Amazon, with the title being "The Everything Store." On the market, there are many books about Amazon and Jeff Bezos. But this particular book provides a detailed explanation of Jeff Bezos's private life and his company. This book is written based entirely on facts, as the author is an experienced journalist at Bloomberg Businessweek, Mr. Brad Stone. To write this book, he personally interviewed Jeff Bezos many times and also directly questioned over 300 high-ranking executives, both old and new, within Amazon, and collected numerous documents and information.
They interviewed former Amazon employees, and they spoke about Jeff Bezos. At Amazon, if you don't know how to work, Jeff Bezos will eat you alive and spit out your bones. And if you are good at your job, Jeff Bezos will use you like a horse. When Jeff Bezos's wife bought this book to read from the Amazon website, she said, "These employees are exaggerating. In truth, Jeff Bezos is not as cruel a person as those employees have said." This book provides a clear and in-depth explanation of Amazon because when the book was written in 2013, Amazon was valued at about 100 billion dollars. This book writes about strategic planning, business models, and important decisions of Amazon that helped the company find its correct business model and grow remarkably fast. It's worth noting that Amazon only started making a profit in 2018. It lost money for almost 20 years after the company went public (IPO), selling shares to the public since 1997.
Today, Amazon is the second most valuable company, after Apple Inc. When talking about Amazon, one cannot forget Jeff Bezos. These two are inseparable elements. Amazon's original gene was selling books, and Jeff Bezos himself has recommended many books for people to read. Below, we will talk about the important contents of this book: what is Amazon's history, and what right and wrong decisions did Jeff Bezos make that led Amazon to stand where it is today. Jeff Bezos's life is very different from some entrepreneurs who have bitter histories. Jeff Bezos's life was not that difficult. In 1986, Jeff Bezos graduated from Princeton University. At 29, he became an executive vice president at a financial firm on Wall Street. The founder of the financial firm he worked for was named David [Shaw]. He had a Ph.D. in computer science from Stanford University.
At that time, computer use was not very widespread. People working on Wall Street used phones to send messages from one department to another, and when they received calls from customers, they had to use paper to take notes. When a stock went up or down, they would shout across the office. David, the company's president, used his knowledge to write a program that allowed them to execute stock trades with much higher efficiency. David made a lot of money from this program. One time, David talked with Jeff Bezos. He said, "Computers can be used in the financial sector. What about other sectors? For example, creating a platform to buy goods online." David just said it casually, but Jeff Bezos didn't just listen and forget. He went to do market research. After the research, he thought it wasn't feasible because not many people used the internet widely back then. But the starting point was that opening an online sales platform was a great idea.
He understood that even though not many people knew how to use the internet at that time, in the future, it was likely that more and more people would use it. As he thought, it wasn't long before millions of people were using the internet to find information online. If you sell too many things online, it's hard to find suppliers. But if you sell only one thing, it might work. Jeff Bezos thought and thought and realized that selling books online was a good idea. Because books are not very different from each other; buying them anywhere gets you the same product. And the size of books is small, making them easy to ship. Importantly, selling books online would surely have many supporters because there are all kinds of books they can choose from. Therefore, Jeff Bezos decided to open an online bookstore. Later, he went to David to resign from his position to start his own business in the entrepreneurial way. David said to Jeff Bezos, "Starting your own business is not easy.
Here, you already have the position of Vice President. Think about it again." Jeff Bezos returned home and considered for a while. Later, in an interview with Jeff Bezos, he gave a piece of advice: "In life, when you make a decision, you might have regrets. However, when you make a decision, you must choose the path that makes you regret the least later on." Jeff Bezos imagined, "If I am 80 years old now, I probably won't regret giving up my job and salary on Wall Street. But for sure, I will regret it if I miss the opportunity to create an online bookstore." After thinking it through, Jeff Bezos decided to leave the company he worked for to venture into entrepreneurship. Jeff Bezos didn't work on Wall Street for long, but he had the blood of Wall Street in him, a place full of competition and where the top people in the world reside. Especially, the fact that his company placed high value on technology had a very strong influence on Jeff Bezos.
Amazon didn't just put books for sale online and that was it. What was important was that they abandoned traditional ways of thinking and selling, making a complete change in the model and habits of ordering goods from offline to online. Another thing, Jeff Bezos used to work on Wall Street. He saw that most companies there focused on profit. But he understood that profit is just a short-term dividend. If you want the company to go a long way, free cash flow is what a new startup needs the most. We take revenue minus expenses, the remaining profit, we don't immediately distribute dividends to shareholders. To maintain life and ensure the company's operations run smoothly, we need to have a healthy cash flow. Jeff Bezos not seeing short-term profit is just a way of saying it to sound nice. When Amazon went public (IPO) in New York, the founder wasn't even stable. The internet economic bubble of 2000, the price of Amazon's stock fell by up to 80%. But Jeff Bezos spoke to shareholders with confidence, saying, "Even though the stock price has fallen, all of you should not panic. Our cash flow and financial situation are very good.
We have money saved." From 1997 to 2015, the price of Amazon's stock increased by more than 600 times. But for those few years, the company never made a profit. Jeff Bezos played this trick, could the market accept it? At first, it couldn't. The company wasn't making a profit, yet the company's stock price kept rising. But Jeff Bezos knew how to lead a new startup. Even though he didn't pay much attention to the company's value and short-term profit, every year, he always wrote a letter to his shareholders, reporting on the company's situation and future plans. What is interesting is that in the letters Jeff Bezos wrote to investors for over 20 years, he always attached the first letter he wrote to the shareholders of Amazon back in 1997. He did this because he wanted all shareholders to understand that his goal had not changed from the beginning. In the very first letter that Jeff Bezos wrote to shareholders in 1997, what did it say?
Let's open it and see together. I'll read a point that Jeff Bezos wrote: "If you want to see a good financial report, I can't do it. If you really want me to choose one between the two, between a good-looking financial report and a healthy cash flow, I think we should focus on cash flow." Let's go back to Jeff Bezos's story in 1994. After he quit the financial firm, he started creating the Amazon website. Although Amazon was just launched, this website sold many books, more than any library in the world. But Amazon had no inventory warehouse. When an order for a book was received, the Amazon team would run to the publishing and distribution centers to buy the book, then send it to the buyer through Amazon. It took a week for the buyer to receive the book they ordered. But people still bought because buying it outside was expensive. On Amazon, it was sold cheaper. Hold on, let's think about this for a moment. Buying books from distribution centers and then selling them at a discount to online buyers, no matter how you calculate it, you don't make a profit. If there's any profit, it's not enough to cover the labor costs of the employees who run to buy the books and the shipping costs. Rest assured, Jeff Bezos found a way.
At that time, publishing and distribution centers stipulated that buying 10 copies or more would get a special discount, a discount of up to 40%. After Amazon received an order, they would run to buy 10 copies from the publishing and distribution center to get the 40% discount, and then sell it at a 20% discount to their customers. With this business, Jeff Bezos made a 20% profit. Every book sold on Amazon made a 20% profit. The problem was, they ordered one book, but Amazon went to buy 10 copies. What about the other nine copies? Who to sell them to? Jeff Bezos had already thought this through. Although he bought 10 copies, Jeff Bezos only paid them for one copy. Because the distribution center stipulated that buying 10 copies gets a 40% discount, but it didn't say that you have to buy 10 copies of the same book.
You can buy different books, right? So when Amazon received an order for a specific book, they would go to the distribution center, pick the book they ordered (one copy), and for the other nine copies, they would pick books that were out of stock. Therefore, even if they bought one copy, they could still get a 40% discount because the other nine copies were out of stock. It was the distribution center's problem. What can you do if it's out of stock? So when Amazon first started its business, it had no money. Jeff Bezos used this method to allow Amazon to survive for a while. Three months later, most of the American public knew about Amazon. It was the online bookstore that sold books cheaper than anyone else in America. Everyone knew about Amazon. Not many months later, Jeff Bezos thought of something else.
If someone recommends a friend to buy a book on Amazon, they will receive an 8% commission. This tactic was later used by many e-commerce companies, which they call an "affiliate program." This is how Amazon received twice as many orders. Later, Jeff Bezos understood that selling only books doesn't make much profit. What other things could be sold? Jeff Bezos decided to open an online store with all kinds of goods. He expanded Amazon into an online shopping platform where all kinds of goods were sold. He started raising venture capital, expanding warehouses, and finding more staff. At this point, problems arose. Before, they only sold books. Later, they expanded to everything. The number of orders increased, and the inventory management system and shipping started to have problems.
Before, the warehouse only had books. Books have similar sizes, are easy to pack, and easy to ship. But when they started adding more product types, from refrigerators, rice cookers, shoes, bags, etc., everything was there. Packing and shipping started to face problems. Just finding the items that were ordered to pack them took two to three days. Because Amazon's inventory management system was arranged like Walmart, which is the largest retailer in the United States. Walmart uses this inventory management system because they supply goods to stores. They unload goods from containers and send them on to smaller stores, and that's it. But Amazon is an online retail platform. Most buyers are individuals who need goods shipped to their homes. There are many orders, but the quantity is small. Because they buy for personal use, not to resell.
Therefore, when there are many orders, the shipping cost is high and it's easy to send the wrong items. As more and more orders came in on Amazon, the problems became more and more serious. Packing and inventory management became more and more chaotic. For instance, there was a time when an incident happened. In the employee attendance tracking system, everyone was coming to work normally. But there was one employee who was never seen. For two or three months in a row, nobody knew where he was. Nobody knew how that employee came in and out of work. Later, it was found that he had created a room for himself, sleeping and eating in the warehouse. He had food, drinks, a mattress, a pillow, everything was stolen from the Amazon company warehouse. Of course, Jeff Bezos couldn't tolerate such activities. There had to be action. If Amazon had 200-300 people like him, Amazon would surely be ruined. So he started installing security cameras, cutting employee salaries, increasing working hours, and finding more staff. But the problem was not from the people; it was from the poor management system itself. Putting pressure on employees like this was not right, and it also made employees dissatisfied and discouraged. This is why at the beginning, the old employees who used to work at Amazon talked about Jeff Bezos, saying: "If you know how to work, Jeff Bezos will use you like a horse."
This matter was so serious that there was a time when an employee secretly set fire to the Amazon warehouse. Of course, expanding without a clear direction could not possibly allow Amazon to travel a long way as Jeff Bezos had planned. A book that helped straighten Jeff Bezos's direction to expand Amazon successfully is the book "Good to Great." We has also summarized it for you, with the title "Great Companies," which is a masterpiece by James C. Collins. One day, Jeff Bezos invited James C. Collins to train within his company. Jim said, "Amazon is like a giant wheel. When it first starts moving, it's hard to get it to move forward. And it requires a lot of strength. But as long as you push with all your might, once it starts moving, it gets easier and easier. Then, it will turn on its own, no longer needing to use as much force as before." Jeff Bezos understood and thought of a strategy: using low prices to attract customers. More customers mean more sales. More buyers mean more sellers. More sellers mean more products. The company gets bigger, and orders will increase. And then, the cost of shipping will be lower.
When there are more users, Amazon will have more bargaining power to negotiate prices with sellers, making the prices on Amazon even cheaper. This strategy is like a giant wheel that moves forward due to many small interlocking chains and gears, pushing Amazon, which is this giant wheel, to move forward bit by bit. This strategy is called "The Flywheel Effect." The question is, how to encourage users to buy things on Amazon? A famous quote by Steve Jobs you've probably heard is, "People don't know what they want until you show it to them." Therefore, entrepreneurs have to secretly create an amazing product for them to use, then they will exclaim, "This is what I need!" It means that the users' ideas are not very important because they don't know what they want. But Jeff Bezos understood that "the customer is king." If you want them to buy our products, we must first study their needs. Reading to these two billionaires, you might be dizzy. If you read a little, you will see the different views between the two. But looking at it more deeply, you need to know that Steve Jobs was a phone manufacturer, selling computers.
Of course, he had to create a product that people couldn't imagine for users to use. If you ask users, they will probably say they don't know what they want. But Jeff Bezos created an online sales platform. Designing the website, studying customer needs, is indispensable. When buying things online, people will probably ask two or three questions. Is the price expensive? Are there many products? Is the shipping fast? Answer these three questions, and other things are just additions. Therefore, Jeff Bezos worked on the three most important things: low prices, a large selection, and fast shipping. To answer these three principles, Jeff Bezos introduced two other services: Amazon Prime and Amazon Marketplace. Let's talk about Amazon Prime. As long as you pay Amazon $119 a year, you will get free shipping when you buy items on Amazon. And they guarantee two-day shipping. Not only that, you can read millions of e-books for free that are available in Amazon's e-library. This idea sounds great, but as we already know, at the beginning, the shipping and inventory management system of Amazon could not meet such demands.
So later, Jeff Bezos invited a man named Jeff Wilke to solve the shipping problem. This man had high expertise in management that could make Amazon have high work efficiency. Let's see what this man did to help Amazon grow. When you go to a supermarket, you've probably seen how they arrange goods. They arrange goods by category. For example, kitchenware is in one section, beverages and snacks are in another section, and meat, vegetables, and fruits are in separate sections. We just push the cart, find the items we need, and take them to the checkout. It's easy, not difficult to find. Initially, Amazon also arranged its warehouse like this. When an order was received, the team would find the items that were ordered by category, just like in a supermarket. But imagine if a customer ordered one book, one bottle of red wine, and one bar of soap. The packer would probably spend a long time finding the items they ordered. Because Amazon's warehouse is very large and has many different types of products, doing it this way is not efficient. It takes a long time and a lot of labor. When Jeff Wilke came in, what did he do? It's very simple. He arranged the items according to the frequency of orders. He put the items that customers ordered frequently nearby, and he arranged them according to the order data to make it easy to pack and send out.
Does doing this require technology? No, it doesn't. There's no technology involved. It's just a simple idea, but it's effective. Another thing Jeff Wilke did was to use technology to arrange items in the warehouse, which is to use barcode scanning machines. Nowadays, this is not strange, but in the past, only Amazon used this technology first. Before, an employee had to walk about 30 kilometers a day, back and forth in the Amazon warehouse, just to find the items that were ordered to pack and send to customers. But now, they have a barcode scanning machine, which is much easier. They just put a barcode on the product, and when there's an order, for any product, they just enter the barcode into the system, and they will know immediately in which block, on which shelf, and at which position the product is. Work efficiency increased 6 times. Another thing, Amazon uses Big Data to predict the habits and orders of users. Based on user data, orders, or what you click on, Amazon will send product information that you might be interested in to your homepage to make it easy for you to see. Or they can send it to a warehouse that is closest to you in advance.
When there is a demand for an order, they will send it to you in the shortest possible time. Due to improving the efficiency of shipping, distributing goods, and using Big Data, Amazon was able to achieve its goal of providing VIP service to over 100 million Amazon Prime members. Just from this membership revenue, Amazon can earn a net profit of 10 billion dollars annually. Moving on to the second service that Jeff Bezos introduced, which is Amazon Marketplace. At that time, Amazon acted as a third-party platform that allowed people with goods to sell them on Amazon as well. Before, Amazon sold its own products. Now, Amazon allows others to list their products to compete with itself. Why did Jeff Bezos think like this? Jeff Bezos is not stupid. He knew for sure that the more sellers there are, the more diverse the products will be. The more users there are, the more valuable Amazon Prime membership will be. Therefore, he not only allowed them to sell, but to maintain good service and fast shipping, Amazon also provided additional services to those online sellers, including renting warehouse space, packing, and shipping services.
The sellers just had to do customer service and wait to receive money. Amazon did the rest. Doing this not only provides good service and special prices to Amazon Prime members, but what's important is that Amazon has more bargaining power to negotiate prices with suppliers. Because only by listing on Amazon can you sell to people all over the world. There's a saying that if you sell on Amazon, sooner or later you will die. But if you don't sell on Amazon, you will die right now. Because before, online sellers on Amazon could set their own prices. But later, Amazon kept forcing sellers to sell at lower prices until they made no profit. Because there are many sellers and the competition is getting more and more intense. If we say that Amazon Prime helped Amazon provide a seamless experience in ordering goods online, paving the way for Amazon Marketplace, we can also say that Amazon Marketplace has proven the grand vision of Jeff Bezos.
Because he created a huge infrastructure that allows people in the world to start an online business and sell to every corner of the globe, changing the face of Amazon from a large private company to a global online sales empire. But to achieve such a big ambition is not an easy thing. Jeff Bezos didn't stop there either. In 2003, he started a secret lab called 126. The number 1 stands for the first letter of the English alphabet, which is A. And the number 26 stands for the last alphabet, which is the last letter of the word Amazon, which starts with A and ends with Z. You probably guessed right about a very famous product of Amazon that came from this lab. It's the e-reader device, the Amazon Kindle. The creation of the Amazon Kindle was not a coincidence.
In the same year, Steve Jobs was secretly creating the iPod. Jeff Bezos thought that Steve Jobs had already put tens of thousands of songs into the iPod. If he was just a little late and didn't put tens of thousands of books into the Amazon Kindle, this market share would be taken by Apple. Then, it would be too late to regret. Later, Jeff Bezos really did it successfully. The launch of the Amazon Kindle not only did not affect the sales of paper books for Amazon, but it also helped Amazon attract many new customers. Today, the Amazon Kindle sells an average of 1 million units per week. As we all know, Amazon is a website that sells millions of online products. These data are stored on hundreds of thousands of server machines. Jeff Bezos thought, if we are already building servers for our own use, why not build more to rent out to others? Wouldn't that be good? Therefore, in 2003, Amazon launched Amazon Web Services, which we call AWS.
Jeff Bezos's prediction about the vastness of internet usage around the world was not wrong. Now, wherever there is electricity, there is internet. Up to now, there are many big tech companies that use Amazon's servers, such as NASA, Oracle, Netflix, Adobe, etc. Even the application you are Reading to right now, also uses Amazon's servers. Competing partners that provide similar cloud computing services include Microsoft, Google, IBM, Alibaba, etc. But these few combined do not even equal half of Amazon's market share. The growth of the Amazon Marketplace program, the increase in online shoppers on Amazon.com, and the provision of data storage services on the internet (AWS) have made Amazon's business in the world grow and grow. Most businesses in the world depend entirely on this company. And these businesses are controlled and managed very well by Amazon. Therefore, it makes this company difficult to be copied, or you could say that it's unlikely there will be a second company to replace Amazon's position.