In the meantime, of course, HotWired had shown the way to easy money: web content could be subsidized by ads. Unlike HotWired or Pathfinder or Slate, in Yahoo’s case, it didn’t even have to produce the “content” on its site itself. The content was the web! Yang and Filo didn’t want ads to interrupt their directory, but ads around the directory, sort of like the ads around the HotWired articles, might be okay. At the time, Yahoo liked to give the impression that it came to the advertising model reluctantly, but really, there was no other feasible option available to the company. As early as April 1995, soon after the original Sequoia investment, David Filo granted an interview to Advertising Age magazine. Under the headline “A Gaggle of Web Guides Vies for Ads; Yahoo Directory Opens to Sponsorship Deals as Competition Grows,” Filo declared, “Because we are now backed by a third party, there’s pressure to produce. Yahoo will have to become a money-making enterprise. We’re not sure if we want to start reviewing sites or continue to just list sites in a comprehensive fashion, but we are definitely going to integrate advertising into what we do.”32
Yahoo treaded lightly, putting a survey on its home page asking users whether they would countenance ads. The response was lukewarm acceptance. Nevertheless, there were those inside the company who feared that even introducing graphics might fundamentally alter the freewheeling ethos that made Yahoo unique. When the first ads were launched later that month, according to Tim Brady, “The email box was immediately flooded with people badmouthing us and telling us to take it off. ‘What are you doing? You’re ruining the net!’ ”33 The Yahoos held their breath to see if the ads chased searchers away. But the protests quieted down after only a few weeks. The directory was just as helpful as it always was. The users stayed loyal.
Once Yahoo turned on the advertising spigot, it ramped things up rapidly, signing on more than 80 sponsors in less than six months.34 The advertisers and the advertisements would only increase with Yahoo’s growing traffic numbers. By 1996’s fourth quarter, the website could boast 550 advertisers, including many Fortune 500 companies such as Wal-Mart and Coca-Cola. This all led to an impressive 1,300% increase in its revenues, to $19.7 million in 1996. But because the web was growing every day, the company found it literally could not sell ads fast enough. By the end of 1996, as pageviews reached 14 million a day, as much as 75% of Yahoo’s potential ad space went unsold.35 There was simply too much traffic to sell.
Because Yahoo had so successfully branded itself as the Internet’s version of the Yellow Pages, countless brands and retailers jockeyed to purchase valuable real estate on Yahoo’s directory. New dot-com companies would compete viciously among themselves for prominent placement. Amazon.com and CDNow.com could be played off one another to advertise music sales alongside Yahoo’s Music categories. E*Trade and Datek online would sign multimillion-dollar deals just to put online trading buttons in Yahoo’s Finance sections. And it wasn’t just retailers: when Yahoo decided to add news, weather, stock prices and other curios to its directory, it found that media partners such as Reuters were eager to partner and provide content in exchange for a share of the advertising revenues.
“There was a land grab,” a Yahoo marketing executive would remember. Yahoo was perfectly positioned to take advantage as Internet mania took off. “It was no one’s fault, but lots of companies were overinvesting and trying to grow too fast. It’s hard to blame Yahoo for that—but sure, we were right there taking the money.”36 By 1997, the online advertising market neared $1 billion, and Yahoo alone was estimated to control 7.5% of the total.37 Yahoo’s advertising base shot to 1,700 brand clients. These advertisers were chasing traffic that had skyrocketed to an astounding 65 million pageviews per day. And all of this led to a proportionate 257% rise in revenues to $70.4 million.38 Yahoo’s stock rose accordingly, jumping 511% over the course of 1997. The company at that point had a market value of almost $4 billion.
Yahoo was bigger than Netscape. But unlike Netscape, which remained a traditional software and business services company, Yahoo was a web-only company, a web-native company, a company that would never have existed if the web had never been invented.
*Pinning down which one was first is open to debate. For the sake of brevity and clarity we can focus on those that were the longest-lasting and actually led to websites that would become familiar to everyday web surfers.
6
GET BIG FAST
Amazon.com and the Birth of Ecommerce
If the code had finally been cracked in terms of making money on the Internet, then it seems inevitable that people would eventually use the web to sell things. There was more than a century of precedent for doing commerce remotely: the multibillion-dollar catalog sales industry. A webpage could be a more dynamic and effective catalog than what Sears or Lands’ End could offer. And the Secure Sockets Layer technology developed by Netscape made actual transactions possible on the web; no need for 1-800 numbers or customer service reps to take the orders. Indeed, perhaps the longest-lasting legacy of Netscape Navigator setting the standard for the early web is that, to this day, SSL, via its descendant, TLS, enables the vast majority of online commercial transactions worldwide.
But if you were willing to look deeper at the opportunity presented by web commerce, then you could envision even greater possibilities, even greater efficiencies and economies of scale. Just as the newspaper industry dreamed of delivering its product without the need for costly delivery and production expenses, a forward-thinking retailer could dream of a world without the need for costly commercial real estate expenses and perhaps vastly simplified warehousing and logistics costs. To early commerce pioneers, the promise wasn’t that the web would allow them to do something fundamentally different than before—this was still about selling goods to consumers—but that it could radically transform the way they would do it.
Nearly twenty-five years on, this vision has largely come to pass, and in the popular imagination it has come to pass because of one company. Pioneers of new technologies are rarely the ones who survive long enough to dominate their categories; often it is the copycat or follow-on names that are still with us to this day: Google, not AltaVista, in search; Facebook, not Friendster, in social networks. But in a case of the exception proving the rule, the company that broke the most ground in what would be known as ecommerce is still the company that dominates today: Amazon.
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IN 1992, TWENTY-EIGHT-YEAR-OLD Jeff Bezos was the youngest-ever senior vice president at a Wall Street hedge fund company known as D. E. Shaw. One of Bezos’s chief duties at the firm was to help launch new business initiatives. Around 1993, he was tasked with investigating the business opportunities inherent on the Internet. And among the many ideas that Bezos presented, the one that really caught Bezos’s boss’s fancy was the one that D. E. Shaw employees would later remember gained the nickname “everything store.” The idea was simply to harness computer networks and the Internet to be a sort of intermediary between buyers and sellers of every product sold, creating efficiencies and taking a small percentage for the trouble. But Bezos quickly decided that an everything store was a bit too grandiose, and so he instead began investigating product categories that might be suitable as a proof of concept. He weighed roughly twenty different possibilities, including computer software, office supplies and CDs. He settled on books as the best test case because, as Brad Stone put it in his history of Amazon called, not coincidentally, The Everything Store, books were “pure commodities; a copy of a book in one store was identical to the same book carried in another, so buyers always knew what they were getting.”1 This is different than something like clothing, which has all sorts of vagaries when it comes to details like size, cut, shape, and color. Books also had an advantage over something like CDs because, at that time, there were only two major book distributors that every bookseller in the country worked with, Ingram and Baker & Taylor. This compared favorably to the several major and hundreds of minor record labels in the world. And as Stone als
o points out, books have what we would now refer to as a strong long tail: there were three million different titles of books in print worldwide, as opposed to only 300,000 different titles on CD.2 No single store could shelve all those titles. But an online store could. As Bezos himself would later say, “With that huge diversity of products [titles] you could build a store online that simply could not exist in any other way.”3
It seems that in the course of his research, Bezos, like Jim Clark, was bowled over by the sheer growth numbers he encountered. He ran across some data by an analyst who claimed that the amount of bytes transmitted over the web from January 1993 to January 1994 had increased roughly 205,700%.4 As Bezos himself later pointed out, “Things just don’t grow this fast outside of petri dishes.”5
In the spring of 1994, Jeff Bezos left D. E. Shaw and struck out on his own to found an online bookseller. In multiple retellings of this founding story, Bezos has mythologized the moment as the classic entrepreneur’s dilemma. He would be leaving a safe, lucrative career on Wall Street to go off on his own, with uncertain prospects for success. But that was okay. “I knew when I was eighty that I would never, for example, think about why I walked away from my 1994 Wall Street bonus,” Bezos said later. “That kind of thing just isn’t something you worry about when you’re eighty years old. At the same time, I knew that I might sincerely regret not having participated in this thing called the Internet that I thought was going to be a revolutionizing event.”6
The well-worn legend is that Jeff Bezos and his wife MacKenzie packed up their car and headed west, unsure of where they were going, with Jeff typing up a business plan on his laptop as they drove and phoning angel investors along the way on his cell phone. But the truth is, Bezos had already flown out to California to recruit software engineering talent. And according to multiple accounts, he likely knew the destination of his cross-country car trip would be Seattle. His careful research had shown him that Seattle had the advantage of being a tech hub—home to Microsoft of course, and thus filthy with tech talent—and also that it was a six-hour drive from a major warehouse that book distributor Ingram operated in Roseburg, Oregon. Also, Washington State was not nearly as populous as California. No doubt, his research had also led Bezos to realize that a company did not have to charge sales tax unless it had a physical presence in the state a customer ordered from. So, Washington being less populous than California was a major plus. Other locations Bezos considered for the benefits of tax purposes were Portland, Oregon; Boulder, Colorado; and Lake Tahoe, Nevada.
The company that would become Amazon was founded in the summer of 1994 in the garage of the home that Jeff and MacKenzie Bezos rented in Bellevue, Washington, at 10704 N.E. 28th Street.7 Jeff and MacKenzie were the founding employees, along with a couple of programming talents that Jeff had recruited earlier. One was Shel Kaphan, who would go on to write much of the initial structure that would become the Amazon site and who many people thus think of as a cofounder of Amazon in all but title. “When I got there, [the company] was basically not even a business plan on paper,” Kaphan says. “It was a couple of spreadsheets and a verbal description of [the concept]. The garage, which had been converted, was just a not particularly well-heated part of the house.”8
As a Star Trek fan, Bezos originally kicked around the idea of naming his company MakeItSo.com, after Captain Picard’s famous catchphrase. Relentless.com was also considered as a way to suggest that the company would be relentlessly focused on customer service. But that was rejected as sounding too menacing. For a long time, a strong contender was Cadabra, but Kaphan talked Bezos out of that name, claiming it sounded too close to cadaver. Browse.com and Bookmall.com were also rejected, as were the alphabetically advantageous Aard.com and Awake.com. Finally, Bezos himself settled on Amazon. As he would later say, “This is not only the largest river in the world, it’s many times larger than the next biggest river. It blows all the other rivers away.”9 The earth’s biggest river; the earth’s biggest bookstore. The domain name was registered on November 1, 1994.
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IT’S INTERESTING TO REALIZE, given Amazon’s later reputation for warehousing, logistics and fulfillment mastery, that at launch, the company didn’t have the resources for a proper warehouse. Initially, Amazon would take a catalog of available books entitled Books In Print, sent out by R. R. Bowker of New Jersey, bring it online, add some search functionality and allow customers to find the books they wanted.10 Books In Print was basically the industry bible, the source that every bookseller in the country, large and small, used to order titles. When you went to your local bookseller and asked for a specific book to be special ordered, Books In Print was the resource they referenced to see if they could accommodate you. All Amazon did was take this resource, insert itself as the middleman, and take it directly to consumers. Could R. R. Bowker have put Books In Print online itself? Probably. But it didn’t, and Jeff Bezos did. Amazon supplemented this catalog with inventory data from the two major book distributors, Ingram and Baker & Taylor. When a customer searched for a book, Amazon ordered the title itself, took delivery of it temporarily, and then turned around and shipped it to the customer.
In the spring of 1995, Amazon conducted a semiprivate beta test among friends and family. Almost right away, Bezos and company discovered that the promise of “every” book in the world was enticing to people. The first orders to come in weren’t for the latest bestsellers, but for obscure titles that might not be carried at your average bookstore. The first-ever order of the beta test, and thus the first-ever Amazon order, was from a former coworker of Shel Kaphan named John Wainwright, whom Kaphan had invited to the beta test. Wainwright ordered the book Fluid Concepts and Creative Analogies by Douglas Hofstadter on April 3, 1995.
Amazon offered the bestsellers too, of course, and heavily discounted them as loss leaders. But it would be more obscure titles like Fluid Concepts and Creative Analogies that would allow Amazon to create a rabid following among early adopters. The bestselling title for Amazon’s first year of existence was How to Set Up and Maintain a World Wide Web Site: The Guide for Information Providers by Lincoln D. Stein.11
But obscure titles presented problems of their own. Amazon tried to deliver books to customers within a week. Rare finds could take as much as a month to track down. And even then, Amazon still had to order the books, receive them, repackage them, and send them back out to customers. Furthermore, it turned out that distributors required retailers to order a minimum of ten books at a time. During the beta, Amazon of course didn’t have that sort of sales volume. “We found a loophole!” Bezos would later remember proudly. “Their systems were programmed in such a way that you didn’t have to receive ten books, you only had to order ten books.”12 So the Amazon team found an obscure book about lichens that was listed in the system but was regularly out of stock. They began ordering the one book they wanted and nine copies of the lichens book. The book they wanted would ship while the distributor promised to track down more copies of the lichens book.
Many, if not most, of the early customers phoned in their credit card numbers, not trusting the online transactions to be safe. “Some people would even just email their full credit card number to us,” says Kaphan, “as if that was somehow more secure than entering it in a form on the web.”13 To make sure that the orders were secure from hackers, credit card numbers were recorded on one computer, copied to a floppy disc and then physically walked to a second computer, which would batch the transactions. This was known within Amazon as sneakernet. The sneakernet system was eventually retired, but as Kaphan notes, “It was quite a while, actually, before we had enough business to justify a full-time connection to a credit card processor.”14
Amazon was by no means the first ecommerce player to launch; but it had the ambition to incorporate some key innovations the web made possible, many of which we take for granted today. These innovations were meant to show that ecommerce could do things traditional commerce couldn’t. For one thing,
think of the basic user interface of ecommerce: the shopping cart. If users are shopping your site, they might have several things to purchase. You don’t want them to have to begin the checkout process for each item they want to order. You need a virtual place to store the items customers are considering. You want a virtual shopping cart. Amazon popularized this metaphor. From a technical perspective, remembering a given customer from one visit to the next is a useful thing. Amazon remembered what a customer had ordered previously—or almost ordered, before abandoning their cart—so it could store that information and prompt the returning customer accordingly. Again, using cookies, Kaphan and his small team set up the site to change so that once a customer bought a book, it wouldn’t be promoted to them again. Today we’re used to the idea that when I visit an ecommerce site I might see offers for entirely different products than you might, based on our different shopping histories. Amazon was one of the first sites to tailor its storefront individually in this way.
How the Internet Happened Page 11