Well, since I got stuck in the overflow simulcast room, and then he barely showed up to the reception afterwards, I didn’t get to ask him anything—so I figured the least I could do was take some notes on the talk, which was pretty cool.

—joshwa

A Chat with Jeff Bezos

Apr 15, 2008
NYU Stern School of Business
Interviewer: Keven Maney, Contributing Editor, Conde Nast Portfolio

[ed note: missed first 5 mins of talk]

On being methodical in decision making:

Decisions that can be made with math are great—there’s a right answer
mistake—thinking that you’re right, when the error bars on your data are huge

on amazon prime: math says not to do it
sure that the people who will pay for 2-day shipping already will love it and use it heavily (at an all-you-can-eat buffet, heavy eaters show up first)
try to simplify the decision by asking simple question: which would be better for the customer

3rd party sellers program
small sellers all the way up to target
giving up retail real estate to competitors

example; digital camera buyer has $10k worth of inventory, aging fast, and we’re showing a competitor’s lower price, and helping them get rid of their inventory first?
hard to analyze—short term answer is different than the long term answer
the right answer is almost always what’s best for the customer

q: trying little things first—the reason for growth?

no, both small and large scale innovations
large: e.g. 3rd party business
kindle is not incremental
EC2/S3/etc not incremental

incremental innovation is at least as important
also, there is a spectrum (not just two buckets)
middle example: customer reviews
letters from publishers: you make money when you sell things, take down negative reviews
response: we make money when we help them make purchase decisions

“being a pioneer means being misunderstood”

used books controversial

very short term interests aligned with publishers
short term on used books misaligned, but long term aligned—growing the pie

really fine-grained innovations—important:
efficiency, defect rates in fulfillment centers
add up year after year

q: one innovation that fell flat: A9

being bold with experiments (shareholder letter 1999)
“if you know they’re going to work, they’re not experiments”
“if you only do things you know will work, you’ll leave a lot of money on the table”

“Customer-first orientation requires that investors take a long-term perspective”
Long term, customers and investors interests are aligned
If you’re a short term investor, you ask “why can’t you increase your margins this quarter”
Enables things likes super saver shipping and amazon prime

If you want to have long-term shareholders, you have to act like it
“you get the investors you deserve” -buffett
“short term, market is slot machine, long term is a weighing machine” – graham

q: why is amazon still growing (i.e. last year)?

• selection
• convenient fast delivery
• low prices

lowering prices is easy, being able to afford to lower prices is hard!
lots of fixed costs, so scale helps

amazon investors plant seeds, wait seven years for trees
big company inertia.. disdain for starting new businesses(seeds that will grow into trees)—objection—it’s a distraction
everything starts small—don’t look at absolute numbers—look at growth rates, adoption
only do things that have POTENTIAL to grow into significant businesses

a9 licensed from google, new interface, they thought it was great, but no one really cared
consumer facing ideas—have to take it to market… sometimes they’ll like it, sometimes they won’t care

q: worried about economy? opening new fulfillment center, hiring 500 new employees

about to announce q1 results.. can’t say much
had a great q4!
not a good leading indicator for the economy as a whole (haven’t been through enough cycles)

q: where will growth come from in soft economy: other brick and mortar stores?

unlimited market size! $100b companies still have single-digit market share
any growth has to be earned from fundamentals
are your customers loyal? right up until the point somebody else offers better service

is a “change junkie” – rate of change in internet space is just as much as it was 13 years ago

q: kindle.

pitch blah blah blah

trying to increase manufacturing capacity

q: numbers?

not going to answer that.

“substantially exceeded our expectations”

more kindle pitch.

comparing kindle to gutenberg—bringing change to distribution of written material
book hasn’t changed in 500 years – awfully difficult to improve upon – never the less, 3 years ago… (laughs)

1 feature of a book – it disappears (when you’re reading, you don’t see glue, binding, etc—you’re in the authors world)

trying not to get too literal with emulating phyiscal features of books (electronic book signings?)
must play to new media’s strengths (what can new thing do that old thing can’t?)

had to replicate essentials from old media (display w/o eyestrain, ability to shift hand position without it getting too warm or sweaty)

things that could never be done in old media: look up any words in dictionaries (once you’re used to it, it’s hard not to use it), change font size (e.g. on treadmill), storing margin notes on server side
broadband without monthly service plans – customers hate contracts, $40/month for data plan
charging less for e-book than regular book (cost of wireless transmission built into content cost)

q: you built kindle to get out of shipping and warehouses etc. would rather be in electronic business?

hope kindle is a good business—
we love shipping products because we’re really good at it. hard for other folks to replicate at the scale and efficiency that we do it.

re: you’ve never done hardware before
easy to extend business along competencies
kindle not core competencies
if unwilling to learn new skills and competencies as a company, eventually you will be outmoded
look at current customers—what do they need? customer-needs-focused form of strategy generation
vision—integrated service (any book, anywhere)—better get moving on that
“if you want new skills and new competencies, you have to get started”

q: music—CDs: a disappearing business

long-term it doesn’t make sense for music to be sold on physical media
transition in process (7 years so far)
it makes sense for music to be downloaded

q: MSFT/YHOO: mean anything to amazon?

no.

q: web services

4 years in development
first launch 2 years ago S3
rarely meet a startup that isn’t using AWS

q: google appcenter?

have a practice of not talking about other companies

not going to be one winner—multiple winners providing multiple flavors

AWS will be part of an important industry—rarely build an important industry with just one company

q/a session:

q: digital music sales good. comment digital video sales?

biggest competition for digital video is DVDs still a really good alternative
as we go to HD, where file sizes are even bigger, physical distribution still has life left in it
we should still be experimenting with it
experimenting with stuff now that we can’t share with you yet
long term very exciting, right now physical media makes sense

q: was amazon late to digital music sales?

there’s a very large player in that space, and they’re doing very well (which company is that? I’m not sure ;))
we didn’t want to launch a music services that wasn’t an mp3 music service
the ipod has such a significant share
envisioning bullet points to customers
if it was DRMed, the last bullet point would have to be “oh, and it doens’t play on your ipod”
many companies that threw themselves against that wall

we had to in a cooperative way, the music publishers be willing to do it in mp3 format, and that takes a long time. they had to come to the decision on their own terms. onus on us to convince them

q: how do you incent employees to do innovation?

helps that they have success stories
selection of people –
corporate cultures are stable, self-perpetuating: the people who are already there reject others like a healthy immune system
close following is a perfectly acceptable business strategy—let others go down blind alleys, and when someone finds something, double down on it
doesn’t work that well in a fast moving industry
also, it’s boring!

q: helicopter crash, near death experience—how has it influenced you

never been asked that in front of audience
many years ago—lots of distance
one change: I no longer fly in helicopters. I looked into the statistics—it’s not good. fly in fixed-wing aircraft whenever possible!
no big change – it was traumatic… makes you pause, think if you’re doing what you love.. but for me, I was already doing what I love, the answers were all yes.

q: naming kindle

naming a difficult process
hired a naming company, came up with hundreds of names, process so subjective
a little magic in the process, resonates, is a mnemonic.
kindle: starting fire, starting something new (more reminiscent of book burning?)
single-breasted female lawyers? (no idea what that joke was about. -ed.)

q: philanthropy? what are you going to do with your money?

i don’t know
parents running bezos family foundation
focused on running amazon
has some ideas
lottery ticket—no idea how much planetary alignment required for amazon to have happened
early decisions—boneheaded, but by luck turned out right anyways