How Jeff Bezos Created a $280 Billion Empire
Inside the wild rise of the super-successful Amazon founder.
The people and companies that invent the future don’t always get to play in it. Thomas Edison’s reward for creating the lightbulb, the phonograph and the electric grid was to get crushed by financier J.P. Morgan. Robert Sarnoff’s RCA Corp. made the first color TV sets, controlled the broadcast networks and dictated programming, dominating devices and content way before Steve Jobs even dreamed about doing it. RCA folded in 1986.
Amazon founder and CEO Jeff Bezos is well aware of this history. “Amazon will be disrupted one day. I don’t worry about it, because I know it’s inevitable,” he told 60 Minutes. “Companies come and go, and the companies that are the shiniest and the most important of any era—you wait a few decades and they’re gone.”
Yet when you look at the company Bezos continues to build, you see a guy erecting a forest of fences for competitors to climb before they can even get close to him. In 1996, Amazon.com was one of the Web’s alpha disrupters, an online bookstore with the outrageous goal of making every book ever published available in a minute—even if, in the early days, it was just Bezos, his wife, MacKenzie, and a few brainiac buddies filling orders in a Seattle garage.
“Twenty years ago, I was driving the packages to the post office myself and hoping we might one day afford a forklift,” he said in announcing Amazon’s 2015 results. “This year, we pass $100 billion in annual sales and serve 300 million customers.”
Officially, Amazon’s stated ambition is to be “Earth’s most customer-centric company,” but Bezos may have actually created Earth’s most eccentric company—eccentric being a label he might not resist for himself, given that his personality is bounded by an unrelenting drive and signature car-horn laugh.
You might call Amazon the first e-conglomerate. When he started Amazon.com, Bezos’ motto was “get big fast,” and he worked furiously to claim the high ground of Internet retailing before anyone else got there. He first expanded Amazon horizontally, adding music and movies, then electronics and even toys. To augment Amazon’s own product assortment, he eventually added third-party vendors, who now account for 40 percent of its $107 billion in sales.
The company has since gone vertical, manufacturing its own products, from digital content created by Amazon Studios—movies and programming—to mundane stuff like baby wipes and apparel. You can now buy detergent, paper towels and nearly 100 other items with the push of a Dash Button, a small wireless household fob that instantly places your reorder. Today the company is delivering groceries in some markets, too, threatening yet another giant industry.
But Amazon is first and foremost a technology company, a giant computational engine created by an unabashed computer geek. Bezos applied that engine in directions that didn’t seem to make sense at first. The company’s ventures into consumer hardware—Kindle, Fire TV stick, Fire tablet, Fire phone and, most recently, Echo—were met with skepticism, some of it well earned. Amazon is big enough, though—and Bezos has balls enough—to keep tinkering until the company gets it right.
“I’ve made billions of dollars of failures at Amazon.com,” he has said, defiantly. Echo, launched last year, isn’t one of them. A wireless speaker that becomes a wondrous Internet search device through a voice-activated assistant called Alexa, Echo has put Amazon on a first-name basis with Apple in terms of innovation.
In 2006, Bezos similarly confused investors when he launched a cloud-based business out of Amazon Web Services to host servers for outside companies. He was leveraging Amazon’s vast expertise in network operations, which had grown around its sales and logistics support.
“We’re very comfortable being misunderstood,” he said at the time. “We’ve had lots of practice.” AWS is now a highly profitable $7.8 billion business that most of Amazon’s retail customers aren’t even aware of. Its clients include two highly secretive organizations, the CIA and Apple. And if you think about it, AWS was never that much of a stretch. All physical things are data at some level; Amazon has the skill to be able to move bytes or boxes with equal dexterity. Recently, the company began leasing cargo jets to start its own airfreight shipping and logistics operation. Instead of handing off merchandise to other companies, it’s wading deeper into the delivery stream. If you are FedEx or UPS, your comfort level just plunged 50 percent.
By constantly reinventing the world’s biggest online seller, and making huge bets on a long-term vision—which often means missing quarterly earnings estimates—Bezos drives Wall Street analysts up the wall. But he couldn’t care less. “Companies that don’t continue to experiment, companies that don’t embrace failure, they eventually get in the desperate position where the only thing they can do is make a Hail Mary bet at the end of their corporate existence,” he told the audience at a recent conference.
Amazon’s ability to survive has been questioned regularly, especially after the dot-com bust of 2000 (Amazon.bomb and Amazon.toast were two of the more sarcastic tags), but Bezos always believed in the plan. He knew the Internet wouldn’t fail—only companies that didn’t nail their strategies would. Amazon’s sales grew from $15.7 million in 1996 to $1.64 billion by 2000. Then, in the aftermath of the 2000 tech bubble, its stock price sank from about $113 to $5.50 a share. But its sheer size provided the necessary cover. Recently, Amazon traded for about $550, making Bezos’ shares worth some $50 billion.
That kind of wealth allows Bezos to channel his inner Buzz Lightyear, like fellow billionaires Richard Branson and Elon Musk. His Blue Origin space company is building engines for Boeing and Lockheed Martin’s Atlas rocket while developing a suborbital ship that, by deploying reusable rockets, we’ll all be able ride on.
“I want to see millions of people living and working in space. I think it’s important but I also just love it. I love change. I love technology,” he said. And if he wants to read about Blue Origin’s exploits, he can always check the Washington Post, which he bought in 2013 for $250 million.
Some kids come from broken homes; Bezos grew up in one that was wonderfully repaired. His mother, Jackie Gise, was 17 when he was born; he never knew his biological father until reporter Brad Stone tracked him down for his 2013 book The Everything Store. The man Jeff Bezos calls Dad, Miguel “Mike” Bezos, was an Exxon petroleum engineer who married his mom and adopted Jeff as his own. Jeff spent his summers at the Cotulla, Texas, ranch of his doting grandparents, where he split his time doing chores, dabbling in inventions and reading science fiction books borrowed from the local library, which would feed his space fantasies.
Bezos showed an early and enthusiastic aptitude for math and computers, and by the time he got to Princeton in 1982, computer science was already exploding. After graduating with highest honors in computer science and electrical engineering, he headed to Wall Street, which then as now was clamoring for quants who could conjure black-box trading algorithms.
It was while working at D.E. Shaw, a top-drawer hedge fund, that he happened upon a figure that would change his life: 2,300 percent. That was the growth rate of the Internet in 1994. “Things just don’t grow that fast, with the exception of petri dishes,” he would explain later. “A nontrivial baseline growing at 2,300 percent a year is clearly going to be everywhere tomorrow, and so the question was: What kind of business plan would make sense in the context of that growth?” That’s a future billionaire talking, all right.
He looked at 20 different businesses before deciding that books offered the most opportunity and the least resistance, given that publishing and bookstores were still operating in 19th-century mode. Although independent bookstores would later have bitter words about being disrupted by Amazon, Bezos wasn’t moved.
“Complaining isn’t a strategy,” he said. After all, in 1994 he left a job that would undoubtedly have brought him financial security, quitting in June knowing that he would forgo his annual bonus. He went home to Texas and ultimately borrowed $300,000 from his parents to help start the company that would eventually be called Amazon. (It almost started life named Cadabra.) MacKenzie drove a borrowed pickup toward Seattle while Jeff wrote out the business plan. He told his parents that the odds of failing were 70 percent—fairly generous, he admitted, given the record of most startups—but he wanted to let them know in advance so that he’d still be welcome at Thanksgiving if everything went to hell.
Bezos based part of his decision, and many future bets at Amazon, on what he calls his regret minimization framework. “Very few people probably name it ‘regret minimization framework,’ because most people are healthier than that,” he joked. The RMF works like this: When you’re 80 years old, you don’t want to look back and be depressed or disappointed about all those opportunities you let slide because you were afraid of failing.
Although Amazon, like Microsoft, is headquartered in Seattle, the business Bezos chose demanded a different kind of culture than the Silicon Valley software outfits that could command lush profit margins and offer unlimited worker benefits. As a reseller trying to undercut brick-and-mortar stores, Amazon needed a Walmart mentality. Frugality and cost containment informed every decision, and Bezos drove everyone he hired to work harder.
Externally, Amazon strove to remove any friction—price, logistics, delivery time—that got in the way of providing the ultimate customer service. Internally, friction became a force for productivity; employees are encouraged to be absolutely frank with each other. That pressure and critical
environment isn’t for everybody, and a New York Times story last year laid bare the starkness behind the ambition in detail. Bezos was again unmoved, not to mention unbelieving. “Anyone working in a company that really is like the one described in the NYT would be crazy to stay,” he responded in a memo. “I know I would leave such a company.” There has been no exodus.
Bezos looks at the world as a series of problems that have to be solved, and sees Amazon as a problem-solving machine. With Prime, launched in 2005, the problem was speed. It was not an instant hit, but in 2011 the growth curve began to steepen, rapidly. There are now an estimated 54 million Prime customers in the U.S. alone, an audience of fans predisposed to buy whatever Amazon has to offer. “What’s the real story underneath Prime?” he asked. “Patience, persistence and attention to the smallest of details.”
The same was true of hardware. Kindle was dismissed as “Kindling” by the tech crowd, something that would be turned into roadkill by the iPad. Bezos dryly noted that the No. 1 app on the iPad was Angry Birds. Hemingway had little to fear, he promised, and Amazon would eventually turn Kindle into the ultimate reading tool. “With hardware, it’s the same thing. You have to be patient, you have to work at it, and you have to obsess over the smallest of details,” he reminded the audience at a product unveiling.
In June 2014, persistence and patience would get another test. Amazon spent four years creating the Fire HDX phone that Bezos probably thought would be an iPhone challenger. The phone featured Dynamic Perspective—a 3-D effect—enabled by four tiny cameras that follow your head.
That technology required collecting millions of images of heads from around the world and teaching the cameras to recognize the nearly infinite variety of them. “If you want to solve a really tough machine-learning problem, you know what you need? Lots of data. Tons and tons of data. In this case,
images, in order to train your algorithms,” he said at the introduction. Data was in Amazon’s wheelhouse, and what it excelled at.
The Fire phone was a flop. Launched at $199, it was discounted to 99 cents within months, and in articles in magazines like Fast Company, the media again wondered if Bezos had lost the plot. Just what was he selling? Or as Business Insider’s Henry Blodget asked him, “What the hell happened?” Bezos didn’t flinch. If you don’t make big bets, you don’t make big gains. And very few of Amazon’s successes were hits out of the box. Just give it time, Bezos said. “We’ve had a lot things we’ve had to iterate on at Amazon. With the phone, I just ask you to stay tuned.”
With Echo, the company has a flat-out hit. And the prospect of Amazon developing a drone delivery force—you know that the spaceman is absolutely serious about it—is too cool not to happen. At the same time, Amazon is up to its old self. After announcing its fourth quarter earnings, the company once again disappointed Wall Street and the stock was hammered, falling some 16 percent to $550—a paper loss of billions for Bezos. This despite Amazon increasing sales by 22 percent and earning $482 million in profit for the quarter. The Street, as always, expects more from Amazon and its founder. And in many ways, so does Jeff Bezos. You won’t have to wait long.