March 14, 1999
Riding the Wild, Perilous Waters of Amazon.com
By PETER DE JONGE
You think it's easy navigating a $20 billion company that has never made a dime?
have seen the future, and it's a little exaggerated. It's the Frederick's of Hollywood padded panty No. 50404, which
promises to add a dollop of bump to any behind. I stumbled upon this fetchingly inflated undergarment the same way
-- if you believe what you hear -- I will find almost everything in the glorious, not-too-distant future. I found it on
Amazon.com.
Despite the fact that the Web site has been hemorrhaging ever larger amounts of cash per
quarter since it went up, Jeff Bezos, Amazon's brilliant, charming, hyper and misleadingly goofy
mastermind, has managed to keep his three-and-half-year-old company the "it" stock of the late
millennium by regularly upping the ante with ever more sweeping intimations about the scale and
scope of e-commerce. First it was books, then music and video, then gifts. Now, with his
just-opened "Shop the Web" service, which offers links to scores of other online retailers, the
menu has been widened enough to include disingenuous lingerie.
But no matter what new foray or feature Bezos is trumpeting, he always keeps our filmy gaze
locked on the future, reminding us in a way that somehow manages to be both winningly modest
and titillatingly grandiose that this is the merest tip of the iceberg. "We probably know as much
about e-commerce as anyone, but it's 2 percent of what we'll know five years from now," he
says, and even with his latest bold move, the purchase of a controlling 46 percent stake in
Drugstore.com, he points out that this is likely to be only the first of many investments in
compatible Internet businesses. While his beleaguered physical rivals are mired in the present,
where they have to attend to sticky details like making money, the specifics of Amazon.com's
ultimate form remain forever elusive, a lovely shimmering at the edge of the horizon. In this way Amazon.com truly is a
virtual company, existing only in the imagination.
And Bezos, a high-school valedictorian who won a Florida State science fair for his project on the effect of zero gravity
on the housefly, hasn't pulled this off only with his formidable technical or quantitative skills, but also with his political
genius for telling each of his divergent constituencies exactly what they want to hear. To his employees he holds out the
rare chance to create from the ground up an entirely new medium that will reshape the world for the better. To his online
visitors he offers a kinder and gentler form of commerce, in which a community of customers, armed with the right
information, help one another make the purchase that is perfect for each one of them. And to Wall Street he presents a
lean, mean virtual juggernaut that, unburdened by such anachronisms as sales clerks, operating hours and inventory, will
run circles around any brick-and-mortar dinosaur, whether it be Barnes & Noble or those Arkansas boys from the
Wal-Mart Stores.
So far a startling number of people are not just biting but also swallowing. Amazon employees have thrown themselves
into their yokes like bovine missionaries. Their customers, 6.2 million and counting, have been so free and easy with
their encrypted credit-card numbers that sales have grown an average of more than 50 percent a quarter and ended
1998 at a billion-dollar-a-year pace. At one point early this year, Wall Street gave the company a valuation north of $30
billion, which was more than Texaco's, and made the 35-year-old Bezos, who with his family owns just over half of the
shares, one of the wealthiest fellows on either side of the Amazon.
But Bezos may have spun his company a bit too well, if such a thing is possible. The outrageous valuation has brought
enormous scrutiny and a certain impatience about the lack of profit. From mid-January to mid-February, the stock lost
half its value. And as Bezos struggles to move the company into the black with the whole world watching, it may become
clear that the various versions of his vision are not just different but also conflicting. If the promised future ever arrives, we
may see that the grand vision for Amazon.com isn't much more than an electronic mall, that as at any big retailer most
of the jobs are lousy and pay badly and that Amazon.com's only real goal in regard to its customers, just like that of any
other business, is to separate them from their money.
hen Tom Clancy puts out a new book, we feel it in our bones in here," says Cedric Ross, a yellow-vested
supervisor, as he walks me and my ever-present chaperone, Kay Dangaard, through Amazon.com's
distribution center. For the 31-year-old Ross, one of the company's few African-American employees, who is often given
the assignment of conducting reporter tours of the warehouse, Amazon.com is his second glimpse of the big time. A
few years ago, he was a member of a hard-core Seattle rock band named IMIJ -- as in Hendrix's first name spelled
backward -- which was signed to a label, but by the time the band completed its first album, the record company had lost
interest in Northwest grunge and moved on in search of the next big thing.
Ross takes me from where the books, CD's and videos arrive from the distributors to where they are packed in
individual parcels on a conveyor-belt bundler to where they get picked up by the huge postal and Federal Express trucks
and sent off on their journeys around the world. The operation is impressively bustling and efficient, if not that much
different from any other big warehouse, with its cement floors and pallets and forklifts.
But on this gray, drizzling morning of Dec. 16, as on any other for that matter, the crucial Amazon.com story isn't
unfolding here, but 3,000 miles away, on Wall Street. There, a resounding endorsement of the company by Henry
Blodget, then a relatively unknown analyst at C.I.B.C. Oppenheimer, has set the stock price racing upward. Within a
couple of hours of the start of trading, the price of one share of Amazon.com stock, which a year and a half earlier when
the company went public was worth $9, had opened at $243 and was now over $300. By the end of the day, a second
swing in the wrong direction would eat up all but $16 of the huge gain. A little less than a month later, on Jan. 11, soon
after a 3-for-1 split, the stock takes off on a similar roller coaster, opening at $158.875 and closing at $160.25, but in
between hitting what remains its post-split high of $199.125.
To be exciting, a stock needs a good story, and the Internet and Amazon.com, both growing faster than Otto the overfed
goldfish, are good stories, with the potential for only a few happy endings. But contributing to both the high valuation and
the violent swings is the feverish activity of a growing group of inexperienced online investors called "day traders,"
whose strategy consists of little more than buying a stock as it's going up and selling it as quickly as possible the instant
it starts to go down. Buttressing this folly is the assumption that by vigilantly staring at their screens, they will always be
able to sell in time if things turn really ugly. No wonder Alan Greenspan, chairman of the Federal Reserve Board, has
compared Internet investing to playing the lottery.
This is not to say that all the investor enthusiasm for Amazon.com and the Internet can be dismissed as an expression
of hype and greed. Last year Amazon.com posted book sales of $610 million, an increase of 313 percent over 1997
sales of $147.8 million, making it in just three and a half years the country's third largest bookseller (virtual or physical),
behind Barnes & Noble ($2.7 billion) and Borders ($2.3 billion). In only its second quarter of operation, Amazon.com's
music division became the largest online music seller, with $33.1 million in sales. At the same time, e-commerce, after a
holiday season that dwarfed even the most optimistic estimates, increased by 230 percent to $5 billion. Although that is
still less than 1 percent of total North American retail sales of $2.6 trillion, such rapid and seemingly limitless growth
poses a serious threat to physical stores, which is why Barnesandnoble.com, bolstered by a $100 million matching
pledge from its partner, Bertelsmann, is so committed to winning back some of that business. So far, however, online
profits have been minimal at best because of the extreme cost of attracting customers.
Part of the great sell of the Internet has always been its promise to level the playing field, so that Bezos and five
comrades working in a garage just outside of Seattle could create a site that looked in its own way as substantial and
bona fide as a Barnes & Noble superstore. A month ago Lyle Bowlin, of Cedar Falls, Iowa, working by himself and in his
spare time, was able to open a site offering almost the same vast selection as Amazon.com.
But it is far less democratizing than it appears. David E. Shaw, C.E.O. of D.E. Shaw, the hedge fund where Bezos
worked before starting Amazon.com, explains: "While it is true that if all you want to do is to put up something for sale,
the barriers of entry are extremely low on the Internet. If you actually want to sell a lot of that stuff, they're quite high and
getting higher all the time."
You can offer the greatest selection and service on the Net, but without an enormous expenditure for marketing and
advertising, no one will come because no one will know you are there. That's why Amazon.com spent approximately
$50 million on advertising last year and doled out at least another $50 million to AOL and Yahoo! and MSN to funnel
visitors in its direction. On average, online retailers spent $26 on marketing and advertising per sale in 1998, while their
physical counterparts spent only $2.50. Until Bezos and other Internet retailers can find a way to attract and keep
customers without such an enormous outlay, they are all going to have a hard time making any money.
Nevertheless, despite the ample accomplishments and serious, unresolved challenges, it is the peculiar fate of
Amazon.com that both are completely overshadowed by the sensational valuation and volatility of its stock. For all its
all-nighters and tattooed punks humping books in the distribution center and golden retrievers wandering the halls in the
corporate office, Amazon.com is a $20 billion, 2,100-employee company built on the thin membrane of a bubble, and
this brings a manic precariousness to the place that no amount of profitless growth can diminish.
Working at Amazon right now has to be a little like living in Pompeii 2,000 years ago. Much of the culture seems
designed to deny the enormous distraction of the looming ticker and to somehow maintain the confidence that the fate of
the company still lies wholly in its own hands. The sign in Dangaard's office bravely reads, "We are building an important
and lasting company," and employees are beseeched not to concern themselves with the stock price, to keep their
heads down and to continue focusing obsessively on satisfying the needs of their customers. But there is a slightly
hysterical quality to these exhortations.
"At our last all-hands meeting," Ross says, "I told them that everybody should wake up every morning in terror of not
satisfying our customers, because they're the ones we have a relationship with. They're the ones who are sending us
money." As a policy the company does not comment on the stock price, and when I ask Ross about the perquisite of his
stock options or if he had heard anything about the wild increase that morning, he declines to comment, and even acts
almost offended.
This forced and incongruous indifference to money is another conspicuous part of the culture. Although almost every
senior employee I question about the day's stock surge is very aware of what has happened, the average worker is
expected to act as if it's of little consequence compared to the sweeping mission of Amazon.com, which, however
nebulous, is always presented as far loftier than selling a fat pile of books, CD's, videos and blood pressure pills. Bezos
never serves up e-commerce as naked capitalism. It's "helping people find and discover the things they want," "helping
folks make better purchase decisions" and so on and so on. When it comes to seducing his employees, he offers not
just a low paying job with a handful of stock options, but also a life's work.
The company's motto is "Work Hard, Have Fun and Make History," and cynicism is not an option. "We hold ourselves to
a very high standard in terms of customer experience," Bezos says, "and we're growing faster than almost any other
company has ever grown. So that takes a huge effort, and of course we wouldn't have it any other way, because we're
trying to change the world and maybe improve it in a small way, and maybe even a little more than a small way, and
that's not supposed to be easy. It's supposed to be hard."
The soft-spoken executive editor, Rick Ayre, who oversees the design and content of the Web pages, indicates that a
predisposition to buy into this earnest culture is a job requirement. "I'm looking for people who want to care. I'm looking
for people who want things to do that matter, a group of people who want a life with meaning, who want a career with
meaning, and we offer that to people because it's a company that provides everyone with a voice and a responsibility for
their actions."
Richard Howard, who was fired at the very end of a four-week trial for an entry-level "Tier 1" job in customer service, and
later wrote a story for Seattle Weekly titled "How I Escaped From Amazon.com," refers to a tone of "quasi-religiosity"
and an "unspoken taboo against any speech or expression (including gallows humor) that betrays your lack of
commitment to the long-term success of the enterprise." He also reported that several times in his short tenure, he
received unsolicited pep talks from longer hires who came over just to let him know that Amazon.com was the best
company they'd ever worked for and that it had been a "life-changing experience." And at one point when I'm
interviewing Ayre about the possible dilution of the brand as the company expands beyond books and music to lingerie
and deodorant, he looks at me and says, "I can tell you're not a believer."
Maintaining this degree of zealotry is going to be difficult, because the overwhelming majority of the company's
employees have tedious, low-paying jobs either in the distribution center or in customer service. Sometime this summer,
all the various departments of the company except for the warehouse will move into the former Pacific Medical Center,
but in the meantime they're scattered in four locations around town. Later on the same day as my visit to the distribution
center, Dangaard, a willowy grandmother from New Zealand, takes me to a Fourth Avenue building, where an entire
block-length floor is devoted to Customer Service.
After passing an armed guard, we enter a football-field-size room with eerily subdued lighting whose row upon row of
tightly spaced cubicles seem to recede infinitely into the distance. But just as unsettling as the oversize scale and
numbers, estimated by Howard at 750, is the hushed intensity as employees talk quietly into headsets, walking novice
customers through the process, or tap out e-mails informing existing customers that a certain book they might be
interested in has just arrived. No one is flirting or shooting the breeze, and according to Howard this is because they are
racing to fulfill a weekly goal of calls and e-mails, all accessible to supervisors making sure that no one deviates unduly
from the codified manual of responses called "the blurb index." Jane Slade, head of this division, says that "Seattle
being the slacker capital of the world," the employees in her department, who are paid about the same as clerks in book
or record stores, tend to be "ridiculously overqualified, with many having multiple degrees."
Despite C.E.O. admonishments not to dwell on the value of the stock price, it's hard to see what else would keep these
Tier 1 and 2 employees returning to this vast electronic sweatshop, and the options are a notable part of the job
description in the local want ads. When the stock was up over 70 points for a couple of hours that morning, the paper
value of even the lowliest workers, with their 100 stock options, had gone up $7,000 that day, and when the stock topped
off three and a half weeks later, just after the split, any worker who'd been there a year had a portfolio that was at least
briefly worth $120,000. Even in the last few weeks, when the stock has settled at around 100, their portfolios are a
not-too-shabby $60,000 each.
In fact, the more you look at an Internet phenomenon like Amazon.com, the more central the stock price seems to the
whole enterprise. It's as if the stock price is the business model. Not only does it help bolster the cultlike commitment of
the employees needed to provide the slavish service that is Amazon's competitive advantage, but it allows the
company to painlessly make hundreds of millions of dollars in acquisitions, paying with stock or cash raised through
bond offerings. Amazon.com spent $280 million to buy two companies, including a software provider and an Internet
address service, in 1998. The astounding stock price allows the company to deepen its pockets to survive the price
wars or whatever other competitive nastiness is surely coming. It is also an enormous branding and P.R. engine, and it's
central to the long-term strategy. By the same token, it seems that if the stock were to crater, it would all unravel in a
heartbeat.
hawn Haynes is an earnest, fair-haired young executive who ran the mile for Yale and worked for I.B.M. before
taking over the Associates Program, through which the owners of more than 200,000 other Web sites earn a small
commission for steering visitors Amazon.com's way. He confides that when he was first recruited by the company, he
had deep reservations. "The barriers to entry seemed too low, and I thought there was nothing to prevent competitors
from copying our site," says the M.B.A. "But then I spent some time reading through the e-mails from customers, and I
was just blown away by how strongly they felt about the company. I decided that there was something going on here that
was truly unique."
The warm and gooey place Amazon.com occupies in the hearts and minds of so many of its customers is the great
equity of the franchise, and that precious beachhead has been won by deeds and words. Some of that affection is just
the natural and deserved spoils for getting there first. On that fateful morning in July 1995, when Bezos, still working out
of a 250-square-foot office beside a Tile Barn, hit the enter key on his Sun Sparcstation computer and hung out his
shingle in cyberspace, no other mainstream retailer had made the commitment to the Internet. "Barnes & Noble isn't
doing this because they wanted to," Bezos points out. "They're doing it because of us. That's just a fact."
Amazon.com did more than show up early. Before going online, Bezos and five co-workers had put in a year of
prepping and testing, and it showed. The site was bright and crisp, with a somewhat stark, uncluttered integrity, a virtual
iteration of Hemingway's "clean well-lighted place," and although most early users were highly computer literate, the site
was so easily navigated that none of that fluency was required. And taking a cue from Apple, they'd strived to humanize
the interaction. "Although technology is providing you with the massive gains and services only technology could provide
-- search engines, etc.," Ayre says, "you shouldn't be aware of the technology."
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