An Eye On The Future

By JOSHUA QUITTNER

Jeff Bezos loves being on the move. He sits in the back of a white van, beaming as usual, surrounded by an entourage of lanky young lieutenants from Amazon.com the Web's biggest retail store and, someday, if Bezos gets it right, Earth's Biggest Store. The early-morning landscape of southeast Kansas hustles by: wood-frame houses, trailers, motels with lots of pickup trucks in their parking lots, a Kum & Go convenience store, cow pastures and the dull, forever flatness of the prairie. You've heard of places described as cow towns? Coffeyville was actually labeled Cow Town on maps on account of the stockyards here. In the 1860s the name was changed to honor Colonel James A. Coffey, who set up a grand trading post on the frontier, selling stuff to Native Americans.

Today's frontier is hidden from the physical world, burbling and buzzing along the interconnected wires, routers and computers of the Net. But the possibilities for trade are far more fabulous than could ever have been imagined 100--or even 10--years ago. That's where Bezos comes in. His van rounds a corner, passes an airfield, heads down a two-lane road and pulls into a long driveway that leads to the biggest warehouse you've ever seen. The place is known as the Coffeyville Distribution Center, and Bezos (pronounced Bay-zos), who's never been here before, is giggling with excitement. He tells the driver to stop so he can snap a picture of a workman pounding a HELP WANTED sign into the turf. Bezos, 35, a meticulous documentarian, is worried that his life is scrolling by too fast to remember, a life that is so fantastic as to verge on the unbelievable. So he takes plenty of pictures and awful, jittery amateur videos. At the very least, they'll help tell his story to the Bezoses' first child, a boy due in March.

Here in Coffeyville is another piece of the proof that Bezos' early and fervent belief in the Internet--that it would rock retailing, that it would change the way we live--stands as one of the more prescient assumptions ever made by a businessperson. "We're trying to build something lasting," Bezos says, looking at this 850,000-sq.-ft. monument to free trade. The warehouse is stocked with books, CDs, TVs, stereos, video games, software, toys. And yet only 10% of the area is being used. The rest is stretch space, here for the ongoing e-commerce revolution.

BEZOS' REVOLUTION

If all goes according to his daring--some might say outlandish--plan, this warehouse will be at capacity within the next few years and will handle everything: washing machines, cars, rubber gaskets, Prozac, exercise machines, marmalade, model airplanes, everything but firearms and certain live animals. You name it, Amazon will sell it. "Anything," says Bezos, "with a capital A." And that's the point: Jeffrey Preston Bezos is trying to assemble nothing less than Earth's biggest selection of goods, then put them on his website for people to find and buy. Not just physical things that you can touch, but services too, such as banking, insurance, travel.

It's incredibly risky. How elastic is the Amazon brand name? How much can you stretch it until it simply explodes and becomes meaningless to consumers? And how long can the money hold out? Bezos has already burned through a bank's worth of cash with no sign of slowing down. If anything, he's upping the ante--according to estimates, the company's net loss could be $350 million this year alone.

And the e-commerce world has changed enormously since Seattle-based Amazon jumped out to its "first-mover" advantage. There are plenty of second, third and fourth movers to battle. They come in the form of category killers that overwhelm you with selection, expertise, price and service for a given class of goods. Adornis.com is bauble central for luxury items, for instance, and Petopia.com is one of dozens of sites that will shower you and your doggie with selection. On the other side are e-malls such as Buy.com and Shopnow.com Traditional retailers are making the transition to the Web too, and one of them--Wal-Mart--could be letting a monster loose when its new website debuts early next year. And don't forget eBay, the other e-commerce revolutionary. eBay's many-to-many approach to selling--the world is just one big auction--completely opposes Amazon's one-to-many, fixed-price universe. And it's been profitable from Day One.

The sheer number of competitive websites alone will put pressure on Amazon's growth--one reason Bezos is adding categories as fast as he can. During the past year, he's added video games and DVD movies, toys, electronics, software, home-improvement products, auctions and zShops--an online flea market where anyone can sell anything. Bezos says he wants to double his offerings again next year. The company also has minority stakes in other e-commerce companies such as Drugstore.com Pets.com HomeGrocer.com Gear.com and Della.com a wedding and gift registry.

But how long can you build warehouses to the sky and not fill them? Says Scott Sipprelle, founding partner of the investment firm Midtown Research Group: "The chance of a painful failure goes up as they increase the chips on the table. Just look at the metrics. As the company grows in scale, the absolute dollars it's losing are greater and greater: debt is going up, margins are going down and cash burn is increasing."

Bezos, naturally enough, is unmoved by the naysaying because he's convinced that as more customers come to his site, he'll be able to offer the lowest prices. And they will come because Amazon simply does the best job of helping them find stuff. But what if they use his site for research, then go elsewhere for the cheapest price? Bezos has considered that as well. And he has a possible solution: "Membership clubs!" he says. "If you want to see all the information we collect on Amazon--the customer reviews, the professional reviews and use our agenting technology--you have to pay $30 a year." Those membership fees would be used to help drive down the price of items, which would be sold almost at cost. Nonmembers could shop there, of course. They just wouldn't have access to Amazon's rich data and whizzy technology.

Most of the market is betting that Bezos wins and that Amazon emerges from what will surely be massive carnage among Internet retailers over the next few years. During the past two weeks, with holiday sales booming, Amazon's stock price has soared to $94. The stock has split three times. Sales are expected to crest $1 billion this year. "We firmly believe," says Salomon Smith Barney's Holly Becker, "that Wall Street will look back on these growing pains and realize management's foresight in developing one of the smartest strategies in business history."

Bezos & Co. conceived an entirely new way of thinking about the ancient art of retailing, from creating a "flow experience" that keeps customers coming back to Amazon's website to read product reviews or one another's "wish lists," to automating as much as possible a complex process that starts when you hit the patent-protected "1-Click" buy technology and ends when your purchase is delivered to your door. The Coffeyville center, for instance, is part of a nationwide distribution network specially designed to handle e-commerce. Half a dozen warehouses like it have been strategically placed in low- or no-sales-tax states around the U.S.--3 million sq. ft., at a cost of $200 million--and are built to do what traditional warehouses can't do: deliver items directly and efficiently to customers rather than by pallet to retail stores. It requires new ways of thinking about employees--and customers too.

You can see it in each of the distribution centers. Here in Coffeyville, the high walls are painted white, and the endless rows of stock shelves shine in fluorescent yellow--the better to see the billboard-size banners that festoon the aisles and walls. "Our vision," reads one, "is the world's most customer-centric company. The place where people come to find and discover anything they might want to buy online." Another banner floats above one of the aisles and lists the company's Six Core Values ("customer obsession, ownership, bias for action, frugality, high hiring bar and innovation"). It's like the Cultural Revolution meets Sam Walton. It's dotcommunism!

The Chairman himself has been on a Long March for the past five years, and shows no signs of tiring. Bezos is pathologically happy and infectiously enthusiastic. Today's whistle-stop is typical. As usual he's smiling, shaking hands and shocking new employees with his distinctive laugh, a rapid honk that sounds like a flock of Canadian geese on nitrous oxide. He's an average-size man with thinning hair, warm brown eyes and a face that suggests Kevin Spacey with more than a hint of Frank Perdue. His uniform tends to be white or blue button-down shirts with collars that efficiently snap rather than button down. Also khakis. You get the feeling that if he wore a tie (he doesn't), it would fly behind him like the parachute behind a dragster. Even now, as he's supposedly being led on a tour of the warehouse, he's at the front of the line, sailing down a narrow corridor that doglegs and decants into a huge room.

For a heartbeat, he's surprised. Seated there, eight to a row in folding chairs, are the latest recruits: 300 employees leap to their feet as a boss on a p.a. system yells, "Let's welcome Jeff Bezos!" They give him a standing O. "Thank you!" says Bezos. "Let me say, Thank you for working here!" And he laughs that startling laugh.

He climbs a podium and launches into his Six Core Values speech, which is the linchpin of most of his speaking engagements. He always begins with the watchword of his faith: the customer comes first. "Wake up every morning terrified--not of the competition but of our customers."

Lots of hands shoot up during the Q.&A. period. "Bloomberg says Amazon is going to fall flat on its face," asserts one person. Bezos dismisses the comment. "We have a ton of doubters, and the fact of the matter is, we don't try to convince them," he says, pointing out that he will start making a profit when the "cone of opportunity" begins to narrow--that is, when there's no room left for more competitors to enter. The questions go on for 15 minutes. What does your house look like? (It's lovely, and we are amazingly fortunate to live there, he replies, pointing out that until four months ago, he and MacKenzie, his wife of six years, lived in a 900-sq.-ft. apartment.) Just how many items do we sell? (Eighteen million, so far.) He answers them all, patiently and directly, without a trace of defensiveness, punctuated by the laugh. Finally, a woman in the front says, "I have two questions... One, why the name Amazon? And two...can I have your autograph?"

And then a surprising thing happens. The workers in the first four rows start handing up their white hardhats to be signed too. Then a group of workers behind them gets up and encircles Bezos, proffering hats, dollar bills, scraps of paper--anything--for his signature. Welcome to Bezosville, U.S.A.

FROM A TO E

Some people must be genetically predisposed to explore the frontiers. As a child, Bezos adored Star Trek, but it is unclear that he ever made a connection back then to his ancestors, people whose role in life was that of risk taker, exploring the unknown. The family can trace its American roots to the turn of the 19th century, when a colorful, 6-ft. 4-in. character named Colonel Robert Hall moved to San Antonio, Texas, from his home in Tennessee. A sepia-toned photo of him is framed in Bezos' living room and shows the man wearing a bizarre outfit stitched together from dozens of different kinds of animal pelts. The settler favored that multicolored garment in later years. "When he walked down the streets of San Antonio, the crowds would part," says Jackie Bezos, Jeff's mother and the family historian.

Her great grandfather, Bernhardt Vesper, acquired a 25,000-acre ranch in Cotulla, in the southern part of the state. Jeff would spend summers there with his grandparents, Lawrence Preston ("Pop") Gise and his wife Mattie Louise Strait (related to country singer George Strait).

Pop was Jeff's favorite relative. A career government employee, he moved his family to Albuquerque, N.M., where he headed the former Atomic Energy Commission's operations in a seven-state region before retiring to the Cotulla ranch at a relatively early age.

Jeff's mother, as smart, headstrong and pioneering as anyone in the clan, married young and gave birth to Jeff on Jan. 12, 1964, when she was 17. The marriage lasted about a year. Jeff has neither memory of nor interest in his biological father. "I've never been curious about him. The only time it comes up is in the doctor's office when I'm asked for my medical history," he says. "I put down that I just don't know. My real father is the guy who raised me."

That guy is Mike Bezos, a Cuban refugee who moved to the U.S. by himself when he was 15 years old, with nothing more than two shirts and a pair of pants. Taken under wing by a Catholic mission, Mike learned English, toiled at many odd jobs and made his way to the University of Albuquerque. While working the night shift as a clerk at a bank, he met Jackie, who was also employed there, and fell in love. They married when Jeff was four.

Jeff was an exceptionally smart child. Fed up with sleeping in a crib, the toddler found a screwdriver and reduced his jail to its component parts. He constantly built models, worked a Radio Shack electronics kit that Pop bought him down to the nubs and endlessly tinkered with stuff. When he was six, his sister Christina was born; a year later, his brother Mark arrived. When the siblings were old enough to get into Jeff's bedroom, he rigged a buzzer to his door that would go off like a burglar alarm. Later, in what his family has come to think of as the "solar-cooker era"--named after a solar microwave he concocted out of an umbrella and aluminum foil--the garage became his laboratory.

In high school in Miami--his father, an engineer with Exxon, moved the family several times--Jeff became the valedictorian. He didn't drink, do drugs or even swear. People liked him anyway. And almost every summer, he headed for his grandfather's ranch in Cotulla. It was the perfect antidote to the brainy world he inhabited the rest of the year. On the ranch he'd ride horses, brand cattle with a LAZY G, fix windmills and tool around in a 1962 International Harvester Scout. He helped his grandpa fix a D6 Caterpillar tractor using nothing but a 3-ft.-high stack of mail-order manuals. "You have to have a lot of patience on a ranch in the middle of nowhere," he says.

If you ask him today who his heroes were, he names two: Thomas Edison and Walt Disney. The former was a brilliant innovator and a horrid businessman, the latter a good innovator and a great businessman. It wasn't Disney's movies that impressed Bezos but his theme parks. He went to Disney World six times. "The thing that always amazed me was how powerful his vision was," Bezos says. "He knew exactly what he wanted to build and teamed up with a bunch of really smart people and built it. Everyone thought it wouldn't work, and he had to persuade the banks to lend him $400 million. But he did it."

AMAZON'S SOURCE

If you had to pick a single eureka! moment, a time when suddenly everything became clear about what the future had in mind for Jeff Bezos, it was on a May day in 1994. The 30-year-old was sitting at the computer in his 39th-floor office in midtown Manhattan, exploring the still immature Internet, and he found a site that purported to measure Net usage. Bezos couldn't believe it: the Internet was growing at a rate of 2,300% a year. "It was a wake-up call," he says. "I started thinking, O.K., what kind of business opportunity might there be here?"

Thinking up business possibilities, in fact, was Bezos' job at D.E. Shaw, an unusual firm that prides itself on hiring some of the smartest people in the world and then figuring out what kind of work they might profitably do. David Shaw, a former professor of computer science at Columbia University, had been wooed to Wall Street by Morgan Stanley, where he specialized in the arcane field of quantitative analysis--using computers to spot trends in the market. He formed his own company in 1988, initially to carry on that kind of work, but with so much brainpower around the office, it seemed a shame to waste it all on Wall Street. It made sense to pursue other businesses too. During much of his four years at Shaw, Bezos "was sort of an entrepreneurial odd-jobs kind of a person," Shaw recalled recently.

Bezos had graduated from Princeton University, majoring in electrical engineering and computer science. The field was unplanned: he had chosen Princeton for its legendary physics department. Shortly after arriving, however, he discovered that he wasn't the smartest guy in the world after all. He felt outclassed by the physics jocks and gravitated to comp-sci.

His first job out of school was at Fitel, a start-up that was building a network to handle international financial trades. He spent about two years there, worked about the same amount of time at Bankers Trust, then got an interview at Shaw.

Actually, it was one of Shaw's partners who interviewed Bezos first and urged the boss to meet him, saying, "He's going to make someone a lot of money someday." Shaw agreed, understanding that Bezos was unusual not only for his balanced intellect--he could handle complex logic as well as articulate his thinking--but also for the overall package: smart, creative, personable, precisely the kind of person they wanted. Over time, Bezos became a specialist in researching business opportunities in insurance, software and then the booming Internet.

But how to take advantage of that online explosion? The Net had been, until 1994, a largely commerce-free zone. It was created by the Defense Department to keep its network of computers communicating in case of nuclear attack. The system then evolved into a network over which university and government researchers could exchange messages and data across most computer platforms.

The government decided to get out of the Internet business and allow private companies to step in and develop it. Bezos recalls, "I'm sitting there thinking we can be a complete first mover in e-commerce." He researched mail-order companies, figuring that things that sold well by mail would do well online. He made a list of the Top 20 mail-order products and looked for where he could create "the most value for customers." Value, in his equation, would be something customers craved: selection, say, or convenience or low prices. "Unless you could create something with a huge value proposition for the customer, it would be easier for them to do it the old way," he reasoned. And the best way to do that was "to do something that simply cannot be done any other way."

And that's what ultimately led to books. There weren't any huge mail-order book catalogs simply because a good catalog would contain thousands, if not millions of listings. The catalog would need to be as big as a phone book--too expensive to mail. That, of course, made it perfect for the Internet, which is the ideal container for limitless information.

Bezos needed to learn the book business fast. Fate was his handmaiden: the American Booksellers Association's annual convention was set for the very next day in Los Angeles. He flew out and spent the weekend roaming the aisles and taking a crash course in the business. Everything he learned encouraged him. The two big wholesalers for books were Ingram and Baker & Taylor. "So I went to their booths and told them I was thinking of doing this." Books, it turns out, are among the most highly databased items on the planet. The wholesalers even had CD-ROMs listing them. It seemed to Bezos as if all the stuff "had been meticulously organized so it could be put online."

Bezos realized he desperately wanted to start his own online bookstore. First he talked it over with MacKenzie. She too had graduated from Princeton, but six years after him; they met at Shaw, where she worked as a researcher. An English-literature major at the university, she had been novelist Toni Morrison's assistant and now had begun a novel of her own. MacKenzie was all for the adventure.

Next Bezos went to Shaw, who said he was sorry to lose such a talented executive but fully understood Bezos' desire to strike out on his own. He cautioned him to make sure, however, that this was what he truly wanted to do. Bezos decided to spend the next two days recalculating the risks.

In his typically analytic way, Bezos cast his decision in what he calls the "regret-minimization framework." He imagined that he was 80 years old and looking back at his life. And suddenly everything became clear to him. When he was 80, he'd never regret having missed out on a six-figure Christmas bonus; he wouldn't even regret having tried to build an online business and failed. "In fact, I'd have been proud of that, proud of myself for having taken that risk and tried to participate in that thing called the Internet that I thought was going to be such a big deal. It was like the wild, wild West, a new frontier. And I knew that if I didn't try this, I would regret it. And that would be inescapable."

Bezos figured that the average Net start-up had a 1 in 10 chance of success; he gave himself a 30% chance. "That's actually a very liberating expectation, expecting to fail," he says. That's exactly what he told his first investors--family and friends: "I think there's a 70% chance you're going to lose all your money, so don't invest unless you can afford to lose it."

"When he called and said he wanted to sell books on the Internet, we said, 'The Internet? What's that?'" remembers Mike Bezos, who initially questioned his son's sanity when he heard him say he was quitting his cushy job to start a company that would probably fail. But this was Jeff, after all, and his parents trusted him and believed in him every moment of his life. In the end, "we talked about it for two minutes," says Jackie Bezos. They ponied up $300,000, a huge chunk of the money they had saved for retirement. "We didn't invest in Amazon," says his mother, "we invested in Jeff." The ROJ--return on Jeff--was substantial. Today, as 6% owners of the company, they're billionaires.

On July 4 weekend, Jeff and MacKenzie flew out to Fort Worth, Texas, bid goodbye to his family and headed for Seattle--a city near one of the two big book wholesalers and chockfull of the kinds of Net-savvy people he'd need to hire. MacKenzie drove a 1988 Chevy Blazer that Mike Bezos donated, while Jeff tapped out a business plan on a laptop. On that road trip West, somewhere near the Grand Canyon, Bezos called a lawyer who specialized in start-ups. What do you plan to call your company, the lawyer asked. Bezos liked the sound of Abracadabra, but the word was a little long. "So I said, 'Cadabra,'" he recalls. "Cadaver?" repeated the lawyer. A few weeks later, Bezos changed the name to Amazon Inc., after the seemingly endless South American river.

The most important person Bezos hired was probably the first: Shel Kaphan, a brilliant programmer in Santa Clara, Calif., and veteran of a dozen start-ups, many of them, in fact, failures. Bezos persuaded him, over the course of a few months, to join his company in Seattle.

His "company" was headquartered in a modest two-bedroom home that Jeff and MacKenzie rented in Bellevue, a Seattle suburb. They converted the garage into a work space and brought in three Sun workstations. Extension cords snaked from every available outlet in the house to the garage, and a black hole gaped through the ceiling--this was where a potbellied stove had been ripped out to make more room. To save money, Bezos went to Home Depot and bought three wooden doors. Using angle brackets and 2-by-4s, he hammered together three desks, at a cost of $60 each. (That frugality continues at Amazon to this day; every employee sits behind a door desk.) MacKenzie agreed to work with the crew a few days a week, helping out with accounting and interviewing--the latter chore often conducted, cheekily, in a nearby Barnes & Noble.

By June 1995 a rudimentary website had been created on a hidden site www.amazon.com:99 now defunct), and 300 friends and family members were sworn to secrecy and invited to crash-test it. "The first time I saw the site, I said to myself, 'Wow, this is it,'" recalls Shaw. It was simple, functional and wonderful. Kaphan's code was incredibly elegant and streamlined, allowing pages to be delivered without delay.

On July 16, 1995, Amazon.com opened its site to the world. Bezos simply told all 300 beta testers to spread the word. During the first 30 days, without any press, Amazon sold books in all 50 states and 45 other countries. "Within the first few days, I knew this was going to be huge," says Bezos. "It was obvious that we were onto something much bigger than we ever dared to hope."

The company grew and grew and grew. It grew so fast that it surprised him how little he knew. "No plan survives its first encounter with reality," he says. One night, while Bezos was on his knees complaining about how sore he was from packing, he said to a co-worker, "You know what we need? Kneepads!" The employee looked at him like he was an idiot. "What we need," the co-worker said evenly, "is packing tables."

In May 1996, Amazon landed on the front page of the Wall Street Journal. The story did two things: it introduced Amazon to a whole new stream of customers, and it caught the attention of rivals like Barnes & Noble and Borders Group, which hadn't yet moved online. Barnesandnoble.com would appear a year later--just before Amazon's initial public offering, which went off at a modest $18 a share. Never mind that the celebrated venture-capital firm Kleiner Perkins Caufield & Byers was its biggest institutional investor before the IPO. Wall Streeters were afraid of the threat posed by the giant Barnes & Noble, whose national network of bookstores looked unbeatable, prompting George Colony, president of Forrester Research, a prominent technology-analysis firm, to pronounce the company "Amazon.toast." Other naysayers referred to it as Amazon.org"--".org being a domain name reserved for nonprofit companies. But Barnesandnoble.com did nothing to stall Amazon's amazing sales.

The stock began to move too, propelling Bezos' personal wealth into the tens of millions, then into the hundreds of millions. And then, when analyst Henry Blodget, now with Merrill Lynch, said he believed Amazon was a $400-a-share company, Bezos became another Rockefeller. As of last week, his shares were worth $10.5 billion.

Ah, but money... Who cares about that? Bezos has cashed in less than $25 million worth of his stock, but that's enough to live well on, come what may. He and his wife live in a sprawling, single-story modern home in the suburbs north of Seattle.

Bezos is beyond talking about his wealth or whether Amazon will be successful. Instead, he talks about a "nirvana" state of consumer service, in which you'll come to Amazon, and the one thing you've been looking for all your life will be featured on the page that day. You may not even know you've been looking for the thing or that it even exists, but since the site is so familiar with your consumption habits, it knows.

If the world goes his way, Bezos could become even richer than his neighbor Bill Gates. Then what? "At some point," he says, giving MacKenzie a hug as the two of them stand around in the kitchen, "we want to figure out how to do philanthropic work that's highly leveraged. It's very easy to give away money ineffectively. But doing it well requires at least as much attention and energy as building a successful company."

He says the trick to solving some of the world's problems is to think, Amazon-like, in the long term. "Say you want to solve world hunger. If you think in terms of a five-year time frame, you get really depressed; it's an intractable problem. But if you say, well, let's see how we could solve this in 100 years--it's a problem because you'll be dead by then, but the solution becomes more tractable."

"Anyway," he adds quickly, self-deprecatingly, in probably the same way he told people his start-up had only a 30% chance of success, "it'll be a long time before we build a lasting company." And then he laughs and laughs and laughs.