when the customer, as channeled by Amazon’s
founder, calls all the shots? Rather than kibbitz with a number two, Bezos
actually reads over-the-transom e-mail, which most CEOs regard as unbearable
clutter. He scanned customer notes avidly when Amazon was tiny, and he hasn’t
shaken the habit. Dozens of times a year, unsolicited suggestions turn into
feature improvements. Even angry e-mails are “fantastic if you want customers
to be honest,” Bezos says.

Then there’s the fan mail. Asked about customer e-mails that have become his
favorites, Bezos forwarded to FORBES a note from a woman recounting how
Amazon has touched her life over the past 12 years. First she bought books
and compact discs when she was in her late 20s. Then she spent $79 a year to
qualify for free shipping as part of the Amazon Prime program for heavy

Now, she writes, Amazon is “helping me choose a mattress and a crib for my
son.” Instead of being overwhelmed by all the shopping associated with
pregnancy and the arrival of a child, she feels in control. She concludes by
writing: “Thank you so much for making my life simpler and easier. … They say
it takes a village, but, in this case, all a mom needs is Amazon, her Amex
and an iPhone.”

That last need, ironically, seems to be Amazon’s next target: smartphones.
Lab 126, Amazon’s Silicon Valley unit where the Kindle was developed, has
been hiring flurries of mobile-technology engineers the past two years.
Amazon hasn’t confirmed anything, but it hasn’t made much of an ­effort to
swat down speculation. If Amazon does storm the lush smartphone market, it
will do so with valuable strengths such as customers’ physical addresses,
purchasing histories across a broad array of categories and credit card data.
Even Apple can’t claim all of those.

In the short term Bezos will continue to attack muda. Last month Amazon
bought Kiva Systems, a maker of small robots that whiz goods to the right
spots within a warehouse, for $775 million. Kiva “could speed the cycle time
inside our fulfillment centers,” Bezos says. Owning Kiva gives Amazon first
crack at its technology, which means “getting products to customers even more

In some ways this is the area Bezos least needs to worry about: Last December
he was “very proud” that Amazon was able to make good 99.99% of the time on
its promises to get packages to customers before Christmas. No small feat
(just ask Best Buy). To Bezos, though, this also means they came up short one
time in 10,000. “We’re not satisfied until it’s 100%.”

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