May 2019 - The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone

This book is a great deep dive on the history of Amazon and how it became the global powerhouse that it is today.

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The Birth of AWS. We’ve looked at the software transition from on premise, license maintenance software to SaaS hosted in the cloud, but let’s dive deep into how the cloud came to be. The first ideas of AWS go back to 2002 when Bezos met with O’Reilly Media, a book publisher who in order to compete with Amazon, had created a way to scrape the latest book rankings off Amazon’s website. O’Reilly suggested creating a set of tools to let developers access Amazon’s rankings, and in 2003 Amazon launched Amazon Web Services (AWS) to create commerce API’s for third parties. Around this time, Amazon had centralized its IT computing resources in a separate building with hardware professionals operating and maintaining the infrastructure for the entire company. While parts of the infrastructure had improved, Amazon was struggling internally to provision and scale its computing resources. In 2004, Chris Pinkham, head of the infrastructure division, relocated to South Africa to open up Amazon’s first office in Cape Town. His first order of business was to figure out the best way to provision resources internally to allow developers to work on all types of applications on Amazon’s servers. Chris elected to use Xen, a computer that sits on top of infrastructure and acts as a controller to allow multiple projects access the same hardware. This led to the development of Elastic Compute Cloud (EC2). During this time, another group within Amazon was working on solving the problem of storing the millions of gigabytes of data Amazon had created. This team was led by Alan Atlas, who could not escape Bezos’ laser focus: “It would always start out fun and happy, with Jeff’s laugh rebounding against the walls. Then something would happen and the meeting would go south and you would fear for your life. I literally thought I’d get fired after everyone one of those meetings.” In March 2006, Amazon launched the Simple Storage Service (S3), and then a few months later launched EC2. Solving internal problems can lead to incredibly successful companies; Slack, for example, originally started as a game development company but couldn’t get the product off the ground and eventually pivoted into the messaging giant that it is today: “Tiny Speck, the company behind Glitch, will continue. We have developed some unique messaging technology with applications outside of the gaming world and a smaller core team will be working to develop new products.”
A9. In the early 2000s, Google arrived on the scene and began to sit in between Amazon and potential sales. Around this time, Amazon’s core business was struggling and a New York Times article even called for Bezos to resign. Google was siphoning off Amazon’s engineers and Bezos knew he had to take big strategic bets in order to ward off Google’s advances. To do that, he hired Udi Manber, a former Yahoo executive with a PhD in computer science who had written the authoritative textbook on Algorithms. In 2003, Udi set up shop in Palo Alto in a new Amazon subsidiary called A9 (shorthand for Algorithms). The new subsidiary’s sole goal was to create a web search engine that could rival Google’s. While A9.com never completely took off, the new development center did improve Amazon’s website search and created Clickriver, the beginning of Amazon’s advertising business, which minted $10B in revenue last year. Udi eventually became VP of Engineering for all of Google’s search products and then its Youtube Division. A9 still exists to tackle Amazon’s biggest supply chain math problems.
Innovation, Lab126 and the Kindle. In 2004, Bezos called Steve Kessel into his office and moved him from his current role as head of Amazon’s successful online books business, to run Amazon Digital, a small and not yet successful part of Amazon. This would become a repeating pattern in Kessel’s career who now finds himself head of all of Amazon’s physical locations, including its Whole Foods subsidiary. Bezos gave Kessel an incredibly abstract goal, “Your job is to kill your own business. I want you to proceed as if your goal is to put everyone selling physical books out of a job.” Bezos wanted Kessel to create a digital reading device. Kessel spent the next few months meeting with executives at Apple and Palm (make of then famous Palm Pilots) to understand the current challenges in creating such a device. Kessel eventually settled into an empty room at A9 and launched Lab126 (1 stands for a, 26 for z – an ode to Bezos’s goal to sell every book A-Z), a new subsidiary of Amazon. After a long development process and several supply chain issues, the Company launched the Kindle in 2007.
Business Themes
Something to prove: Jeff Bezos’s Childhood. What do Jeff Bezos, Steve Jobs, Elon Musk and Larry Ellison (founder of Oracle) all have in common? They all had somewhat troubled upbringings. Jobs and Ellison were famously put up for adoption at young ages. Musk’s parents divorced and Elon endured several years of an embattled relationship with his father. Jeff Bezos was born Jeffrey Preston Jorgenson, on January 12, 1964. Ted Jorgenson, Bezos’s biological father, married his mother, Jackie Gise after Gise became pregnant at age sixteen. The couple had a troubled relationship and Ted was immature and an inattentive father. The couple divorced in 1965. Jacklyn eventually met Miguel Bezos, a Cuban immigrant college student, while she was working the late shift at the Bank of New Mexico’s accounting department. Miguel and Jacklyn were married in 1968 and Jeffrey Jorgenson became Jeffrey Bezos. Several books have theorized the maniacal drive of these entrepreneurs relates back to ultimately prove self-worth after being rejected by loved ones at a young age.
Anti-Competitive Amazon & the Story of Quidsi. Amazon has an internal group dubbed Competitive Intelligence, that’s sole job is to research the products and services of competitors and present results to Jeff Bezos so he can strategically address any places where they may be losing to the competition. In the late 2000s, Competitive Intelligence began tracking a company known as Quidsi, famous for its site Diapers.com, which provided discount baby products that could be purchased on a recurring subscription basis. Quidsi had grown quickly because it had customized its distribution system for baby products. In 2009, competitive intelligence reached out to Quidsi founder, Marc Lore (founder of Jet.com and currently the head of Walmart e-commerce) saying it was looking to invest in the category. After rebuffing the offer, Quidsi soon noticed that Amazon was pricing its baby products 30% cheaper in every category; the company even tried dropping prices lower only to see Amazon pages reset to even lower prices. After a few months, Quidsi knew they couldn’t remain in a price battle for long and launched a sale of the company. Walmart agreed in principle to acquire the business for $900M but upon further diligence reduced its bid, which prompted Lore to call Amazon. Lore and his executive team went to meet with Amazon, and during the meeting, Amazon launched Amazon Mom, which gave 30% discounts on all baby products and allowed participants to purchase products on a recurring basis. At one point, Amazon’s prices dipped so low it was on track to lose $100M in three months in the diapers category alone. Amazon submitted a $540M bid for Quidsi and subsequently entered into an exclusivity period with the Company. As the end to exclusivity grew nearer, Walmart submitted a new bid at $600M, but the Amazon team threatened full on price war if Quidsi went with Walmart, so on November 8, 2010, Quidsi was acquired by Amazon for $540M. One month after the acquisition, Amazon stopped the Amazon Mom program and raised all of its prices back to normal levels. The Federal Trade Commission reviewed the deal for four months (longer than usual), but ultimately allowed the acquisition because it did not create a monopoly in the sale of baby products. Quidsi was ultimately shut down by Amazon in 2017, because it was unable to operate it profitably.
The demanding Jeff Bezos and six page memos. At Amazon, nobody uses powerpoint presentations. Instead, employees write out six page narratives in prose. Bezos believes this helps create clear and concise thinking that gets lost in flashy powerpoint slides. Whenever someone wants to launch new initiative or project, they have to submit a six page memo framed as if a customer might be hearing it for the first time. Each meeting begins with the group reading the document and the discussion begins from there. At times, especially around the release of AWS, these documents grew increasingly complex in length and size given the products being described did not already exist. Bezos often responds intensely to these memos, with bad responses including: “Are you just lazy or incompetent?” and “If I hear that idea again, I’m gonna have to kill myself” and “This document was clearly written by the B team. Can someone get me the A team document? I don’t want to waste my time with the B team document.” Its no wonder Amazon is such a terrible place to work.

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