Reviews — From the December 2013 issue

The Mercenary Position

Can Amazon change its predatory ways?

Discussed in this essay:

The Everything Store: Jeff Bezos and the Age of Amazon, by Brad Stone. Little, Brown. 392 pages. $28.

“A shilling life will give you all the facts,” wrote W. H. Auden, tipping his hat to the biographer’s art while lamenting its utter inadequacy. Jeff Bezos, whose total conquest of e-commerce has made him one of the most famous people on the planet, has until now evaded any serious biographer. There have been shilling lives in the strictest sense, from the cut-and-paste job of Richard L. Brandt’s One Click: Jeff Bezos and the Rise of Amazon.com to the YA hagiography of Josepha Sherman’s Jeff Bezos: King of Amazon.com (“From the time he was a toddler, Bezos was busy trying to change his world. He felt he was too old to sleep in a ‘baby’ crib, so he found a screwdriver and took the crib apart!”). But Bezos has tightly controlled the flow of information about himself and his company. What readers have encountered is the same small fund of recycled anecdotes, most of them focusing on his childhood (brilliant nerd, inveterate tinkerer, ardent Trekkie) and the creation myth of Amazon itself, complete with the now obligatory reference to the role played by the founder’s suburban garage.

Illustration by Andrea Ventura

Illustration by Andrea Ventura

Now, nearly twenty years after Bezos sold his first book online — for the record, it was Douglas Hofstadter’s appropriately brilliant and nerdy consideration of artificial intelligence Fluid Concepts and Creative Analogies — a skilled, stubborn biographer has finally caught up with him. Brad Stone, a longtime technology reporter for Bloomberg Businessweek, has done some truly archaeological digging for The Everything Store: Jeff Bezos and the Age of Amazon. While his closed-mouth subject declined to be interviewed for the book, Bezos did allow Stone to speak with friends, family members, corporate viceroys, and former employees (members of the last group have traditionally been muzzled not only by nondisclosure agreements but also by a lasting fear of offending their ex-padrone).

At Amazon (where I worked from 1996 to 2001), there was hardly any distinction between Bezos and his creation. “In a way,” Stone writes, “the entire company is scaffolding built around his brain — an amplification machine meant to disseminate his ingenuity and drive across the greatest possible radius.” This suggests a megaphone, a lighthouse, maybe an antipersonnel mine of some sort. In any case, Stone delivers a thorough account of Amazon’s infancy, rude adolescence, and compulsively disruptive maturity — although Bezos would insist that the company is still in its early phase, what he likes to call Day One.

Jeffrey Preston Bezos was born on January 12, 1964, in Albuquerque, New Mexico. The surname on his birth certificate was not Bezos but Jorgensen — after his biological father, Ted, surely one of the few professional unicyclists to figure in entrepreneurial history, even as a footnote. His mother, Jacklyn Gise, had married Jorgensen while she was still in high school, but the marriage soon fell apart. In 1968, Gise married a petroleum engineer named Miguel Bezos and moved to Houston, where her new husband worked for Exxon.

From his adoptive father, who had fled Castro’s Cuba as a teenager, Bezos inherited what Stone calls “a libertarian aversion to government intrusion into the private lives and enterprises of citizens.” From his maternal grandfather, a U.S. Atomic Energy Commission official who retired early to a ranch in Cotulla, Texas, he learned to repair windmills, grade roads, and castrate bulls.

The young Bezos quoted Star Trek episodes from memory and built a succession of robots, hovercraft, and booby traps, as well as a battery-powered gizmo with rotating mirrors he called an “infinity cube.” (The last was modeled on a similar item at Radio Shack, but, Bezos bragged, his was much cheaper.)

(Bezos was valedictorian of his high school, and in 1986 he earned a degree in electrical engineering and computer science at Princeton. A few years after graduating he began working at D. E. Shaw & Co., a hedge fund whose hiring criteria, according to Stone, favored “big brains with unusual backgrounds, lofty academic credentials, and more than a touch of social cluelessness.” The firm’s founder, David Shaw, was also a computer scientist, and he treated his business as a laboratory for high-tech innovation.

Bezos was assigned to look for investment opportunities arising from the growth of the Internet — Web traffic in 1994 was expanding at an annual rate of 230,000 percent. Shaw would later help create Juno, among the earliest free email services, and FarSight Financial Services, an online stock-trading platform that he sold to Merrill Lynch. But his underling latched on to e-commerce and the idea of an “everything store” whose flagship product — the thin end of the industry-destroying wedge — would be books.

For a brief period, Bezos considered launching his online bookstore under the auspices of D. E. Shaw. But in the end, he struck out on his own, inspired in part by Kazuo Ishiguro’s The Remains of the Day, from which Bezos distilled what he called a “regret-minimization framework” — an unusual response to Ishiguro’s soft-spoken, melancholy narrative.

The story of Amazon’s birth — the road trip to Seattle, the business plan hastily tapped out on the founder’s laptop, the seed money solicited from his parents — is too familiar to reiterate here. Stone covers a lot of what we already know, but he fills in a wealth of missing details. One of his more than 300 interviews, for example, was with Shel Kaphan, the company’s first employee and the initial architect of its website. A younger, hairier Kaphan had worked for Stewart Brand’s Whole Earth Catalog, the countercultural bible Steve Jobs once described as “sort of like Google in paperback form.” He was, in a sense, the unreconstructed hippie to Bezos’s Wall Street technocrat. And the friction between the two was not merely ideological: Kaphan wanted to rebuild the jerry-rigged site from the bottom up, while Bezos insisted there was no time for anything but adding new features. The outcome was inevitable: in 1999, the introverted engineer whom Bezos called “the most important person ever in the history of Amazon.com” resigned in what one imagines was a terse phone conversation.1

1 Kaphan told Stone that being sidelined at Amazon and eventually pushed out of the firm “was one of the biggest disappointments of my life.” His view of his former partner has not softened over the years. After Bezos bought the Washington Post, in August 2013, Kaphan remarked, “It makes me feel quite nauseous. I’d hate to see the newspaper converted into a corporate libertarian mouthpiece.”

As the company grew, it remained a divided creature, with one foot in the Information Age and the other planted decisively (and expensively) in the Industrial Age. While its business model relied on the blindingly fast exchange of data, the goods it sold reached the customer by way of an old-fashioned, clanking, conveyor-belt-driven infrastructure that would hardly have looked out of place in a Victorian textile factory.

This ensured that many of its key breakthroughs would involve such unsexy areas as supply-chain logistics and inventory management, and that many of its most notable hires would be poached from behemoths like Walmart and AlliedSignal. To his credit, Stone makes these nuts and bolts interesting and even suspenseful. Will the giant scanning-and-sorting machines, called Crisplants, break down during peak hours? Will the specter of FUD (fillable, unfilled demand) ruin yet another Christmas?

There is enough new information in The Everything Store that even minor bits can pay unexpected dividends. For Amazon’s IPO, in 1997, Bezos enlisted the services of Deutsche Bank’s Frank Quattrone — a colorful figure known as “God’s banker,” who helped fuel the dot-com boom by raising more than $65 billion in private investment for technology companies. (He would also, nearly a decade later, narrowly avoid obstruction-of-justice charges, which a federal judge dropped in exchange for a promise that Quattrone would not break the law for the next twelve months.) After the IPO, Deutsche Bank treated Bezos and his inner circle to a weekend in Los Cabos, Mexico. At a lavish dinner on the beach, Stone tells us, the bankers came dressed as pirates.

To some extent, Amazon resolved the conflict between Dickensian infrastructure and high technology by integrating the two: its giant warehouses have become ever more automated. At the same time, the company’s move into digital-media sales and cloud-computing services has meant that an increasing proportion of its wares need never be loaded onto a UPS truck or touched by a human hand.

But fresh conflicts have emerged. After years of Napoleonic expansion into new products and new markets, Amazon has become precisely the sort of monolith its employees were taught to hiss and boo back when the company was battling Barnes & Noble. Bezos has tried to persuade us that his company is different. He makes a distinction, borrowed from the venture capitalist and former Amazon board member John Doerr, between “missionary companies” and “mercenary companies.” Stone sums up the difference this way: “Missionaries have righteous goals and are trying to make the world a better place. Mercenaries are out for money and power and will run over anyone who gets in the way.”

Bezos classifies his giant, competition-quashing creation as a missionary enterprise — the Sisters of Charity with free shipping thrown in. Many of Amazon’s competitors would likely disagree. Book publishers in particular have seen little righteousness in the company’s goals.

Initially, publishers considered Amazon a godsend: it appeared to be generating enormous sales without siphoning off revenue from the old brick-and-mortar stores. This didn’t last, nor did the era of good feeling between Bezos and the New York book world. As soon as Amazon secured a sizable share of the market, it began pressing publishers for deeper discounts — technically illegal under the Robinson–Patman Act of 1936, but attainable by such workarounds as promotional fees and shipping discounts.

These practices have long been common among retailers. But Amazon has shown a peculiar genius when it comes to squeezing more dollars out of publishers, including university presses and indies that can ill afford to shave their margins any further. The company’s initial foray into shaking down these vulnerable parties was called the Gazelle Project, because Bezos had suggested that “Amazon should approach these small publishers the way a cheetah would pursue a sickly gazelle.” The legal team quickly rechristened it the Small Publisher Negotiation Program. (A similar program in Europe went from Pay to Play to the more sanitized Vendor Realignment.)

Stone, who maintains his reportorial neutrality throughout most of The Everything Store, drops the ball here. After dutifully cataloguing Amazon’s venal behavior, he falls back on what is literally the company line — that these extorted dollars “create the foundation on which everyday low prices become possible.” This should be a real comfort to publishers now contending with Amazon’s newest shakedown. A former employee, who asked not to be identified, recently told me that some publishers are now being pressured to pay the equivalent of 1 percent of their annual net sales to Amazon — levied on top of any existing fees — simply for the privilege of presenting their lists to the marketing team and buyers. In the case of the larger houses, this sum could run between $500,000 and $1 million — and failure to pay will make it awfully hard to get an Amazon buyer on the phone.2

2 An Amazon spokesperson denies this latest practice, and several publishers were understandably leery of revealing the specifics of their own agreements with the company. What came through clearly, however, was a general repugnance toward Bezos’s tactics. Describing Amazon’s appetite for “creative destruction” as “somewhere between scary and disgusting,” one New York publishing executive added: “When you go to work each morning with a battle-ax, everything looks like a head to be chopped off.”
3In February 2013, after an embarrassing outcry in the press, Amazon fired Hensel European Security Services (HESS), whose staff were reportedly harassing foreign workers and sporting Thor Steinar clothing — a brand the German government had briefly banned in 2004 because its corporate logo resembled the insignia of the SS.

Of course it’s legal. So is Amazon’s control of an estimated 65 percent of the e-book market, a near monopoly that’s apparently of no concern to the supine Department of Justice. So is its bare-bones price of $9.99 for popular e-books, a loss-leading tactic that might be classified as predatory pricing if there weren’t so many legal hurdles to making such a charge stick. So is the funneling of its British revenues through a subsidiary in Luxembourg, a tax-avoidance loophole the G20 nations now intend to close, and its use of black-uniformed neo-Nazi skinheads to patrol one of its German warehouses.3 So were the ghastly tactics used against such competitors as Zappos (Bezos spent an estimated $150 million to price-cut the online shoe merchant into submission, then acquired it) and Diapers.com (whose executives calculated that Amazon’s kamikaze discounting blew through “$100 million over three months in the diapers category alone”). But if this isn’t mercenary behavior, what is?

Jeff Bezos is an extraordinary man, who has now reconfigured more than one industry and is likely to tamper with several more, starting with the newspaper business. And he is not to my knowledge a cruel man: his managerial tantrums, recounted at numerous points throughout The Everything Store, are par for the course among Silicon Valley titans, and Stone includes various examples of his personal generosity. So it’s hard to reconcile his evident decency with the smash-and-grab behavior cited above. But Bezos has his own Prime Directive (as the crew of the U.S.S. Enterprise used to say): even the most thuggish moves are justified by “the company’s long-term interest [in] delighting its customers.”

Ah, the customer — that delicious, discerning, weak-willed figure! For Bezos, the customer is everything: a comrade, a dependent, and a kind of theological entity, on whose altar almost any sacrifice is reasonable. If you can deliver the lowest prices and widest selection and speediest shipping, won’t your customer forgive just about anything? Speaking as one (and how), I can say that the answer is no. If the choice is between paying an extra two dollars for a paperback and putting an entire industry to the torch, I’m willing to ante up.

Perhaps Bezos is mulling over at least a few of these matters. At some point over the past couple of years, he drew up a memo called “Amazon.love,” which laid out “a vision for how the Amazon founder wants his company to conduct itself and be perceived by the world.” Stone reprints one section, in which Bezos has listed a series of aphorisms — all of them hinging on what is “cool,” a word he may well have used, all those years ago, to describe his infinity cube.

Defeating tiny guys is not cool.
Winning is cool.
Defeating bigger, unsympathetic guys is cool.
Obsessing over competitors is not cool.
Conquerors are not cool.
Leadership is cool.
Hypocrisy is not cool.
Missionaries are cool.

This all seems sensible enough, even though it’s hard to see why a grown man, father of four and employer of more than 90,000, would care about the elusive quality of coolness. Surely the King of Amazon.com is beyond that. But if it’s true that Bezos has moderated his taste for conquest and started to recognize that Amazon itself is one of the biggest and most unsympathetic guys around, then perhaps Day Two will look a whole lot better than Day One.

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  • Damon

    I find Mr Marcus’s attitude toward consumerism both admirable and a mirror of my own.

    “If the choice is between paying an extra two dollars for a paperback and putting an entire industry to the torch, I’m willing to ante up.”

    Hear! Hear!

    However, the way he presents it, I believe he’s implying that a significant portion of the American consuming public would agree with him and behave accordingly.

    As much as I would love to believe this myself, my personal experience with friends and family–most of whom are supposedly as passionate about “sustainability” as myself–lend me to think that this is a fantasy. The vast majority of consumers would rather save $2.00–crowing loudly about that savings to all and sundry, in fact!–by buying from Amazon instead of purchasing more “sustainably”. Or at least more locally.

    This is the reality, unfortunately. Pinning one’s hopes on informed consumer behavior is no substitute to proper legislative and litigative oversight.

    • Dannyinsc

      If your are willing to pay an extra two dollars every time you buy a paperback it will not be long before you have bought nine books for the same money that would have bought you ten at a discount. Now you may not be torching an industry, but you are torching at least one author. I assume Damon, that you, like me, do not have unlimited funds to spend on books. Cheaper books means I can read more writers. I have never read a book because it came from a particular publisher or because it came from a certain bookstore. The writer is what matters. Everything between the author and the reader is just a delivery service. Cheers to anyone who can reduce those transaction costs. Remember that when paperbacks first appeared, they were denounced as a threat to the book industry for exactly the same reason – that they cut into the publishers’ and authors’ income.

      • Peter Turner

        Curious. Why do you ever buy from a bookstore, physical bookstore that is?

      • Damon

        You have to put your money where your mouth is, Dannyinsc. It’s just that simple. If you like books, then you owe it to yourself to do one of two things.

        1. Purchase from a local bookstore. Ideally not a massive chain like Barnes & Noble.

        2. Purchase directly from the author, if said author happens to be capable of distributing their work more or less directly.

        The first option maintains the very industry that Amazon is killing. And make no mistake: Amazon is quite literally squeezing out the publishing industry. I worked as a typesetter and editor for more than 9 years, and managed to get out just before my own pub house was bought up and torched by the very forces wielded by the likes of Amazon.

        If your choices are to support 9 authors and and the entire publishing industry, or to support 10 authors and the destruction of the publishing industry, the choice should be more than obvious.

        The second option is far rarer, obviously, but has the advantage of doing what you claim to care about most: support authors.

        Do whatever you like, but I strongly urge you to align your consumer habits with your values. It’s the only tool we plebeian consumers have to influence the evils of the corporate marketplace.

        • Dannyinsc

          What local bookstore? Even Books-a Million has deserted my area, and Barnes & Noble will be gone after Christmas. if there is an independent bookstore nearby I have never heard of it. Three malls, three smaller shopping centers, numerous strip malls, all along major roads in an affluent suburban community. No bookstores. No Pontiac dealers either. Or A&P’s, or Western Auto’s, Can’t find a Zenith TV at the local department store. Come to think, department stores are getting scarce too. Can’t get a room at Howard Johnson’s (the restaurant of the motor inn is still standing, now serving Indian food). Plebeian consumers killed all these evil corporations simply by changing buying habits. Now they are killing the corporations that dominated book publishing. But life and business will take new forms and maybe even civilization will survive.

  • Sanford Gray Thatcher

    As a victim of the Gazelle Project while director of a smaller university press. I can testify from personal experience that Jeff Bezos is no missionary, but rather the worst of mercenaries. Not only that, but his own actions reveal his hypocrisy, which he claims to be not cool, as he has many times had his company defeat the “tiny guys.” In principle, I will never buy anything from Amazon, so this is one customer he has not satisfied.

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