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Q&A with Jeff Bezos March 16, 1999 The Crucial Mission: "Provide Customers with What They Want" Amazon's founder explains why he has nothing less than a laser focus on "the customer experience" Less than four years after founding Amazon.com in a Seattle garage, 34-year-old Jeffrey P. Bezos is already an E-business legend. With $610 million in sales of books and music last year, Amazon.com remains the leader in consumer E-commerce, showing the world how a little upstart can use the Internet to create a new international brand and give traditional giants a run for their money. Bezos, a former executive at New York City hedge-fund firm D.E. Shaw, talked recently with Business Week Silicon Valley correspondent Robert D. Hof, often punctuating his answers with his trademark belly laugh. Here are excerpts of their conversation: Q: What's different about doing business online? A: The No. 1 thing is the customer experience is even more important online. Customer service is probably always the most important thing in any business. But that's even more important online than in the physical world. The reason is, customers have more power online. So the balance of power shifts away from the business owners and to the customer. And that's a great thing. It's great for everybody, including the merchant -- as long as the merchant recognizes it. The bottom line is, in the old world the right thing to do would have been to spend 30% of your time, energy, and effort creating a great customer experience and 70% of your time, energy, and effort shouting about it. You reverse that online. You need to spend 70% of your time, energy, and effort creating a great customer experience and 30% shouting about it. Q: I'm not sure there's universal agreement on that yet, is there? A: I suspect that there's not, but I can tell you that I believe that firmly and fundamentally. So for me, it's an axiom. Word of mouth is very powerful online, so that if you make a customer happy, they can tell 5,000 people. And if you make them unhappy, they'll certainly tell 5,000 people. So each customer can be his or her own ombudsman, and that's just bound to shift the balance of power toward the customer. The second thing is that customers just have better information about products online. There's more transparency. So not only do customers get to tell each other what the actual situation is but they can also look at all of the substitute products, look at all the competitive products, look at different pricing -- all that information is very easy to get to. In the physical world, it's a pain to drive to three different stores to save a dollar. Online, that happens all the time. So you get price transparency. But you also get service transparency, so it's very easy online for customers to know what's the better product, what's the better service, what's the better price. All those things become important. So merchants in any business online need to understand how it is you're trying to create real value for the customer. In our case, we created value through selection, ease of use, pricing, and purchase-decision information. We make it so people can find even the most obscure things. We make it so it's incredibly easy to do. We give them much lower prices than they can get in any physical store environment, and then we let them have complete information. The customers review music, videos, and books, so that the customers are helping other customers make purchase decisions. Q: What makes the customer experience so much more important online? A: Well, it's the fact that word of mouth is more powerful online. The fact that the Internet's core is to facilitate communication. And when you allow a huge number of customers to talk to each other, you've empowered them, which is wonderful. And what they're going to do is, they're going to tell each other the truth. In the past, it was possible to have crummy service or a crummy product offering and still win in the marketplace, by having the best distribution or the best marketing. That's just not going to work in the future. In the future, you're not going to be able to get along with an inferior offering and superior marketing. The winner is going to be whoever has the superior product offering. Q: But you spend a lot of money to shout about your site too. A: Absolutely. But in our first year, we did absolutely no paid marketing. All of our growth was through word of mouth. In years two and three, we've done a significant amount of paid marketing, but still, the majority of our customers come to us by word of mouth. Q: You mentioned the transfer of power to the buyer. Why is that the case? It's more than just word of mouth, isn't it? A: It is. It's both word of mouth and the fact that the buyer has more information. The customers can compare prices easily, they can compare features easily. You can just quickly go to different Web sites and compare the different features. It's incredibly easy compared to getting in a car and driving across town. Q: If you can get the information directly from manufacturers online, doesn't that potentially cut out middlemen? A: The whole "disintermediation" way of looking at the world is overly simplistic. Even the manufacturers in a certain sense are middlemen. They're taking raw materials and adding value to them. The Internet doesn't intermediate or disintermediate. What it does is make it more likely that the players that create value will survive. So intermediaries who aren't adding real value won't survive. New kinds of intermediaries that do add value will flourish. Q: What's the best way to be in a position to add value? A: It's very difficult to answer the question because it's different in every industry, in every company, in every situation. The one thing that you can say is that the parties that will do well are those that use the unique features of the Internet to bring significant amounts of value to the customer. So you have to put together a package of things that create value. It's not going to be just lower prices, it's not just going to be selection, it's not going to be just better customer service, it's not just going to be ease of use, it's not going to be just convenience. It's going to be a package. One of the tests that you can do to see whether you're there is: Is it possible to do this without the Internet? If your answer to that question is "Yes," you're probably barking up the wrong tree. Because the Internet is still an infant technology, and Web browsing is still an infant technology, and if you can do something in a more traditional way, that's probably the way that it's better done. You're better off looking for things that can only be done online -- and create real value. When you look at Amazon.com as an example, only online can you have infinite shelf space and 5 million titles for people to search through and browse. It's impossible in any other environment, whether it be a paper catalog or a physical store, to have 5 million titles. So there's an example of something that's only doable online. And then you ask yourself: Is it something that creates real value? And the answer is, "Absolutely." A vast selection is a huge value to your customers. Q: What other sorts of ways do you see Amazon in particular adding value? A: We can offer much lower prices and, even including shipping costs, people can save a lot of money. And that's because we don't have to have physical real estate. So again, saving money is obviously a value to people and can only be done online. It's impossible to offer the level of price that we offer in a physical store environment. It just can't happen. Once you pay the rent and some of the other costs that go along with operating big superstores, you realize that from a price point of view, it just can't be competitive. We also offer ease of use and convenience. Time is the most precious commodity in late 20th century, and anything you can do to save customers time is going to meet with success. We have one-click shopping, so that once you shop with us once, the second time around it's just a single click of a single button, and the item is on its way to you. Your first purchase you can do in about three or four minutes, your second purchase is like three or four seconds. To do any purchase at a physical store is 20 or 30 minutes minimum. Another benefit is making it possible for people to make the correct purchase decision. See, when we first started letting customers review books, some publishers were startled by this, because, of course, customers give both positive and negative reviews. I got letters from publishers in the early days, some quite hostile, saying, "Don't you understand your own business? You make money when you sell books. Why would you allow negative reviews?" The reason is because it's helping customers make a purchase decision, which creates real value for customers. You know, making a bad purchase decision isn't just a waste of the money you spent on the product, it's a waste of your life. If you buy a book, you may spend $20 on the book, but you're going to spend 10 hours of your life, that's a big deal. Q: The standards of conduct and customer service online are quite a bit different and more demanding. Can you elaborate? A: Customer experience really means everything, from how the Web site works to whether they get the right thing at the right time. Customer service is: Do you answer the phone when people call? Do you answer the E-mail from them, do you send them the right products, on time? And do they arrive in an undamaged condition? If somebody has a problem and has to do a return, is it handled in a hassle-free way? All that's incredibly important because time is so important to people in the late 20th century. Q: Do you think Amazon's value proposition will change in the next few years? A: Yeah. Today we add a little bit of value from personalization and discovery. Once you've ordered once or twice, we start to recommend products using a technology we use called collaborative filtering. The site will say, "Welcome Rob," and "Click here for your personal recommendations." Actually, now it works pretty darn well, but it's going to work even better in the future. And that notion of being able to help people to discover exactly what they're looking for saves them time and improves their lives. That's going to become, over the next 10 years, a bigger and bigger factor of the value proposition. We have 6.2 million customers, we should have 6.2 million stores. There should be the optimum store for each and every customer. Q: How will online business affect business overall? Will Amazon have an impact on the physical world? A: Well, customers are going to have more power online, and they're going to get used to that and like it. And they're going to insist on it everywhere. Q: Even when merchants learn how to use the Internet to their own benefit? In other words, this isn't just a temporary phenomenon given the merchants who haven't learned how to control it? A: No, no, no, no. It's not that at all. It's an intrinsic characteristic of the Internet that customers are going to be able to tell people the truth. It's not just journalists who buy ink by the barrel anymore. Q: If this shift in balance of power is so fundamental, won't that change how companies are organized? For instance, perhaps marketing won't be driving things as much? A: Yeah. That's exactly what's going to happen. It's going to force companies, if they want to flourish, to focus on building great products and great services that speak for themselves, instead of trying to convince people that their service is good enough. And if you don't think that's a big change, I don't know what to say. Twenty months ago, people said we were "Amazon.toast." The thing that people missed was how obsessive we were and how heads down we were about the customer experience, and how important that is online. That's a piece that they didn't understand. Q: How do you determine how much to spend on physical capabilities such as warehouses, and how much to farm out to others so you can keep costs down? A: You know, our job is to provide customers with what they want. And we don't care if that causes us to allocate resources to some distribution centers, whether it causes us to allocate resources to customer service centers, or whether it causes us to dedicate more resources to innovation on the Web site. We try to follow the path that allows us to most quickly give customers most of what they want. Q: You're something of a hybrid between an online retailer, which requires a lot of physical infrastructure, and a portal to other online retailers' products, which implies farming out things like shipping. A: What we want to be is really simple. We want to be the world's most customer-centric company across any industry, at any time. We believe that that goal maps perfectly onto the realities of the Internet, which are that customers are empowered. Q: Can you be more specific about what sort of company Amazon.com ultimately becomes? A: What we're trying to do is be a place where people come to find and discover anything that they might want to by online. Now, that doesn't necessarily mean that we're going to sell all those things ourselves directly. In fact, it's a broad enough goal that to accomplish it, we'll have to partner with other merchants and other parties. Q: You've also tried to build a certain sense of community, yet you don't offer chat and E-mail like other communities such as America Online and Geocities do. A: That stuff is not on our path. First of all, why would we want to be yet another company offering E-mail? I mean, if there was a compelling reason to do it, we would, but if we do a great job at our core competency, won't they come back? I think that's a much more appropriate kind of offering for the portals like AOL, Yahoo! and Excite. I can understand why they want to do E-mail, and I can understand why they want to do stock quotes. I think there are a lot of people competing in that space, and it's an important space, and that's a good business. It's just not our business. Q: Many businesses going online have found that they suddenly become global companies whether or not they planned to. Has that happened at Amazon.com? A: Absolutely. Something like 19% of our sales are outside the U.S. I think every week we ship to more than 120 countries, maybe 150. I can tell you one little anecdote about how powerful the international nature of the Internet is. We got an order from somebody in Bulgaria, and this person sent us cash through the mail to pay for their order. And they sent us two crisp $100 bills. And they put these two $100 bills inside a floppy disk. And then they put a note on the cover of the floppy disk, and they mailed this whole thing to us. And the note on the cover of the floppy disk said, "The money is inside the floppy disk. The customs inspectors steal the money, but they don't read English." That shows you the effort to which people will go to be able to buy things. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					PREVIOUS Q&As Author Clayton Christensen Venture capitalist John Doerr