Wednesday, November 27, 2013

Book Review: The Everything Store

The Everything Store, by Brad Stone, is an account of Amazon's first twenty years. Included, of course, is a biography of the company's founder and guiding spirit, Jeff Bezos. Mr. Stone is a journalist for Bloomberg/Business Week, and has long covered Amazon as a reporter. He interviewed many people for this book, but did not score an interview with Mr. Bezos. For this, and also because he has worked hard to make the book readable, he is criticized by some for not writing an accurate, scholarly account. Scholarly it may not be, but I certainly enjoyed reading it.

Mr. Bezos was born of teenage parents, who divorced soon after his birth. He was adopted by his mother's second husband and took his name. For all that, his was a close family to whom he remains intensely loyal. His maternal grandfather, a West Texas rancher, played an especially important role in his life. Accordingly, today he owns 260,000 acres in the Lone Star state--the home of his Blue Origin space travel enterprise.

Typical of great entrepreneurs, Mr. Bezos is a driven, obsessive guy. Like many children, he wanted to be an astronaut when he grew up, and space travel was his abiding interest as a youngster. But, unlike most he never outgrew that passion. Indeed, as I read Mr. Stone's book, my sense is that Blue Origin is even now Bezos' primary passion, with Amazon simply a way to finance it. He spends one day a week on the rocket business--a lot of time for a mere hobby. It's not just a hobby.

Founded in 1994, rode the dot-com bubble to the top, powered by Bezos' intelligence, energy and drive. He had two principles, both borrowed unapologetically from Walmart--the customer is king, and frugality rules. Like Sam Walton, he was brutal on his partners and employees. Shel Kaphan--arguably a co-founder--was sidelined when it became clear that his management skills were not up to the challenge. Mr. Bezos always hired the right people for the job, and as the job changed, the people changed with it. He's an incredibly demanding boss.

Mr. Stone reports that the company survived the dot-com bust only by a lucky break. They'd made some ill-advised acquisitions in the late 1990s and burned through a lot of cash. Mr Bezos had already demonstrated his aversion to making a profit. By fortuitous timing, the company scored a generous line of credit just months before the crash. Had that not been available, chances are Amazon would have gone bankrupt.

After the bust, to restore credibility with investors Amazon had to turn a profit. And so they did, for a few years, just long enough to be convincing. But as soon as investors were pacified, Amazon reverted to old habits, reinvesting revenues into the business. The company has gone from being a bookstore to an everything store, to a manufacturer of Kindle, to hosting the Amazon Web Services cloud.

Today Jeff Bezos is worth $27 billion, money that is being invested in Blue Origin. It doesn't come from customers, who are offered the lowest possible prices. Amazon competes with Walmart and Best Buy--margins are tiny. It doesn't come from workers. As a profit-free company, there is no way that workers are exploited in the Marxist sense. They are certainly ill-treated and probably relatively poorly paid, but the proceeds all go to customers, not to Mr. Bezos.

So who's the patsy?

Investors believe Mr. Bezos when he says that Amazon could make a profit if only it wanted to. And maybe that's true. Then again... Either way, they've bid the shares up to almost $400, and that is what funds Blue Origin.

I wouldn't want to work at Amazon. I'm probably too old and I never had the energy level. I certainly will never buy stock in the company--if I want to invest in rocket ships I'll do that directly. The only relationship I want with Amazon is to be a customer.

Because then I get to tell Jeff Bezos what to do.

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