The Everything Store: Jeff Bezos and the Age of Amazon

by Brad Stone

  The Gemstar debacle did more than just demolish the future prospects of the Rocketbook and SoftBook. It seemingly dampened all interest in the very idea of digital reading. BarnesandNoble.com stopped selling e-books altogether after the Rocketbook disappeared, and Palm sold its e-book business at around the same time.5 E-books seemed like a technological dead-end and a hopeless medium—to almost everyone.

  Bezos and Eberhard remained friendly during those years, and Bezos watched the rise and fall of the Rocketbook with more than passing interest. “I firmly believe that at some point the vast majority of books will be in electronic form,” he said in the late 1990s. “I also believe that is a long way in the future, many more than ten years in the future.”6

  Bezos was underestimating the potential, perhaps intentionally. In 2004, seeking a digital strategy for Amazon amid the gathering power of a revived Apple Computer, he started a secretive Silicon Valley skunkworks with the mysterious name Lab126. The hardware hackers at Lab126 were given a difficult job: they were to disrupt Amazon’s own successful bookselling business with an e-book device while also meeting the impossibly high standards of Amazon’s designer in chief, Bezos himself. In order for Amazon to furnish its new digital library, the company’s liaisons to the book world were ordered to push publishers to embrace a seemingly dormant format. It was a nearly impossible mission, and it had to be executed on Amazon’s typical shoestring budget. Many mistakes were made, some of which continue to resonate today.

  But in 2007, a few weeks after Amazon unveiled the result of all this effort, the first Kindle, Bezos called up Martin Eberhard at his home in Silicon Valley to ask him whether he thought Amazon had finally gotten it right.

  Over his years at the helm of Apple, Steve Jobs usually reviled those former colleagues who had defected from his company and abandoned its righteous mission. Though Diego Piacentini left Apple for a startup that Jobs had incredulously dismissed as just a retailer, the two remained unusually cordial, perhaps because Piacentini had given Apple six months to find his replacement as head of European operations. Jobs would occasionally contact Piacentini when he needed something from Amazon, and in early 2003, Piacentini e-mailed his former boss with a request of his own. Amazon wanted to make Apple a proposal.

  Piacentini brought Neil Roseman and H. B. Siegel, the technologist who’d started the company’s fledgling digital-media group, to the meeting that spring on Apple’s campus in Cupertino. The Amazon executives did not expect to meet with Jobs himself and were surprised when Apple’s cofounder greeted them personally and spent several hours with them that day.

  At the time, Apple did not sell music; its iTunes software allowed users to organize and play their music collections on their PCs and transfer songs onto their iPods. Jobs wanted to get iTunes onto as many PCs as possible, and he floated the idea of Amazon distributing CDs to its customers that carried iTunes software. Piacentini and his colleagues had another plan: they suggested creating a joint music store that would allow iPod owners to buy digital-music files from the Amazon website.

  Neither proposal went anywhere. Jobs stood up to illustrate on the conference-room whiteboard his vision of how Apple itself would sell albums and single-tracks directly from iTunes. The Amazon executives countered that surely such a music store should exist on the Web, not inside a piece of clunky desktop software that needed to be regularly updated. But Jobs wanted a consistent, easy-to-use experience that stretched from the music store all the way to the portable media player and was so simple that even unsophisticated users could operate it. “It was clear that Jobs had disdain for selling on the Web and he didn’t think anyone cared about books,” Neil Roseman says. “He had this vision for a client-application version of the iTunes store and he let us know why it had to be an end-to-end experience.”

  Jobs confidently predicted that Apple would quickly overtake Amazon in music sales, and he was right. In April 2003 Apple introduced the iTunes music store, and in just a few years Apple leapfrogged over, in quick succession, Amazon, Best Buy, and Walmart to become the top music retailer in the United States.

  At the time of that humbling lesson, Amazon investors “needed a microscope to find the sales” from all of the company’s various digital initiatives, as Bezos later put it.7 The company sold downloadable e-books in Microsoft’s and Adobe’s proprietary formats for reading on a PC screen, but the e-book store was well hidden on the Amazon website and yielded few sales. Look Inside the Book and Search Inside the Book were arguably digital-reading efforts, but their purpose was to improve the shopping experience and increase the sales of physical books. As the negotiations with NuvoMedia showed, Bezos was thinking early about the inevitable transition to digital media. But more pressing matters, like fixing the fulfillment centers and improving Amazon’s technology infrastructure, always seemed to take precedence.

  Over the next few years Apple dominated the music business and helped send chains like Tower Records and Virgin Megastores into the retail dustbin (with a significant assist from Internet piracy). At first Bezos dismissed iTunes, noting that selling single-tracks for ninety-nine cents each wasn’t profitable and that Apple’s goal was only to increase sales of the iPod. This was true, but as the iPod became ubiquitous, Apple began to exploit iTunes to get into adjacent media such as video, and Amazon took a deeper look. “We talked a lot about what made the iPod successful in music when nothing else had been,” says Neil Roseman.

  Amazon executives spent months considering various digital-music strategies and at one point explored the possibility of preloading iPods sold on Amazon with the music from CDs that customers had bought on the site. When it proved impossible to get the music labels to agree to that, Amazon settled on launching a digital-music service, similar to Rhapsody, which gave monthly subscribers unlimited access to a vast catalog of music. Amazon came close to launching that effort in 2005. It was going to use music encoded with Microsoft’s proprietary DRM (digital rights management) anticopying software Janus. But then several members of the team rebelled at what they viewed as a flawed approach, in part because the Janus-encoded music wouldn’t play on the iPod, which so many Amazon customers already owned. “I realized I’d rather die than launch that store,” says Erich Ringewald, a product manager who worked on the initiative. Bezos agreed to scrap the effort and start over. Meanwhile, Apple increased its lead in digital media. Amazon finally introduced the MP3 Store in 2007, featuring songs without DRM that users could freely copy. But Apple quickly negotiated the same agreements and Amazon remained a perennial straggler in music.

  Bezos’s colleagues and friends often attribute Amazon’s tardiness in digital music to Bezos’s lack of interest in music of any kind. In high school, Bezos forced himself to memorize the call letters of local Miami radio stations in an effort to fake musical fluency in conversations with his peers.8 Colleagues remember that on the solemn road trip from Target’s offices in Minneapolis after 9/11, Bezos indiscriminately grabbed stacks of CDs from the bargain rack of a convenience store, as if they were all interchangeable.

  Steve Jobs, on the other hand, lived and breathed music. He was a notoriously devoted fan of Bob Dylan and the Beatles and had once dated singer Joan Baez. Jobs’s personal interests guided Apple’s strategy. Bezos’s particular passions would have the same defining impact at Amazon. Bezos didn’t just love books—he fully imbibed them, methodically processing each detail. Stewart Brand, the author of How Buildings Learn, among other works, recalls being startled when Bezos showed him his personal copy of the 1995 book. Each page was filled with Bezos’s carefully scribbled notes.

  In 2004, Apple’s dominance in digital music spawned fresh soul-searching at Amazon. The sales of books, music, and movies accounted for 74 percent of Amazon’s annual revenues that year. If those formats were inevitably transitioning to digital, as Apple’s accomplishment seemed to demonstrate, then Amazon had to move quickly to protect itself. “We were freaking out over what the iPod had done to Amazon’s mu
sic business,” says director John Doerr. “We feared that there would be another kind of device from Apple or someone else that would go after the core business: books.”

  Investor Bill Miller from Legg Mason often discussed the digital transition with Bezos when the two got together. “I think the thing that blindsided Jeff and helped with the Kindle was the iPod, which overturned the music business faster than he thought,” says Miller. “He had always understood this stuff was going digital, but he didn’t expect to have his CD business eviscerated like that.”

  Bezos ultimately concluded that if Amazon was to continue to thrive as a bookseller in a new digital age, it must own the e-book business in the same way that Apple controlled the music business. “It is far better to cannibalize yourself than have someone else do it,” said Diego Piacentini in a speech at Stanford’s Graduate School of Business a few years later. “We didn’t want to be Kodak.” The reference was to the century-old photography giant whose engineers had invented digital cameras in the 1970s but whose profit margins were so healthy that its executives couldn’t bear to risk it all on an unproven venture in a less profitable frontier.

  Bezos was apparently contemplating a dedicated electronic reader as early as 2003—around the time Gemstar pulled the Rocketbook from shelves. Andreas Weigend, Amazon’s short-lived chief scientist, remembers Bezos speaking to his technical team about such a device and saying, “It’s for one-handed reading.” Upon imagining what the other hand might be doing, Weigend started to laugh out loud, and then everyone else in the small conference room did as well. “Jeff, the good kid that he is, had no idea what one-handed reading could refer to,” Weigend says.

  In 2004, Amazon executives were considering shutting down their own fledgling e-bookstore, which featured books in Adobe and Microsoft formats. The store was everything Bezos hated: its selection was small, its prices were high, and the customer experience of downloading titles and reading them on the screen of a PC or PDA was terrible. But Bezos, according to Piacentini, seemed determined. Despite these early flaws, e-books were clearly the future of bookselling.

  A few weeks into these discussions, in an S Team meeting, Bezos announced that Amazon would develop its own dedicated electronic reading device for long-form reading. It was a stunning edict. Creating hardware was expensive and complicated. It was also well outside of Amazon’s core competency—its litany of obvious skills. There was a chorus of vehement objections. Jeff Wilke in particular had the background in manufacturing to know what challenges lay ahead for the company if it tried to make and sell its own devices. “I thought it would be difficult and disruptive and I was skeptical that it was the right use of our resources,” he says. “It turned out that most of the things I predicted would happen actually happened, and we still powered through it because Jeff is not deterred by short-term setbacks.”

  Diego Piacentini also protested. He had watched firsthand as Apple struggled through the 1990s with disastrous surpluses of products and massive inventory write-offs. “It was seen by me and all the small thinkers as a very risky investment,” he says.

  Bezos dismissed those objections and insisted that to succeed in books as Apple had in music, Amazon needed to control the entire customer experience, combining sleek hardware with an easy-to-use digital bookstore. “We are going to hire our way to having the talent,” he told his executives in that meeting. “I absolutely know it’s very hard. We’ll learn how to do it.”

  Within Amazon there is a term used to describe the top executives who get to implement Jeff Bezos’s best ideas: Jeff Bots. The playfully derisive phrase that undoubtedly hides a little jealousy connotes slavish devotion but also loyalty and effectiveness. Jeff Bots draw fuel from their CEO’s ample idea tank and then go out into the world and dutifully execute the best notions. They have completely absorbed Bezos’s business philosophy and molded their own worldviews around it, and they recite rote Jeffisms—how they start from the customer and work backward, et cetera—as if these were their prime directives. To interview a Jeff Bot as a journalist is to witness his or her remarkable ability to say absolutely nothing of substance while going on about Amazon’s inventiveness and its unmatched, gee-whiz enthusiasm for the customer. Jeff Bots would surely rather chomp down on their cyanide-capsule-implanted molars than address topics that Amazon has programmed them to never publicly discuss—subjects such as the competition and any possible problems with products.

  Throughout Amazon history, there was perhaps no more faithful or enterprising Jeff Bot than Steve Kessel, a Boston-born graduate of Dartmouth College and the Stanford University Graduate School of Business. Kessel joined Amazon in the heat of the 1999 expansion after a job consulting for browser pioneer Netscape. In his first few years at the company, he ran the book category at a time when Amazon was cultivating direct relationships with publishers and trying to assuage their fears about third-party merchants selling used books on the site. During this grinding period of Amazon’s greatest challenges, Bezos grew to trust him immensely.

  One day in 2004, Bezos called Kessel into his office and abruptly took away his impressive job, with all of its responsibilities and subordinates. He said he wanted Kessel to take over Amazon’s fledgling digital efforts. Kessel was skeptical. “My first reaction was that I already had the best job in the world,” he says. “Ultimately Jeff talked about building brand-new things, and I got excited by the challenge.” Bezos was adamant that Kessel could not run both the physical and digital-media businesses at the same time. “If you are running both businesses you will never go after the digital opportunity with tenacity,” he said.

  By that time, Bezos and his executives had devoured and raptly discussed another book that would significantly affect the company’s strategy: The Innovator’s Dilemma, by Harvard professor Clayton Christensen. Christensen wrote that great companies fail not because they want to avoid disruptive change but because they are reluctant to embrace promising new markets that might undermine their traditional businesses and that do not appear to satisfy their short-term growth requirements. Sears, for example, failed to move from department stores to discount retailing; IBM couldn’t shift from mainframe to minicomputers. The companies that solved the innovator’s dilemma, Christensen wrote, succeeded when they “set up autonomous organizations charged with building new and independent businesses around the disruptive technology.”9

  Drawing lessons directly from the book, Bezos unshackled Kessel from Amazon’s traditional media organization. “Your job is to kill your own business,” he told him. “I want you to proceed as if your goal is to put everyone selling physical books out of a job.” Bezos underscored the urgency of the effort. He believed that if Amazon didn’t lead the world into the age of digital reading, then Apple or Google would. When Kessel asked Bezos what his deadline was on developing the company’s first piece of hardware, an electronic reading device, Bezos told him, “You are basically already late.”

  With no personal knowledge of the hardware business and no internal resources at the company to draw on, Kessel went on a fact-finding mission to Silicon Valley, meeting with hardware experts from Apple and Palm and with executives from the famed industrial design firm Ideo. He learned that Amazon would need not just designers but electrical engineers, mechanical engineers, wireless engineers—the list was endless.

  Following Christensen’s dictates as if they were instructions in a recipe, Kessel set up another subsidiary in Palo Alto in addition to A9. To take the helm of the new division, he hired Gregg Zehr, an easygoing former vice president of engineering at Palm Computing who kept a jazz guitar in his office. Jateen Parekh, a former engineer at set-top-box maker ReplayTV (an early TiVo rival), became the first employee, and a few others were hired as well. There was no office to report to, so they set up shop in an empty room in the headquarters of A9. Zehr and his colleagues set about furnishing the new division with a name alluring enough to attract the best and brightest engineers from Silicon Valley. They eventually se
ttled on Lab126. The 1 stands for a, the 26 for z; it’s a subtle indication of Bezos’s dream to allow customers to buy any book ever published, from a to z.

  They didn’t get their marching orders right away, so Zehr and his team spent the first few weeks investigating the possibility of building an Internet-connected set-top box and even an MP3 player. Finally Amazon’s new hardware geeks were given their mission: they were to build an electronic reading device. “We were told to do one great thing with maniacal focus,” says Tom Ryan, a software engineer from Palm whom Zehr brought over that fall. “The aspiration was to be Apple.”

  The group piggybacked on A9’s infrastructure for the next year. When the search division moved to the former offices of a law firm on Lytton and Alma in downtown Palo Alto, Lab126 moved with them and took up residence in the old law library. They researched existing e-readers of the time, such as the Sony Libre, which required triple-A batteries and sold poorly. They concluded the market was wide open. “It was the one thing that wasn’t being done well by anyone else out there,” says Parekh.

  Lab126 was soon given extensive resources but it also had to contend with the unfettered imagination of Bezos. Amazon’s founder wanted his new e-reading device to be so easy to use that a grandmother could operate it, and he argued that configuring devices to work with WiFi networks was too complicated for non-tech-savvy users. He didn’t want to force customers to connect the device to a PC, so the only alternative was to build cellular access right into the hardware, the equivalent of embedding a wireless phone in each unit. Nothing like that had been tried before. Bezos insisted that customers should never have to know the wireless connection was there or even pay for access. “I thought it was insane, I really did,” Parekh says.