"The Everything Store" was such an engaging and fascinating read, I inhaled it in less than 36 hours. (For the sake of my sleep and work schedule, I'm glad books like this don't come along too often.)
As I write this review, Amazon (NASDAQ:AMZN) just announced a partnership with the US Postal Service to start delivering on Sundays for Prime members in key cities. This backs up the best description I have heard of Amazon and its founder - which, amusingly, comes from the blog of ex-Amazon employee Eugene Wei, someone who was not interviewed in this book.
"Amazon has boundless ambition," Wei writes. "It wants to eat global retail… there are very few people in technology and business who are what I'd call apex predators. Jeff [Bezos] is one of them, the most patient and intelligent one I've met in my life. An apex predator doesn't wake up one day and decide it is done hunting."
Stock valuation aside - you either believe or you don't, and as of this writing Bezos is clearly having a messianic moment - "The Everything Store" is an excellent chronicle of Amazon's rise.
In the book - and I don't mean this as a criticism - Bezos comes off as the lead character in an Ayn Rand novel. A real world John Galt or Hank Rearden, with an e-commerce twist. The immigrant step-father who taught him the value of hard work… the maternal grandfather who instilled a deep do-it-yourself attitude… the flashes of extraordinary competitiveness from an early age… the burning desire to conquer space… it all coalesces into a sense of destiny (though, of course, a good portion of this could be narrative hindsight).
Steve Jobs was the last great business figure, the hero entrepreneur of our time. I think that, reputationally, Bezos will ultimately surpass Jobs - leave him in the dust, really - because while, what Bezos is doing is unsexy, the fundamental nature of "hard problems" that Amazon approaches and solves (on its way to eating global retail) is adding to the free market knowledge base at a tremendous evolutionary rate.
One of the most intriguing and powerful things about Amazon, in my opinion, is the sheer logistical prowess of what they do behind the scenes. The coordination of supply chains, manpower, algorithmic decision making, and countless other unseen problems they have had to solve on the way to delivering "everything" in a two-day shipping window is off-the-charts impressive.
To a certain degree Apple accomplished a similar behind-the-scenes feat, in that Apple's masterful ability to implement and coordinate global supply chains made it the most profitable company in the world for a time. But Apple's breathtaking profit margins always had a slightly ephemeral feel to them. You knew that someone (like Samsung or Google's Android) would eventually come along and take a bite of the Apple so to speak… whereas with Bezos's strategy, staking out the hard, grinding, low-nutrient territory of thin margins, the next competitor is going to have to get bloody in the toughest octagon of all (logistics and scale). As Bezos likes to say, "Your margin is my opportunity," which should scare the hell out of any large retailer, perhaps save Wal-Mart (and maybe even Wal-Mart too).
Those who doubt Amazon's business model (myself among them in the past) have been prone to use the "switch flip" criticism, e.g. bullish investors assume Amazon will one day be able to "flip a switch" and become profitable. But I agree with Eugene Wei that this is an overly simplistic characterization of a more subtle process. In reality, Amazon is less like a company with one switch to flip and more like one with tens of thousands of individual switches, each of which can be incrementally adjusted to swing from loss to profit when the time is right. This seems far less fantastical when you picture thousands upon thousands of instances where, say, a 2% margin mark-up creates profit where previously there was break-even, and/or a simple slowdown in the prodigious rate of ongoing capital expenditure spending lets more cash flow spill over into the profit column.
As for the prodigious capital expenditures, Amazon's most recent quarterly revenue figure, as of this writing, was roughly $17 billion. Bezos no doubt foresees the day when that quarterly number will hit $100 billion. On the way there, it only makes sense for him to exploit every inch of leeway he can get from Wall Street - in terms of taking all the money and opportunity he can for long-term investment - with the goal of scaling up the infrastructure to serve and support an order-of-magnitude larger sales base. If investors get loopy with their valuation assessments in the meantime, so be it. The vision is the thing for Bezos… just as it has always been.
But getting back to "The Everything Store," my favorite thing about this book was the brutally honest nature of the flaws and the messiness of Amazon's evolution (and the evolution of Bezos himself) in the first 5-10 years or so of the company's existence.
Through an excellent weave of facts, narrative anecdotes and storytelling, you get a clear picture of how Amazon surged out of the gate in the late 1990s, and then almost choked to death on hundreds of millions of dollars worth of bad acquisitions it made with "bubble money." Many dumb mistakes were made, some deservedly fatal… but Amazon survived them all, and managed to learn from them too.
The evolution of Bezos as a CEO is fully apparent as well. While those who ponder Bezos today are likely to assume he stepped on the world's stage as a wise genius fully formed, in actuality he picked up many of his strong core beliefs along the course of Amazon's existence, learning through intense study of rivals and mentors from afar, like D.E. Shaw (early on) and Sam Walton and Jim Sinegal of Costco.
The book is really a gift for entrepreneurs and business builders of the new generation - like myself, ahem cough cough - in the manner it lays bare the luck, the guts, and the serious mistakes that are inevitably made on the way to forming a world-class enterprise.
The other thing that really came through is the sheer ruthlessness of Bezos. (No doubt this is what got Mackenzie Bezos riled up - what spouse wants to see their husband portrayed as a tyrant?) But as the book points out, there is a reason why so many of the great builders in tech - Gates, Ellison, Jobs and so on - all had that same ruthless character to them. Building and scaling a world-dominating business is hard. As in really, really hard. When you are trying to do something on that kind of scale, with that level of competitiveness, you are not just fighting against cut-throat competitors, you are also fighting against entropy and mediocrity, that pull of ordinary results, ordinary outcome (as opposed to extraordinary) that holds back every ambitious endeavor in the same manner the NASA shuttle is held back by gravity. It takes something special to get off the launching pad, let alone into orbit.
The fact that Bezos can be extremely ruthless, even cold-blooded, in pursuit of his vision, will not gain extra points with much of his audience. (No doubt a reason Amazon itself wants to tone that side down.) But investors should be glad for this trait, and it's a trait that benefits capitalism on the whole too. When a strong player legitimately uses skill and efficiency to best a weaker player in the marketplace, costs are lowered as such that customers benefit, and other businesses can learn from the strong player's pioneering example.
The final chapters of the book showed Amazon at its most ruthless by far. I had no idea the level of wargame strategy that had occurred in the purchase of Zappos. The Quidsi (diapers.com) acquisition was simultaneously even more brilliant and brutal. You do not, not, not want to be in head-to-head competition with Amazon. It is here where I stop and whisper a small prayer of thanks to the free market gods that my own career path does not involve selling commodity-type retail products.
I had reason to examine my own motives as to why I enjoyed this book so much. I am a trader, not a retailer. While I have plans to lead and scale a business to large (perhaps even very large) size, it has nothing to do with traditional retail really. So why was this book so fascinating? Perhaps for the sheer cultural value of what Bezos represents and what he has accomplished. Here is a guy who started out smart, talented and exceptionally bold, and had the chutzpah to act on a wildly ambitious vision and see it through every step of the way. Learning and stumbling as he went, sometimes screwing up royally, but always pulling in the errors and coming back from the brink… having laid the architecture more than a dozen years ago to sustain a vision ten times bigger (or maybe even 100 times).
The broader inspirational lesson from the Amazon story, I think, is the reaffirmation of what's possible when motivated dreamers decide to work harder, work smarter, and break traditional molds all at the same time. You really can execute on a compelling vision. You really can get a team together and, with the help of that team, accomplish a hundred or a thousand times more than you ever could running solo. You really can practice patience and boldness - no coincidence "bold" is one of Bezos's favorite words - and in so doing apply an Art-of-War like strategic nous to flanking and beating your rivals, to the benefit of commerce on the whole. Big and exciting things can be done in this world.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.