14 May 2021 – “I wonder what unit profitability was in 2017 without advertising?”
That seemingly mundane question, posed by Jeff Bezos during a meeting of Amazon’s senior leadership team, won’t get as much attention as other details from business journalist Brad Stone’s new book, “Amazon Unbound”, especially not when compared to revelations about the billionaire’s relationship with a helicopter pilot, and his ensuing battle with a supermarket tabloid.
However, the story illustrates a key takeaway from the book: Even as he pursues far-flung interests and prepares to step down as CEO, Bezos remains Amazon’s master architect, able to reshape entire businesses with a single question.
Looking at the numbers, Bezos recognized that an increase in Amazon’s advertising revenue was masking problems in its core e-commerce business. As Stone writes, this led senior leaders on Amazon’s “S-team” to scramble to find the answer, ultimately confirming that e-commerce unit profitability was declining.
This caused a fundamental change in Amazon’s approach, leading to cutbacks and a renewed focus on profitability that ultimately helped to boost the company’s stock price and market value, now hovering at more than $1.6 trillion.
“This moment reflects a fundamental truth to the Bezos method of business-building,” Stone explains on GeekWire’s Day 2 podcast. “He’s willing to make these long-term bets, to plant these seeds, to wait them out for seven or 10 years. But when they get that old, he wants them to produce on their own.”
This story runs counter to the popular theory that Amazon is willing to use profits from one part of its business to subsidize money-losing businesses in perpetuity. In that way, it could provide fodder for Amazon’s defense in antitrust battles.
On the other hand, Stone concludes, Amazon’s ability to overcome its missteps shows it’s “getting perilously close to invincible.”
That’s what he writes after detailing Amazon’s search for a second headquarters, or HQ2. Stone uses diligent reporting and inside sources to shed new light on that process, the creation of Alexa, the changing sentiments of third-party sellers, Amazon’s last-mile delivery initiatives, its response to the pandemic, Bezos’ Blue Origin space venture, and many other topics.
Ultimately, the book asks, “Is the world better off with Amazon in it?”
“Amazon Unbound: Jeff Bezos and the Invention of a Global Empire” is the follow-up to Stone’s 2013 bestseller, “The Everything Store“.
And Bezos’ successor as CEO, Andy Jassy? Will there be a “Andy Jassy era” worthy of Stone’s third Amazon book? In interviews Stone has said he wasn’t sold on the premise of the question: “Is it the Andy Jassy era?” He has said:
“We need to see, because Jeff is becoming executive chairman. He’s talking about staying around to continue to invent. When there’s an S-team meeting that Jeff is in, does Andy speak last, or does Jeff speak last? Does Andy stand up and leave the room as everyone sits in solemn silence, or does Jeff? We don’t quite know. I think Andy’s going to be doing a lot of the stuff that’s not fun, but I really do wonder how far Jeff will go.”
How can you tell when the bullheaded and micromanaging boss who trusts his intuition is just nuts, and when he’s nuts but right? That’s a question I had after reading this book.
In Stone’s telling, Bezos is a font of big ideas, and he badgers staff, nitpicks over details and is willing to devote gobs of time and money to make his visions a reality. That has often paid off with novel and effective technologies like the voice-recognition assistant Alexa and the company’s cashier-less Go convenience stores.
But other things at Amazon have failed or floundered because of Bezos’ relentless pursuit of his ideas. That tendency plagued Amazon’s now dead Fire smartphone (more on that below), and it was a shadow over its Prime Video streaming service and its ground beef made from just one cow.
The company likes to say that everything at Amazon begins with what the customer wants and works backward. But one inescapable conclusion from reading “Amazon Unbound” is how much Amazon is a product of Bezos’ will and his responses to competitive challenges or criticisms.
And it isn’t necessarily easy to diagnose at what point that was good for Amazon, its customers, its employees and the world — and when Bezos’ belief in himself seemingly got in the way. It will be interesting to see what happens now with Bezos gone from his chief executive post.
Stone digs deep into the origins of Alexa and the company’s Echo speakers. In an email 10 years ago, Bezos told his lieutenants that Amazon “should build a $20 device with its brains in the cloud that’s completely controlled by your voice.” He refused to let his vision for this product go, even when the development cost a fortune and the voice technology was badly flawed for years. Apart from that $20 price, Echo and Alexa are just how Bezos imagined.
At other times Bezos’ visions led Amazon down the wrong path. The Fire phone was a bad idea at the wrong time, and its failure was largely Bezos’ fault. In one detail, Stone writes that a staff member had to assure Bezos that, yes, people used digital calendars on their phones. He also insisted on 3-D cameras for the device that were glitch-prone and gimmicky.
The same thing happened with that ground beef. After reading a 2015 Washington Post article about why hamburger patties are often made from tissues mixed from as many as a hundred cows or more, Bezos became obsessed with making a single cow burger that people could buy only from the Amazon Fresh grocery service.
Amazon Fresh did sell single cow burgers — they’re out of stock now — but it wasn’t a world-changing idea as Bezos had hoped. Like the Fire phone, it might have just been a waste of time and energy.
So it is a quandary: when have Bezos’ ideas and his relentlessness to pull them off been helpful, and when have those same qualities led Amazon astray? And has it been good or bad for Amazon to be guided by one person and his obsessions? I think Bezos believes Amazon is in a unique position to do difficult, expensive and big things, and he wants to push against employees’ natural resistance to hard changes. His instincts aren’t infallible, but Bezos has been right a awful lot of times. The countervailing force is that the world’s richest person doesn’t really live among us anymore. His personal taste in burgers and technology don’t always represent the common taste.
Bezos has often said that failures are inevitable and even welcome. They show that Amazon isn’t afraid to try bold things. But while reading Stone’s book, I wondered if Amazon’s failures weren’t always the result of noble swings at big ideas but sometimes because of blind spots: a lack of self-reflection and a corporate culture that resists standing up to Bezos.
Stone writes that many employees who worked on the Fire phone had serious doubts about it, but it seemed that no one was willing to fight the boss. Stone’s book recounts numerous executives who were driven out of Amazon, including some who challenged Bezos or ways in which the company operated.
There may be an alternative version of Amazon that is less reliant on Bezos’ vision and self-assurance. It might be worse, or it might be an even more successful company that’s better for customers, its employees and the world. And with a new chief executive, maybe we’ll get to find out. But I suspect Amazon will continue to be the Bezos show for quite awhile.
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