Amazon Unbound

by Brad Stone

  It was a seminally awkward moment. Price and Feinberg were immediately asked to return to L.A. “It was totally upsetting and humiliating. How could it not be?” Price said later. Other Amazon Studios execs jumped on an emergency conference call with Jeff Blackburn, who told them to stay for the conference.

  Behind the scenes, Amazon struggled again with what to do. Blackburn placed Price on a temporary leave of absence while revisiting his loyalty to the person who had initiated Amazon’s foray into original content, hiring and managing a team that had won a haul of prestigious awards. Roy Price had carved a path for Jeff Bezos in Hollywood. Leaders “are right, a lot,” according to the hallowed leadership principles.

  That had been enough for Bezos—until suddenly it wasn’t. There was still no Game of Thrones. Price had also lost the confidence of much of his team; and his social awkwardness and occasional impropriety was off-putting and, in the situation with Hackett, disturbing. Amazon execs had known about that behavior but believed it had been addressed. Could they really support a beleaguered executive in the midst of a widespread cultural reckoning? By Tuesday, Price had agreed to resign.

  In the middle of all this, Blackburn called Isa Hackett to try to make amends. It was now excruciatingly clear that Amazon management, with its predominantly male S-team, had failed to take her charges seriously enough. With the accumulated exhaustion of trying to privately relay a traumatic experience to Amazon’s investigators and, when that failed, having to go on the record in the media, Hackett was overcome with emotion. She started to cry over the phone: “I tried to tell you. And for so many months you had the opportunity to do something about it! You put me in this position, and it caused a lot of pain for my family and me.” Blackburn listened and agreed to her entreaty that he try to use Amazon’s plentiful resources to address pervasive sexism in Hollywood and corporate America.

  A few days later, Blackburn was in Santa Monica talking to groups of Amazon Studios employees. Some demanded to know why Price hadn’t been fired in 2015; others wondered if Amazon was firing Price to distract from its affiliations with other #MeToo characters, like Harvey Weinstein. Price’s few defenders believed he had been scapegoated and noted that under his leadership, Amazon had backed more female creators than any other studio. Blackburn, according to several people who were in the meetings, acknowledged that the situation should have been dealt with sooner but said that new information had come to light. The explanation rang hollow to at least some employees. By the end of that week, Blackburn was trying to bring closure to the entire unseemly episode. “Amazon Studios has been in the news recently for the wrong reasons,” he wrote in an internal email to Studios employees. “We should be generating buzz about the terrific programming we are creating for customers and the new shows we are planning for next year.”

  Price would later seek to apologize publicly and clear his name from Hollywood censure, with little success. “I sincerely apologize for any discomfort caused by my comedy faux pas with Isa Dick Hackett in 2015,” he wrote to me in an email. “I wish Amazon had allowed me to apologize to her then, as I desperately wanted but was not permitted to do…. In any case I truly aspired to nothing but to keep us amused as we all Ubered a few blocks from one party to another.”

  Price’s fiancée quickly left him after the scandal, a few weeks before their planned wedding, and he was expelled from the entertainment industry, his name relegated to the same broad category as sex offenders like Weinstein, Les Moonves, and Matt Lauer. Considering what his grandfather had been through a generation before during the infamous witch hunt for Communist sympathizers, Price saw bitter historical parallels.

  He didn’t expect to hear from Bezos and never did. After all, this was Amazon, where employees were there to produce results, not create personal bonds. After Price was ousted, Amazon installed his deputy, Amazon Studios COO Albert Cheng, in the role on an interim basis, and he started to sweep out many of the original executives, including Joe Lewis, who had helped develop such groundbreaking shows as Transparent and The Marvelous Mrs. Maisel. (Lewis was given a two-year production deal and would produce Fleabag, adding to Amazon’s growing awards tally.) Soon after, Amazon hired NBC executive Jennifer Salke to take over the role permanently and announced plans to finally leave the bland office park in Santa Monica and move into a historic film complex in Culver City—the mansion used in Gone with the Wind.

  A new regime was taking over Amazon Studios. Ironically, many of the shows that the scandal-plagued old guard put into production, like The Boys and Jack Ryan, would turn out to be global hits. Bezos continued to spend heavily on video. Prime Video consumed $5 billion in 2018 and $7 billion in 2019. There was continued debate over the actual return on this investment, though the objections from Amazon’s board and investors were not quite as loud. As rivals like Walmart and Target caught up to Amazon in their ability to guarantee two-day shipping, free media became a more important part of Prime’s bundle of perks. Amazon’s original shows and films also helped to solidify its position just behind Netflix, and alongside Disney, Apple, Paramount, HBO, and other companies in the race to define the future for home entertainment.

  Prime Video was yet another of Jeff Bezos’s big bets over a fruitful decade. By pointing the way for his employees over and over, closely monitoring their efforts, and using his own budding fame to magnify their visibility, Bezos had blazed a path into promising new technologies and industries. Alexa, Amazon Go, Amazon India, Prime Video, and the rest could still prove disappointments relative to their massive investments—or they could set up Amazon to reap new potential windfalls.

  But as a result of Bezos’s immersion in the invention process, he managed other parts of Amazon much less closely—like the buying, selling, stocking, and distribution of products. This was Amazon’s original and largest business, of course. And as the public profile of the company and its impresario continued to rise, the gears of that unrelenting machinery were starting to turn ever faster.

  PART II LEVERAGE

  Amazon: December 31, 2016

  Annual net sales:

  $135,987 billion

  Full- and part-time employees:

  341,400

  End-of-year market capitalization:

  $355.44 billion

  * * *

  Jeff Bezos end-of-year net worth:

  $65.4 billion

  CHAPTER 7 The Selection Machine

  On a rainy Sunday morning in October 2016, a Miami criminal defense attorney named Victor Vedmed was tinkering in his garage when there was an unexpected knock on the front door. Vedmed’s wife and two children were in the living room in their pajamas watching television, so he wiped his hands clean, walked through the house, and answered it. Standing in the humid drizzle were two middle-aged men and a teenage boy. No car was parked out front. One of the men introduced himself as Joshua Weinstein, a former resident of the neighborhood, and was about to introduce his companion when Vedmed had a flash of recognition and blurted out: “I know you!”

  Jeff Bezos greeted Vedmed and conceded that yes, people often recognized him. He explained that he had spent his high school years in Vedmed’s Palmetto Bay house over thirty-five years ago. He and his second oldest son, George, were in town for the day to visit the family of Weinstein, Bezos’s childhood friend whose father had just passed away, and they had walked over in the rain. He asked if they could come inside and take a look around.

  Vedmed was thunderstruck. He had never known that his modest three-thousand-square-foot bungalow was the former home of one of the world’s richest people. “There is a good luck feeling about this house” was the only thing the previous owner had told him when he purchased it in 2009. But his wife, Erica, still sitting on the couch in the living room, didn’t recognize their guest at all. Bezos was familiar to avid followers of business and media news, but perhaps not yet to the general public. She assumed her husband had let in a candidate for local public office and glared at them. Vedmed, fluster
ed by the unexpected situation, failed to introduce their guests or even explain what was going on to his wife and kids.

  Now they were all standing in the foyer. To the right was the kitchen and the high-ceilinged two-car garage, where Bezos and his friends had once built a science club float for their homecoming parade. To the left, down a hallway, were the four bedrooms where Bezos had grown up with his parents and two younger siblings, Mark and Christina. On the far side of the hall was a bathroom with a door that opened to the backyard, which a teenage Bezos had sneaked out of late one night after a verbal altercation with his father, Mike, worrying his mother, Jackie. One of the bedrooms facing the front of the house had been Bezos’s, where he had written his high school valedictorian speech, outlining an audacious vision of orbiting space stations that could take polluting factories off the Earth and turn the planet into a nature preserve.

  Bezos kept looking around, marveling at the changes and what had remained the same. Peering through the sliding glass doors that opened to the backyard, he noticed that the screen enclosure for the pool, common in many South Florida homes to keep out insects, was gone. Vedmed told him it hadn’t been there when they moved in.

  After a few more minutes, the visitors prepared to leave. Erica finally stood up and, still confused, asked George whether he attended Miami Palmetto Senior High School, Bezos’s alma mater. George politely informed her that no, they lived in Seattle and he attended school there.

  The group took a photograph together, memorializing the encounter, and said their goodbyes. Afterward, Vedmed recalled that Bezos was down to earth and sociable. But he would replay those unlikely fifteen minutes in his mind and wish that he had handled the visit more gracefully.

  “I’ll tell you, it’s hard to communicate when you are at such different levels,” Vedmed said a few years later. “It would have been better if I didn’t know who he was.” He was describing the intimidating bubble that surrounds many famous people, distorting the behavior of those around them. With Jeff Bezos getting richer by the day, it was only going to get worse.

  * * *

  To fully appreciate the rise of Bezos’s trillion-dollar empire and the accompanying growth in his personal fortune, we need to rewind the clock to understand the acceleration of Amazon’s e-commerce business and some of the unintended consequences resulting from it. In 2015, Amazon’s domestic retail sales were growing at a respectable 25 percent clip; by 2017, they were increasing at an even faster rate of 33 percent. Amazon was generating more sales, and was more profitable, than it ever had been in its history. Even with more than $100 billion in annual North American retail revenues alone, the hormones of a much younger company seemed to course through its corporate veins.

  Amazon executives explained this as a triumph of their flywheel, the virtuous cycle that guided their business. Once again, it worked like this: Amazon’s low prices and the loyalty of its Prime members led to more customer visits, which in turn motivated more third-party sellers to list their wares on its marketplace. More products attracted more customers. And the commissions that marketplace sellers paid to Amazon allowed the company to further lower prices and invest in speedier delivery for a greater percentage of items, making Prime even more attractive. Thus the fabled flywheel fed on itself and spun ever faster.

  Another way to understand Amazon’s fervid growth as a large company was by its successful pursuit of operating leverage, or growing revenues at a faster rate than expenses. Operating leverage is a little like trimming the sails of a sailboat as it picks up speed. Bezos and his lieutenants on the S-team asked the same questions of the executives in their older, more mature business units: How could they reduce costs in their operations while maintaining sales growth? How could they maximize the productivity of every hour they were getting from their employees? Where could automation and algorithms stem the growth in headcount or replace employees altogether?

  Each year the company would try to get more efficient and improve leverage by even the smallest margin. The resulting changes could make employees’ jobs more difficult. One such project gathered momentum in the summer of 2013, after the release of the animated movie Despicable Me 2. An employee in Amazon’s toys group was apparently enthusiastic about the film and initiated a significant purchase of its licensed merchandise, since in-stock managers in the retail division were manually placing orders for products at the time. This employee’s order included stuffed animals based on the Minions, the film’s Twinkie-shaped henchmen.

  The movie performed reasonably well at the box office, but unfortunately for Amazon, the toys didn’t sell for whatever reason, and ended up sitting on the shelves of Amazon’s FCs, gathering dust. “It was just a thud of a license,” recalls Jason Wilkie, a former in-stock manager in the toys group. “You couldn’t even discount it. Nobody wanted it.” Analyzing the mistake, Amazon’s retail execs concluded that capricious human emotion had interfered with the cool-headed evaluation of the available data, which might have led to a more conservative purchase order.

  The project that emerged was called “Hands Off the Wheel.” Over the next few years, in-stock managers across the retail group were moved to different jobs or booted from the company and replaced by automated systems. Software, not people, would crunch the numbers and place purchase orders. Algorithms might not be able to perfectly gauge demand for cinematic toy licenses, but they could predict the surge of interest in, for example, canine anxiety jackets to soothe dogs before the July 4th fireworks display, or snow shovels before a predicted winter storm in the Midwest, and so on.

  Bezos and his deputies believed that algorithms could do the job better and faster than people. They could even determine where to place the merchandise in Amazon’s fulfillment network to meet the anticipated demand. Amazon also developed systems to automatically negotiate terms with vendors and to allow brands to initiate their own promotions, without any help from Amazon employees.

  Building such systems required a significant up-front investment and added to Amazon’s fixed costs. But over the ensuing years, those expenses paid off as they replaced what would have been even larger, variable costs. It was the ultimate in leverage: turning Amazon’s retail business into a largely self-service technology platform that could generate cash with minimum human intervention.

  The quest for leverage gained momentum in Amazon’s marketplace for third-party sellers and an accompanying service, Fulfillment by Amazon, or FBA. The counterintuitive idea behind FBA was to allow sellers to send their merchandise to Amazon’s warehouses, and to let Amazon store and ship it to customers. These companies still owned their inventory and set their own prices, but their products qualified for two-day shipping to Prime members. Bringing independent merchants onto the site and into Amazon’s fulfillment centers allowed the company to increase the volume of products it pushed through its warehouses and to increase its revenues compared to its fixed costs.

  When Amazon first introduced the service back in 2002, under the name “Self-Service Order Fulfillment,” sellers were wary at the potential loss of control. But eventually many recognized that storing and shipping products to people’s homes was not their strength, while using FBA guaranteed a good customer experience and made their products more visible on the Amazon website. After a few years, products of every size, including hard-to-store items like bowling balls and whiteboards, began to stream into Amazon’s warehouses. “For me, it was a nightmare,” recalled Marc Onetto, a former GE executive and Amazon’s senior vice president of worldwide operations between 2006 and 2013. “These guys were emptying their attics on me. But of course, I realized, we had to make it work.”

  Bezos managed FBA closely during the late 2000s, reviewing minutiae like the rate card for sellers and declaring that Amazon should keep it simple until the service grew to a certain scale, even if it meant losing money. “I’m not sure it’s time yet,” he said every time FBA execs tried to raise Amazon’s rates for certain kinds of inventory in order to inch tow
ard profitability.

  “What’s this?” he demanded of an FBA executive in a memorable October 2008 review, pointing to a statistic in an Excel appendix of a six-page narrative outlining FBA’s overseas economics. This was back in the formative years of Bezos’s maturation as a CEO, before he managed to occasionally suppress his temperamental management style and bad habit of punishing underlings with scathingly direct feedback. Cynthia Williams, the finance director who’d prepared the document, had suspected something was wrong with her analysis but hadn’t been able to identify the problem beforehand. “I looked down and sure enough, it was blatantly obvious,” she said years later. “I am telling you, my heart sank all the way to my toes.”

  Bezos then said: “If this number is wrong, I don’t know how I can trust any of these numbers. You’ve wasted an hour of my time.” He tore the paper in half, threw it down the table at Williams, and walked out the door, leaving the room in stunned silence.

  “Well, that didn’t go as planned, did it?” cracked Tom Taylor, the executive who ran FBA over its first ten years, as he chased Bezos out of the room.

  That afternoon, Williams emailed Bezos with an apology and the amended data, then went home and opened a bottle of wine. Bezos responded at 8 p.m. that night. He didn’t address his outburst but thanked her for the update and wrote that he didn’t know anyone who hadn’t made that type of error despite the same diligence. Williams, who stayed at Amazon for another decade and was eventually promoted to vice president before defecting to Microsoft, said she felt good about the email and presented the revised proposal to Bezos again a few weeks later.