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Q&A with Jeff Bezos September 16, 1999 Amazon: Nurturing a New Species of Business The Amazon.com founder and CEO talks about how the Internet is spawning new types of ventures and why he wants his company to be a service -- not a store As the poster boy for E-commerce, Jeffrey P. Bezos continues to push his company, Amazon.com Inc., into new territories. After starting out in books, the CEO quickly moved Amazon into music and videos. Now, with a series of technology-company acquisitions this year, he's trying to move Amazon beyond being the biggest online retailer to make it more of a buying service. It's still a work in progress. To get some clues on what's next for Amazon and e-business, Business Week interviewed Bezos in late August and early September. BW: Amazon.com has been described as the Wal-Mart of the Web, but you seem to have even bigger ambitions. What do you think your ultimate impact on e-business will be? Bezos: First, we still have the opportunity to be a footnote in the history of business. I really believe that. Anyone who doesn't believe that hasn't studied the history of pioneers. The danger is that we will fumble this. Our business is not selling things. Our business is helping people make purchase decisions. That is a strange concept. It is a different way of looking at the world. It's a more customer-centric way of looking at the world. Along the way, we're going to confuse a lot of pundits. The closest thing that I can come to is that we're not trying to be a book company or trying to be a music company -- we're trying to be a customer company. Four years ago, when we first started Amazon.com, we had very conscious discussions where we talked about the fact that we were not a bookstore, but we were a book service. I do think that is a better way to think about it. Thinking of yourself as a store is too limiting. Services can be anything. One of the metrics of our long-term success will be how well we defy easy analogy. We want to build something the world has never seen. BW: What do you see as your essential edge over all your many competitors? Bezos: We want to be earth's most customer-centric company. Not just listening to customers but figuring out what they will want. You have to think what they would want if they knew they wanted it. One of the ways we can most help customers is to talk customers out of buying what they don't want. We have raised the bar on improving the customer experience -- not just on the Internet but everywhere. We start with the customer and work backwards. Customers are strong evangelists online. The Internet accelerates that word of mouth. The Internet changes so fast. The set of competitors changes every day. The customers don't change. That's the one known in this equation. The Internet is this big, huge hurricane, and the only constant in that storm is the customers. BW: How did you settle on that acute customer focus? Your background in investment banking and finance doesn't offer a clue. Bezos: It's one of those things where knowing nothing really helps. BW: How do you stay focused on that as Amazon.com grows? Bezos: We have an internal e-mail list called Extreme. It has both hostile and happy customers -- just so people [in the company] can be reminded. At all-hands meetings, we read really hostile ones, and also the happy ones. We also have a metric called VPO that is a measure of system downtime. It stands for "Visitors Pissed Off." Company culture is very key. It's a very big barrier to entry. Corporate cultures are impossible to copy -- and almost impossible to change. It becomes self-reinforcing. That's why we have symbols, like the desks made out of four-by-fours. Other companies spend 70% of their time on competitors and 30% on customers. We spend 70% of our time on customers and 30% on competitors. BW: Isn't it expensive to offer a high level of customer service? Bezos: Consider the cost instead of having somebody tell 5,000 people you suck. BW: Could that redefine what we think of as retailing? If you're as successful as some people think you will be, will Nordstrom or Sears or other conventional retailers have to redefine themselves as well? Bezos: I don't think that it spells the end of other models. There's going to be very rich variation in Internet businesses. You see this in the physical world. You see different companies taking different focuses on customer services, and different models altogether. I mean, Sam's Club and Price Costco use a membership model and make their profits off the membership fees. That's a new model. In the physical world, dissimilar models coexist very nicely. And I expect that to be the case in the Internet world too. In fact, I think that the Internet, if anything, may have more variation than the physical world. It may support lots of different models that aren't possible in the physical world. It may turn out that all the richness and variation on the Internet makes the rainforest look like a nondiverse place. BW: You've said the Internet is like the Cambrian period in paleontology, when there was an explosion of new life in a very short period of time. What else do you think this analogy tells us? Bezos: I use that analogy to remind people that there are also going to be a lot of extinctions. Around 550 million years ago, it was the greatest rate of speciation ever. It was an explosive period when single-celled life first branched out into multicellular life. But what people don't think about is that it was also the period of greatest extinctions ever. Nobody knows what caused the Cambrian explosion. But there was some sort of major dislocation. Evolution tried every conceivable path, really fast. That is what we're going through right now. It is this huge dislocation called the Internet. It's a huge increase level of increase in the level of efficiency of communication, of one-to-many, and many-to-one, and one-to-one, and every kind of communication you can think of. That is going to have lots of percolating effects. Whenever you have these big economic dislocations, you have the major effects, and the secondary effects, and the tertiary effects, and all those things are happening at such a high rate of speed. This is a great time for people to be experimenting. And that's what they're doing, in huge numbers. You get some sense of that when you look at the amount of venture-capital money being invested in the Internet. It's something like $6 billion a year at its current run rate, and that doesn't even include all the angel money. But it's silly to think they're all going to be successful. BW: How far along are we in the e-business revolution? Bezos: It's like 1984 in the PC revolution. But the Internet revolution is already bigger than the PC revolution. Five years from now, there will be no such thing as an Internet company. You'll see the same kind of specialization in e-commerce as in the physical world. BW: What are the key impacts we're seeing from the Internet? Bezos: The balance-of-power shift away from the company and toward the customer is a big deal. And it's really easy to underestimate how powerful that is going to be and how important the secondary effects of that are going to be. By the way, it's a really good thing for society. What's going to happen is that there's going to be a slight shift where it makes more sense for companies to actually create great products and services and less sense for them to create mediocre products and services and market them very effectively. Because that's not going to work as well anymore. It takes decades and decades, and it shifts very slowly. But think about how much economic energy, time, attention smart people today spend...trying to market inferior services and products. That's not good. That energy could go into making the products and services better. So as the balance of power shifts toward the customer, and the customer gets near-perfect information about these products and services, this is nothing short of a massive reallocation of resources in society to things that actually matter more. It's going to drive incredible productivity gains, among other things. It really is that big a deal. BW: What kind of impact will dynamic pricing -- auctions and the like -- have on business? Bezos: Some of the dynamic pricing models don't take into account the fact that time is becoming more valuable for people. It's not the dynamicness of the pricing. Pricing can change in real time and still be very efficient for customers. But there are some models being tried by lots and lots of companies that are sort of like electronic versions of haggling. And haggling is not time-efficient. What people want is a trusted source that's going to give them the correct price with no hassle. That's very true today. It's going to be even more true 10 years from now, because there seems to be no sign of time becoming any more plentiful. What are some of your least pleasant shopping experiences? Buying a car. Why? Because you have to haggle. Long term, haggling is not a steady state. It's a waste of time. BW: A lot of people believe the most important asset for companies in the Internet Age is people. Is it really more important online? Bezos: In a lot of industries, capital is the primary constraining resource. Amazon.com has not been capital-constrained. We face this insurmountable opportunity, and the thing that constrained us for the last four years has always been people bandwidth -- just having enough smart, hard-working, talented, passionate people to execute against this vision. For a lot of Internet companies, that is the No. 1 constraint. BW: Does this create different demands on leadership? Do you have to manage the company differently? Bezos: I don't know if it generically causes a change there. But any good management team is always focused on the long pole in the tent. BW: How much of a limiting factor is this? Bezos: We have an easier time than most, perhaps because Amazon.com is a well-known company that's doing exciting things. But it's really, really hard for small companies to find and attract great people in sufficient numbers. BW: How much is the U.S. lead on the Internet an advantage globally? Bezos: Any country that doesn't embrace the Internet, and therefore get those secondary effects -- for example, near-perfect customer information, accelerated word of mouth, which leads companies to very rationally focus on developing great products and services instead of marketing mediocre ones -- is going to be at a huge disadvantage. Because of the virtualness of the Internet, there are things that can come from anywhere. It's not like the U.S., having led the charge with the Internet, can rest on its laurels. There'll be another thing that comes along. There's no rest for the weary. But long term, I see the notion of competitive advantage on a country basis going away. But not because of the Internet. Because of globalization. It's an outdated concept long term. Trade barriers just hurt everybody. BW: Other predictions? Bezos: The Internet is going to change one or two or three incredibly important things that modify society in some way. But I don't think anybody today can really predict what they're going to be with any certainty. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS LVMH's Arnault: "I Don't Think E-Commerce Will Replace Traditional Shopping" Amazon's Bezos: Nurturing a New Species of Business Webvan's Louis Borders: "We're Building the Last Mile to the Consumer" AOL's Case: "At the Epicenter of the Revolution" Minority and Women Executives: Can E-Biz Become as Diverse as America? Morgan Stanley's Mary Meeker: "Playbooks for the Evolution of Internet Businesses" Priceline's Walker: "It's a Completely New Way of Buying"