Amazon Unbound

by Brad Stone

  The last-mile network also protected Amazon from the exigencies of UPS and FedEx, and the political winds that battered the USPS. When Donald Trump accused Amazon of ripping off the U.S. Postal Service and threatened to raise rates, the company disagreed, but the result of the dispute hardly mattered. Amazon now had the leverage to shift that volume to its own network and to another shipping partner, UPS.

  The carrier had recognized that Amazon had changed the dynamics of the industry. In 2019, UPS announced that it would finally deliver on Sundays, bowing to customer expectations and the pressure that Amazon’s around-the-clock cycle was exerting on its e-commerce rivals. As the post office had years before, UPS had to renegotiate its contract with the Teamsters to allow it to create a new category of drivers who would work weekend shifts at a reduced pay scale.

  FedEx, relegated to a low single-digit percentage of Amazon’s network, also started working Sundays, but opted to stop delivering for Amazon altogether. The cold war between Dave Clark and Fred Smith continued, unabated and entertaining. FedEx loudly announced the end to its air and ground contracts with Amazon and said it was devoting itself to other customers, including Walmart and Target. Smith doubled down on his view that Amazon was not a disruptive threat to FedEx, again calling the prospect “fantastical” in the Wall Street Journal. Clark temporarily banned third-party merchants from using FedEx Ground. In his Seattle office, he had a set of golf balls printed with the word “fantastical.”

  Meanwhile, Amazon Logistics was providing that most coveted of Amazonian objectives: leverage, which Bezos promptly turned into a customer benefit and a competitive moat. In April 2019, Amazon announced it would shift Prime from two-day to one-day shipping. It was a large but manageable expense, mainly because Clark had already laid the groundwork in the FCs and transportation network. Later that year, Amazon was also able to retire the $15 monthly subscription fee for grocery delivery, adding free Amazon Fresh and Whole Foods delivery to the perks of Prime membership. This would prove propitious a year later, when the Covid-19 pandemic turned millions of desperate home-bound shoppers on to online grocery delivery.

  Clark had fulfilled Bezos’s vision of a liberated supply chain and established himself as the highest embodiment of an Amazon leader: a big thinker, who placed methodical, long-term bets that would be unpalatable to the impatient executives at more short term–oriented companies—and almost certainly to more cautious and socially conscious business leaders. “I’m a simplifier,” Clark said, when I asked about the set of skills that had enabled him to progress from the Campbellsville FC, all the way to the upper echelons of the S-team. “I can take complicated stuff and figure out how to boil it down into what you need to do to actually make it big.”

  Along the way, the former middle-school band teacher had busted through obstacles of every kind, fractured a major friendship, squeezed additional productivity out of Amazon’s low-wage workers, and levered the significant costs onto society at large. And Amazon’s reputation was only slightly grazed in the process.

  In other words, Dave Clark had proven himself to be nearly every bit as creative and ruthless as Jeff Bezos himself.

  CHAPTER 10 The Gold Mine in the Backyard

  Many longtime Amazon employees had a sneaking, unspoken fear in the run-up to the pivotal OP1 planning meetings in the fall of 2017: that their esteemed leader was backing away from the company. Bezos remained deeply involved with new initiatives, where he believed his ideas and support could make a difference, such as Alexa, Amazon Studios, and the Amazon Go stores. But he was coming into the office less often and had largely ceded control of the company’s increasingly complex main businesses—retail and AWS—to the co-CEOs who reported to him, Jeff Wilke and Andy Jassy.

  Plus, Bezos was spending more time with the Washington Post and at his private space company, Blue Origin. A noticeable development in Bezos’s life was the fact he was also contending with the impact of his steadily increasing fame and wealth. That May, he was trailed by paparazzi while vacationing in Italy with his wife, MacKenzie, and his parents, siblings Mark and Christina, and their spouses. On June 15, pressured by the media to begin giving away his fortune, he bought himself time to craft a philanthropic strategy by tweeting “a request for ideas” to address pressing societal problems. In July, he was photographed at the annual Allen & Company conference in Sun Valley, Idaho, his biceps bulging from a black polo shirt and down vest, an image that spawned countless internet memes as well as the redolent phrase “swole Bezos.” He had come a long way from that Time “Person of the Year” cover with the Styrofoam peanuts.

  Amazon’s founder had plenty of reasons to relax, get in shape, and step back from daily operations at the company he founded. Its stock price had tripled over the past two years, boosting its market capitalization to a little over $500 billion that summer. The Amazon flywheel was spinning briskly, and as a result, Bezos was the second wealthiest person in the world, with a fortune of $89 billion.

  Bezos also had a growing staff of assistants, PR professionals, and security consultants managing his daily schedule and public image. They applied the same precision to his daily movements as they might for a state leader—and made certain his speeches and social media posts were always harmlessly anodyne. That October, he introduced a new Amazon wind farm in Texas by smashing a bottle of champagne atop a windmill and tweeting the aerial video. The next month, he was interviewed at an event called Summit LA by the gentlest of interlocutors: his younger brother, Mark, an investor and Blue Origin advisor who once gave a TED talk about being a volunteer firefighter. They chatted about craft cocktails, space exploration, their grandparents, and how Jeff and MacKenzie left New York City and drove across the country to start Amazon in Seattle.

  While they would never publicly admit it, Amazon’s senior leaders were happy to operate with more independence, and with fewer of the founder’s impossibly probing questions and demanding ambitions. Meetings with Bezos could still go sideways, resetting projects and depleting employee morale. Even the most inconsequential of utterances from the sagacious chief executive could instigate a flurry of wheel-spinning and white paper–writing inside the company. Many executives were relieved to be meeting with Bezos less often and wondered openly if his interest in Amazon was waning. Perhaps they could finally take a breath.

  Then Amazon entered the annual end-of-summer planning cycle known as OP1, and the tantalizing possibility of an overbearing CEO in retreat all but vanished—at least for the time being.

  The first and most ominous sign emerged in the annual review of the North American consumer retail unit. The meeting took place on the sixth floor of the Day 1 tower, around a large square of adjoining tables in a giant conference room with views to the west. Bezos sat at the center of one table, with his chief financial officer, Brian Olsavsky, to his left, and his technical advisor at the time, Jeffrey Helbling, to his right.

  Doug Herrington sat across the room, facing Bezos. Herrington’s longtime finance chief, Dave Stephenson, sat to his left, almost like a consigliere in the Godfather films. Jeff Wilke and S-team members and executives from retail, marketplace, and other departments ringed the tables and sat along the walls; others listened in on Chime, the company’s erratic teleconferencing app. The meeting started in the customary fashion, in total silence, with everyone reading the retail group’s OP1 report, full of charts detailing its past financial performance and the operating plan for the years ahead.

  Executives later wondered whether Bezos planned the ambush beforehand or reacted when reading the document. What they noticed in the moment, while Bezos turned the pages, was that his brow furrowed, his eyes narrowed, and his head cocked ever so imperceptibly before he asked: “I wonder what unit profitability was in 2017 without advertising?”

  Banner ads had long decorated the Amazon home page. More recently, sponsored listings, paid for by vendors like Procter & Gamble and smaller Amazon sellers in the third-party marketplace, populated the top
of its search pages, intermingled with the unpaid results generated by Amazon’s search engine. Analysts estimated that such ad sales generated $2.8 billion in 2017 and were growing at a 61 percent annual clip. But retail executives considered ads to be a key part of their unit’s performance—not a separate element to be plucked out of their profit-and-loss statement.

  “Hang on, Jeff, let me get that,” said Stephenson, the retail group’s finance chief. There was no easy way to calculate it. Sitting behind a stack of binders, the seventeen-year Amazon veteran did the math on his smartphone calculator while the rest of the room sat in stressful silence.

  After five minutes or so, Stephenson produced a result. The room exhaled in relief. But Bezos was still regarding Herrington and Stephenson icily across the table. “What was it for 2016?” he asked.

  Stephenson returned to his binders for another five minutes of oxygen-deprived tension. Stephenson produced another number, and then Bezos asked for 2014. “You can’t underestimate how intimidating that room is, especially when Jeff’s brain is going and onto something,” said an executive who was in the room. “It’s an unnerving environment. I was very impressed with how calm Dave was.” Without advertising, the financial picture of Amazon’s domestic retail business suddenly looked far less rosy. Its underlying economic health had actually been deteriorating.

  Bezos had tugged on a string, and the entire quilt started to unravel. Now he kept pulling. In the multi-hour discussion that followed, he argued that the growth of advertising was concealing stagnation in online retail. Bezos was constitutionally tolerant of losing money over the first decade of a promising new business; but retail was well past that point. He wanted to go as far back as possible to find when this troubling trend had started. Then he insisted that Wilke and his team throw out months of careful planning that had gone into their OP1 document and present a revised version to him. He insisted that they radically scale back their hiring plans and other investments and commit to returning to the underlying profitability they had achieved years before—without the safety blanket of advertising.

  For executives on the consumer retail team, this was a stunning development—a “root canal,” in the sardonic parlance of the finance team’s grizzled veterans. Bezos had personally insisted on matching the low prices of rivals and getting into unprofitable categories of merchandise. Increasing perks and service levels for customers was expensive, but they could always rely on more profitable parts of the company to subsidize those investments. So execs on the finance team had never even contemplated devising their internal systems in such a way as to exclude the revenue from ads.

  For more than two decades, Bezos had emphasized the tactical advantages of low margins and low prices, in order to win points of market share as if they were continents on a Risk board. But now his thinking had shifted; he was frustrated that retail wasn’t more profitable and that two of his most trusted deputies, Jeff Wilke and Doug Herrington, weren’t getting more leverage out of their operation. The numbers suggested executives might be backsliding in their mandate to relentlessly improve operating performance, and that Amazon was inheriting some of the attributes of what Bezos ominously called “Day 2” companies. “Day two is stasis, followed by irrelevance, followed by excruciating, painful decline, followed by death,” he had said earlier that year on stage at an all-hands meeting. “And that is why it is always Day one.”

  S-team members appeared to cast blame on Stephenson, who would leave the company a year later to become the CFO of Airbnb. “The tone of it was ‘how did you miss it?’ ” said another executive privy to the discussions. “But we had been missing it together for this whole time.”

  The retail OP1 set the tone for other contentious meetings that month. Bezos issued a similar mandate to Russ Grandinetti, senior vice president of the international consumer group, whose division’s finances looked even bleaker without advertising. Bezos wanted to see better unit results in countries that Amazon had been active in for longer, like the UK, and to take a hard look at investments that were unlikely to ever grow large. He fixated on the money-losing marketplace in China, where the company had competed unsuccessfully for more than a decade against Alibaba and JD.com. After that session, he also asked Grandinetti’s team for a series of follow-up meetings.

  In another OP1 meeting that combined the reviews of legal, HR, and global corporate affairs, Bezos ran through headcount requests line by line and demanded justifications for them. He skeptically questioned anything that resembled gratuitous expansion. At one point, he grumbled about a planned staff increase for members of the consumer retail public relations team and stunned some employees by wondering why Amazon needed to do any PR at all for its original business of selling books—since its dominance in the category was already secure.

  Only AWS avoided the same withering scrutiny. Sessions with Andy Jassy to review AWS’s 40 percent growth rate and 30 percent operating margins were typically feel-good festivals. Bezos nevertheless prodded Jassy and his longtime CFO, Sean Boyle, about whether their financial projections were truly automated, in the way the retail team’s were, or whether inefficient human sentiment was guiding them.

  The message from OP1 that fall, and from a subsequent CEO directive later that year that would scramble Amazon’s organizational charts, was clear: even as he became wealthier and more famous, Amazon remained Jeff Bezos’s company. And he had bigger plans for a decade-old advertising initiative than simply covering up the sins of his other business units.

  * * *

  In perhaps an indication of Bezos’s initial trepidation about advertising, he had kicked off the effort in the mid-2000s by thinking not about the type of ads the company could accept but the kinds that it shouldn’t. S-team members remember Bezos handing out a list of products that he felt should never be promoted on the site, such as guns, alcohol, online dating sites, dietary supplements, and financial services that pushed people into high-interest loans. The S-team spent hours debating the list and the relative merits of getting into the advertising business.

  Despite these reservations, Bezos was a proponent of bringing ads onto Amazon and using them to support low prices. He talked about two hypothetical e-commerce websites: one with ads that subsidized low prices and another that was ad-free but had higher prices. Customers, he said, would always flock to the website with better deals. “We are stupid if we don’t do it” was his usual conclusion, according to several S-team members.

  Amazon could have established itself quickly as an online advertising juggernaut. While Google knew what people searched for and Facebook knew what they liked, Amazon had one of the most substantive data points of all: what they actually bought. Yet it was only after online ads fueled the historic rises of Yahoo, Google, and Facebook that Amazon entered the advertising business in a meaningful way—and even then, it was with an abundance of caution and a number of false starts.

  In the late 2000s, Amazon began hiring employees in the advertising capital of the world, New York City. To avoid Amazon having to collect sales tax in the state, they initially worked for a subsidiary called Adzinia and were furnished with accompanying business cards and email addresses. Their first major office was located on Sixth Avenue, with a view of the famous “Love” sculpture on the sidewalk of 55th Street.

  But Amazon never quite fit into the clubby confines of New York City advertising. Though the age of Mad Men had long passed, the industry still revolved around personal relationships and expensed lunches. Ad execs were accustomed to taking their clients to premier sporting events and traveling to glamorous industry conferences, like the annual Cannes Lions festival on the French Riviera.

  Amazon, frugal to the bone, refused to do any of that. Even employees taking international flights were relegated to coach class unless they personally secured an upgrade. “You would get flagged if you paid over a certain amount for a plane ticket,” said Andrew James, an account executive for five years. “Google and Facebook were lavishing cu
stomers with big parties. It put us at a disadvantage.”

  Amazon moved hesitantly to grow its New York–based ad sales team. It didn’t throw people at problems, it threw brainpower, went the common internal refrain. In one OP1 review, Jeff Wilke flipped to the appendix of the ad team’s document and skeptically regarded their hiring plans. “How many new sales people are we going to have carrying account executives’ luggage next year?” he cracked.

  Amazon rejected other industry norms as well. The CEOs and chief marketing officers of firms like Procter & Gamble wanted to meet their C-Suite counterparts at the companies where they spent their ad dollars. At Facebook, big advertisers could expect to sit-down with COO Sheryl Sandberg, for example. But aside from a breakfast one year with advertisers and ad agencies, Bezos declined to play that game; and Wilke and Jeff Blackburn, the S-team member who managed the advertising group for years, were also reluctant (though Wilke did once greet the CMO of Burberry wearing his blue Burberry blazer).

  In 2013, a senior marketing executive from Unilever, one of the largest package goods companies in the world, showed up in Seattle with a contingent of colleagues to discuss the expanding relationship between the companies. Bezos and Wilke declined to take the meeting. “They were disappointed,” said Shiven Ramji, an Amazon ad executive at the time. “They had all these people and PowerPoints and photos. We had a one-pager printed telling them all the glorious things we could do.”

  Though he wasn’t meeting with advertisers, Bezos nevertheless made his presence felt. In the early years of the ad effort, he wanted to review each large campaign, particularly when they ran on the Kindle Fire tablets that debuted in 2011 and featured full-screen color ads. Jeff Blackburn and Paul Kotas, the engineer who managed the technology side of the advertising business at the time, also personally reviewed ad campaigns. Their exacting standards and peculiar aesthetic requirements drove Amazon’s ad execs and their clients crazy. But Blackburn and Kotas had good reason: they didn’t want Amazon to do anything to harm customer trust or interfere with online purchases, at the time the true revenue engine of the company. Often, their reactions consisted simply of a single word: no.