The Story of Amazon.com: Part 1

have heard of it. Yeah, it's called Amazon. Um big, big company and also one of the companies that that famously weathered the great storm of the dot com crash. Yeah. Yeah, because they started up way before that thing happened, like five entire years. And yeah, but you know what, not a lot of companies that were specifically web based can make the claim that they started pre dot com and made it through couple did Google did another thing that you may have heard of? Yeah, So so anyway, Amazon

has become really a powerhouse. But to to understand where it is now, it's it's good to look at at how it started. And really Amazon is kind of one of those companies, even though even though I would say the founder is not necessarily as well known as someone like Steve Jobs was right, Sure, he's not that kind of level of rock star, but nonetheless his personality has really driven the way that the company has developed end end. Yeah, I mean without him, without his drive and without his

his vision. Uh and frankly, without the mistakes he's made, Amazon would not be what it is. And we're talking, of course about Jeffrey Preston Bezos. Preston's middle name. That's a terrific middle name. Yes, makes me think of Princeton, which he also went to. But that's spoiler alert. But yeah, you need to know a little bit about him to understand, uh, you know, where Amazon is coming from and sort of the goals of the company and where it might be

going to. So to cast back the clock to to the mid sixties, Uh, you need to understand a little bit about his family background. So his mother, it was Jacqueline Guys Jorgenson Jensen U. She had married, briefly a man by the name of Ted Jorgenson. They were married less than a year and she clearly wanted to keep that name. Well, she lost she lost Jorgenson. Uh no, but that was that was her name at the time. But then she she became Jacqueline Guys again. And I

assume I'm pronouncing that correctly. It's G I S E. So feel free to write us in and say how wrong Jonathan is. And I love those emails. Yes, now now she gets them, so um yeah, Jacqueline guys married to Ted Jorgenson. Uh, and she gets pregnant and then

uh they divorce. Well, there was a fellow by the name of Miguel Bezos, better known as Mike, and he grew up in Cuba, but he took part in a there was actually a program that sort of helped people who were trying to escape Castro's regime to get into the United States, and he was It was a program aimed at at younger people. He was one of these people. So he came over the United States as a young teenager,

like he was fifteen years old, doesn't speak English. He goes to live in a small community where he's with I think fifteen other people from and he learns English and he starts he goes to school and uh and really applies himself and eventually he goes to attend school in Albuquerque, New Mexico, and starts to work in the bank of New Mexico. And that's where he meets Jackie guys and uh, Miguel and Jackie ended up falling in

love and they ended up getting married. And so then Miguel applied for and became the adopted father of Jeff Bezos. He Jeff took the name of his of his uh adopted dad. And in all interviews, Jeff talks about Mike

as being his father. He says that, you know, he may not be his biological father, but he's his dad and uh and specifically, in several interviews, they all cited the same statement where he said, the only time I ever think about him not being my biological father is when I have to fill out a form, which is you know, it's just a It says a lot about who who Mike Bezos is really and so uh he grew up with you know, his his parents were very

hard working, they believed very much in scholarship and UH, and so he really started to apply himself. His father, Mike became a petroleum engineer for Exxon. UH. After he graduated college, and Jeff ended up really getting interested in science and electronics and engineering and particularly in space. That will come into play a little bit later. But he spent childhood summers working on his grandfather's ranch in Cotula, Texas. And everyone in Catula who knows that I just mispronounced

the name of your town. I apologize their their places in Texas that I attempt to say the name of and I always mangle it many many places in America. Honestly, there's really words. Words are hard. It's particularly tough in places like Georgia and Texas where you have the regional pronunciation of a place that is not the same as the pronunciation of some other words. Pronunciation. Yeah, I think we've talked before on the show about Ponsta Leone Street

around here. Yeah, great street, but yeah, you do not call it Poste Leone. It's constantly in um Yeah, same sort of thing. So I know I mispronounced that. I apologize to to Texas. I do apologize anyway. His grandfather, his grandfather's name was Lawrence Preston Pop guys pop in a quotation box there so known as pop, and he was he was a bit of a a go getter, uh, someone who really kind of applied himself. He had worked for DARPAH. He had helped develop space and missile defense technology.

Congress eventually appointed him as the manager of the Atomic Energy Commissions Albuquerque Operations office, and he oversaw twit the six thousand employees. Oh my goodness, gracious, so so so so people in in Jeff's life had this kind of drive and it definitely rubbed off on him. Yeah, and his grandfather apparently just doated upon him. And uh that he really encouraged Jeff in his love of things like electronics and technology. Not a big surprise for someone who's

technically a rocket scientist type. Maybe not technically a rocket scientist, but works field. Sometimes nerds like to talk about the nerd things that they're excited about. No, that's not a mark of a nerd. A passion for a subject and to talk endlessly about it. I don't know anything about anyway. Let me get on with Amazon. So Obasos his childhood really he um, he started to build kits to help

him build electronics and various gadgets. He actually there was a great story about how, uh he saw this toy that was a mechanical electronic toy that was a box that had mirrors in it, and it was called an infinity cube and you would press a button and the mirrors would align in such a way to give that illusion of infinite. But the toy was twenty dollars. This was in the mid seventies. Yeah, yeah, this would be yeah, yeah, right, early seventies. Actually, um, maybe even no, it would have

to be early seventies. There's no way. It was when he was four. But his his mother told him that twenty dollars was too much to spend for a toy, and he thought, oh, well, you know, that makes sense, and he looked at around and he started to find parts, and he figured out that buying all the parts would be cheaper than buying the toys. So he bought the parts and built one himself. Oh just yeah, like you do. I did that all the time when I was a child, and I just made my own toys where I made

tinker toys by bashing sticks together until they formed a pile. Anyway, Bezos ended up being the the subject of part of a book. The book was called turning on Bright Minds of parent Looks at Gifted Education in Texas and uh and it it kind of it talked about him, although it changed his name for legal purposes exactly. Yeah, yeah, as in minor as an underage, not as in let's go get some coal out of that part of the ground. Um.

He he was featured in this book. What was funny was that they talked to other teachers who who had taught Bezos, and they had said that he was very intelligent, he did very well in school, but he was not particularly particularly gifted in leadership, which is wow. That got to be He obviously developed those skills later on in

somewhere else. Yeah, apparently so well. Like I said, he was fascinated by space in the space industry, and he wanted very early on to kind of look into creating sort of a privatized approach to the space industry because having having it just in government hands meant that you had a pretty narrow set of parameters you could work within because you had to do everything according to government

approval and uh. And he also really felt that it was important to develop lands in the event that Earth could become the victim of some sort of interspatial collision, so you know, like like a meteor media coming or asteroid or comment or you know, death star. Yeah. Yeah, he sat there and said, you know, we it doesn't make sense for us to have all our eggs on the Earth basket, we should spread our eggs around. That's the other little planet bast that came out differently than

awkward in my head. But anyway, Yes, that's exactly what he was thinking, was that we need to diversify. Yeah, and and and the idea of a non government space program at the time, I mean, if this was still like like that was that was relatively radical. I mean, obviously people talk about it all the time now that the space Shuttle program has been shut down. But yeah, no, this was this was pretty pretty crazy stuff, and he was very much interested in it. Uh and and that

was an interest that didn't go away from with childhood. Well, and like I said, we'll talk a little bit more about that, probably in part two of our Amazon Focus, because we're expecting that we're going to talk a lot about this one. Yeah, it's a it's it's a company that's not only large and not only interesting in its history, but it does a lot of stuff, a lot of stuff. It does not just chippy books, Nope, not anymore so. Anyway, he then ended up going into high school. He co

founded a student summer camp called Dream Institute. And Dream wasn't acronym that standard for directed reasoning methods, and I love, love, love this because not only did they stress science curricula, but also literature. Stranger in a Strange Land was required reading, so was Doune, so was Lord of the Rings. So you sit there and you think, and and there were other, uh, actual books that that people would say fit in the world of literature. I know some people would argue that

Dune and Lord of the Rings don't. I am not one of those people. I think Dune and Lord of the Rings have a real place in literature. But I know some people look down in it because it's science fiction and science fiction and but yeah, yeah, that's I've I certainly had a poetry teacher in college who would

argue with you, but you're right. No, I had a creative writing teacher who told me that in creative writing, he actually came up to me and said, now, Jonathan, I want you to write real fiction because my father is a science fiction author. You know, my dad writes science fiction. So oh, I mean at the same time, you know, I had I had that one professor who was very down on it. But I also had another professor who assigned us those sort of books for required readings.

In both you know, at a medieval literature professor who would quote Tolkien and was probably the probably probably the biggest geek in the class. And boy he was great anyway, all of that aside. He designed this curriculum along with another student, and it was for fourth, fifth, and sixth graders.

So this is when he's when he's getting into like he's looking into college at this point forming this and and uh it was I think six hundred dollars to get in, and I think they had fifteen students apply, two of them being Bezos's siblings, but other than that, um, you had other kids in there too, And it was just it was interesting that it was taking this approach, and they really stressed the fact that it was a

new approach that also incorporated classic learning material. So it wasn't just you know, this space age form of learning. They said, no, the classics are important too, And uh, I found that particularly fascinating. It reminds me very much of a program I went to when I was in high school called the Governor's Honors Program that was very much stressing about its stressed, uh, various forms of learning

in a very concentrated way. But you were with a whole bunch of other people who are really really jazzed about that. So it made learning entire renaissance kind of concept of learning that says that both science and also arts are kind of important. Yeah, so that was that was an interesting approach. He then when he graduated high school and then went to Princeton, uh, and his in

his senior year, Uh, he received well. Before I get to his senior year, he actually at first thought about majoring in theoretical physics right right, you were telling me about this, but decided that that actually the other kids

in theoretical physics were better at theoretical physics than he was. Yeah, and he didn't like that, and he didn't like that, and it wasn't so it wasn't so much that he didn't like that there were people who were better at it than he was, sure, but he was just he just realized that that was not his niche Yeah, exactly. He was like, there are people whose brains are wired in a different way than my brain is wired, and these people are grasping these concepts easily. They are doing

really well in these classes. I'm struggling. Uh, it's a lot more work for me. Maybe there's something else I should look into, and so instead he went into computer science instead of theoretical physics. By the way, both of those fields way more complicated than anything I ever did in college. So you know, right for for the record that the two of us English majors, you were I was, I was English. Yeah, yeah, the English major I wasn't.

Actually I wasn't English, and then converted into Southern United States. No, that wasn't me. Uh. I was always anyway, very similar, y'all. He uh then joined well he in his senior year, he was invited to join various companies. Uh. He received job offers from Intel, little company, there Bell Labs, another one,

Anderson Consulting. But he ended up instead accepting an offer to join a startup company called fightel f I T E L. And this was a company that was trying to build a telecommunications network that was for trading companies like like uh, like finance organizations, and the whole purpose was just to settle cross border equity transitions. Exciting stuff.

It sounds thrilling, but it meant building a network. And this is we're talking about the same time when when our pannett is going strong, the Internet is is starting to take form at this point. Yeah, pretty soon we're gonna have the web there too. And uh, and so he's definitely seeing that's where the exciting stuff is happening, and in finances specifically, that's where he got his financial Yes,

he got pretty he got pretty good at that. And he ended up working for fight Tell for a little while and then left that for a company called Bankers Trust, where he stayed for two years. And then he left that company to join a hedge fund firm called D E Shaw. Uh. And while he was at d E Shaw he met a research associate by the name of Mackenzie whom he became enamored of. This was after he had had an unsuccessful attempt to analytically find the right

woman for him. Uh. He tried something that he called woman flow, which to him meant finding using the the analysis that you would use in finance to find a woman. That sounds like the absolute worst idea I have heard all day. Yeah, it did not work. It turns out it was a failed experiment. I cannot I cannot even imagine that. Yeah that um wow, and and and but but decades before match dot com he was really ahead of the curve, well more like more like five years

because at this point game into the nineties. But yeah, but he he uh yeah, he ended up meeting Mackenzy and the two of them ended up getting married in nine teen. And uh. Then at the Shaw he was put in charge of developing business opportunities for the thing

called the Internet. Internet. Yeah, and uh that's when he started to think this might be the right place to really focus on business because as he was looking into it, he realized that there was a growth on the Internet, a growth of users, I should say, not just some weird growth that growth. This is that more and more users were joining the Internet at an incredible rate, like twenty three hundred percent increase from one year to the next.

And so with this kind of increase, there's huge amounts of opportunity. So how could we take advantage of this this fact? And it all depends on on the story you read, But eventually he came up with the idea of well, with the assets that are already in place in the United States, the fact that there were really big book distributors in the United States, and those were Ingram and Baker and Taylor, these two enormous entities have

exhaustive databases of titles of books. So all the work of organizing the books, of cataloging the books, it's all been done. So all that really needs to happen is there needs to be some sort of website where someone who is interested in books could go look up any book that's ever been published and find out if they

can buy it. And so at first he kind of talked about this over at d E Show, but it was clear that that wasn't going to really pan out there, and so instead he made a big decision in his life, and that was he was going to leave this company. And he was the youngest executive and yeah, but he met with the company's the head of the company, who whom he was friends with, and he said, I'm gonna I'm gonna believe and start my own company. And that's exactly what the founder of the Shaw Shaw had done.

But he said, you know, you're you're going to be leaving behind security and a debt, and you know you've got guaranteed success in this company. And he said, I'm still going to do it, and so, yeah, I mean, it wasn't just talking about leaving. I mean, this was a Wall Street Company. He was talking about moving across

the country. Yeah, yeah, he He and his wife ended up taking a bit of a scenic tour of the United States, driving all the way out to Seattle and uh the the You might ask, well, why why did they go to Seattle? Why was that the birthplace of Amazon? Why all the places the United States? There are a few reasons. One reason is that Seattle happens to be close to one of Ingram's distribution facilities. Not Ingram's, of course,

that was one of those big contributors exactly. So by being close to the distribution facility in make it a lot easier to ship books out to customers. Convenient. Yeah. Another reason is that the state of Washington, which, for those of you who do not know, Seattle is a city that is in the state of Washington. State of Washington, in comparison to other states in the US, is fairly

sparsely populated. The reason why that's important is that, as a business operating within the state of Washington, anyone who purchased an item in the state of Washington would have sales tax added to their purchase. The United States, this is kind of complicated, guys, So Generally speaking, the way the sales tax was working, at least at that point, was that if you bought the you know, the sales tax applied if you were within the same state as

the Yeah. Outside of that, uh, different rules applied. So essentially, Bezos, this idea is that, Okay, I'm gonna be close to the books and I won't have to add sales sales tax, which is a complication. It's all other algorithm, right, and it also ends up making customers less happy because I have to spend more money to buy something. You know that you quoted a price, and then sales taxes put on top of it, and you know, it's a whole dollar more. Yeah I wanted to eat today, Yeah, yeah,

I had. I had days like that. I had that five centerraman. Why can't I afford you today? Oh yeah, I guess I'll just be licking the this this piece of plastic that once held American cheese. I guess it's free pizza in the square again. I'll sign up for

another credit card. Good days. Um. Anyway, So these were the reasons why he had decided to move to Seattle, and on the way there he actually worked on a business plan for this company, and like like on his laptop in the passenger seat while his wife was driving, kind of worked on yes, exactly, like like look over there,

Mount Rushmore, can't talk working on business plan. Um. And he ended up stopping off in California before heading up to Seattle, and there he ended up recruiting his first employee, Shell Cappen, who was employee number one at Amazon, and that was he was a programmer. So this is a guy who's going to help build the actual software to make the sight run right exactly. So, because you know,

Amazon is more than just a website. You've got you've got the website part, which is the forward facing part of the company, that's the part of the customer sees. So so you and I we think of Amazon as a website. There's a lot of stuff that has to happen in the background for the for the actual business amounts of infrastructure, of of of database management and yeah, it's credit card systems, right. So so he had to get someone who was a strong programmer, and Shell ended

up being his first recruit. And uh and according to the interviews I read, it sounds like he must have been incredibly persuasive because Shell came across as something of glass is half empty kind of guy. To be fair, he had worked for several companies that did not go anywhere, so here he kind of expected it to be another one of those. And according to one interview I read with Bezos, Bezos was said, hey, I needed that guy because he was the one who's like, Okay, no, that's

not gonna work. Let's try it this way. I already know that's not gonna work because I did it before and it didn't work. So you know, at a certain point, that's a that's a very important thing. And it started start up yep. And then they also ended up hiring a or at least contracting a guy named Paul Barton Davis, and they built the first version of Amazon dot com. And of course this is a story about a company

that has its roots and technology. That means the very first version of Amazon dot Com was built in a garage because like, like all good bands have started on the West Coast, I mean, there's so many other companies we could talk about that had you know that that's starting a garage, like Apple and Microsoft are both Google had its first servers in a garage. I mean once you got outside of the Granted, they had servers in in college, but then once it became its own thing,

the servers lived in a garage. So garages play a big important role in technology. Oddly enough, they almost never house a car, but they are still very important. Uh. And then Bezos and his his other employees, they ended up meeting with a bunch of angel investors. Uh. And angel investors are not these guys in business suits and big fluffy white wings. Um, they are people who are vampires with a heart of gold. Neither of those things. Well, I guess it depends on again, upon whom you ask.

But these are these are folks who end up investing in often risky ventures with the hope that this investment is going to pay off in the long run. Uh. He met with about fifteen of them, and together they invested about one million dollars of seed capital in Amazon. One of those fellows was a guy by the name of Tom Ahlberg, and he was the first board member of Amazon. And so with that million dollars invested, the company of Amazon incorporates and they incorporate in July nineteen.

And there's a lot more to say, but before we get there, I think it's important we take just a quick break to talk about our sponsor, and now back to the show. So the company has incorporated in nineteen ninety four. A year later, July, Amazon dot Com officially launches and they sell their first book. Do you happen to know what that was? I do happen to know what that was? Hit me with your knowledge? It comes um. It is the fluid concepts and creative analogies, computer models

of the fundamental mechanism, the thought a real page turner. Actually, it actually sounds pretty cool to me, but then I think it's probably also way over my head. But yes, that was the first title purchased. And uh, of course, because you have Bezos there and he's kind of a nerdy engineer type, and you've got these other guys there who I'm guessing also shared some of that interest. They might they might have been. They decided, did you hear

about what they rigged up to their computer? So they rigged up a bell and the idea was that the bell would ring every time they made a sale, so you know, sale bing. And And I don't know if any of you guys out there in podcast land have ever worked for a company that kind of did something

like this. I used to work for a company that would occasionally do one of those things where you'd land a big deal and then everyone starts yea and applauding and running around, and it felt like I was in a pep rally and I wanted to be out of there so badly. Yeah. I essentially never want anything on the internet to make noise or or a computer. I want complete silence. Were writers, We don't, we don't like

we don't like that. But anyway, so it turns out they didn't like it either, well, mostly because it became a problem because the site ended up getting a lot more popular than they expected, a lot faster than they expected, and so uh, within two weeks they had dismantled it because it was driving everyone bonkers. Yeah. Yeah. Within within their first month, they had shipped books to all fifty states and forty five other countries, which was a big

surprise to them. They were not they didn't really think that they were going to get international business that quickly. And by the end of September, so remember they launched in July. By the end of September, the revenues were about twenty thousand dollars per week. Uh, and by the end of nineteen itself, they made five hundred ten thousand

dollars in sales. Now, that sounds like a pretty good first run, especially you know, you figured they started seven months into the year, they didn't have a full year to make. To make a half million in sales, not bad. However, keep in mind that Amazon dot Com is the kind of operation that, uh, that that costs a lot of money to run. And I mean they were already a little bit in the in the red technically from from

all of that startup money. So you know, you've got money that you're going to have to pay back in some way. Of course, most of those guys essentially what what happens is they own shares in the company. But but yeah, you still have you still you know, they still expect a return on their investment. So you've got you've got a lot of obligations to make. So, uh,

it'll be a while before years before Amazon. But yeah, in fact, if you're waiting to hear that information in part one, I'm just gonna go ahead and burst your bubble. Part two, Well, it won't be until we're into part two before we get to Amazon becoming a profitable company. But but actually that's parts of the amazing part of it, which is incredible because it's yeah, if it, if it incorporates ship and it is until after the year two thousand,

that before their before they're profitable. Yeah. And to to express how amazing this is to someone like myself, I look at companies now that generally speaking, you know, they launch and within a couple of years, if things are still kind of rocky, people tend to pull support, and they don't they fall apart. So seeing a company that was this ambitious, this large, I mean they were making lots of sales, they were making a lot of money,

but their their costs outweighed their revenue. So it sounds like it sounds like um businesses personal attitude about business was a huge contributor to that. That he has always been extremely focused on the long run and on no, no, no, if we if we create the service, if we make it just just kick butt, then people you know, it's if if you build it, they will come kind of exactly.

And what was amazing was not just that Bezos really believe this, but he was able to convince other people exactly because without that without convincing other people, you don't move forward. Uh. Speaking of moving forward, in nineties six, a few things happened in Amazon. They launched the Amazon dot Com Associates program, uh and the which was an

affiliate marketing program. So associates probably Amazon has done a lot of stuff in order to kind of, uh, not just get its name out there, but to reward people people for helping them, right exactly. So the Associates program was a program that will let let you put in links in your web page to earn commissions through any click through sales that happen and any time that a friend clicks the link and then buy something, you get you know, yeah, like a like up to ten percent

of whatever the value was of the sales. So so, for instance, if you were here's a good example. Uh. And I mean, there's no direct affiliation between my podcast and this website. I just want to make that clear. But chud dot com, which I've talked about many times, I'd like to use that example because I like the website,

but it's all about movie news. And they had they were part of this affiliate program where uh, you know, they talked a lot about different movies, especially like when movies would come out on DVD and so they would do a review, which meant that you could click through and actually buy the movie that you know you're h You could just buy it with one you know, go through to Amazon buy it there, and it meant that you were not only getting to participate in the film

that was being discussed, but you were also supporting the website that you loved, because Chud would get a little bit of money every time someone would do that. So that's an example of that, and that's just the first of many examples of how Amazon started to partner with other people, entities, organizations, UM and UH. You know. The way it worked was essentially you would receive monthly payments based upon the orders that came through from your center site.

So I think what would happen is like someone would order something from a link that was on your site thirty days after they had ordered that. UM, at the end of that month, another thirty days. That's when you would get the checks in, so you could easily get an idea of how how persuasive you were based upon the size of the check. Here's a check for a dollar twenty five. It's time to go to Taco pell um um. And then in nineties seven, Amazon made a

big move. It went public. Yep, they held their initial public offering and uh and this was big news. They entered NASDAC. That's the the exchange that you can find Amazon on, and it was it was. It was interesting because originally analysts predicted that the stock price would be between twelve and fourteen dollars, but then the day before, the day before the I p O, they adjusted that. First they adjusted it to say, okay, no, it's gonna be fourteen to sixteen dollars. Then they adjusted it again

and okay, no, it's gonna bears eighteen dollars. We're pretty sure that's what's going to open at. So much anticipation had built up that when it went uh uh when when When the market actually opened, the opening price was twenty nine dollars and twenty five cents per year. Uh. Yeah. It hit a high of thirty dollars that day, and it closed out the day at twenty three dollars and

fifty cents. So it was definitely one of those anticipation things where spring back, this happens, but not nonetheless way over what it was originally, right, even at eighteen dollars. Yet when it ends at twenty three dollars fifty cents, that was a great story. And they raised about in

that first day, they raised about fifty four million dollars. Uh. Meanwhile, at this time in Amazon's history, they had a deficit of nine million dollars, even despite the fact by the end of the year they had made a hundred and forty seven point eight million sales. Yeah. See, the problem was that again, their their costs were greater than the revenue. Uh. They never are once had a profitable quarter that year. Uh, it was every single quarter. They were operating at a loss.

But they were making more and more money each time. Yea. And they were also I mean they opened a second distribution center on the east coast of the United States in Delaware. Do you know why in Delaware? I do not know why Delaware. So anyone who's traveled in the Northeast will understand this, because everyone who lives anywhere close to Delaware goes to Delaware to do their shopping. Delaware

does not have a state sales tak one of those places. Yeah. Yeah, my wife is from Philadelphia, so whenever we do any sort of shopping in the Northeast, we take little road trip to Delaware. Uh. This is not by my choice because I much preferred convenience over saving a buck twenty five honey, I'll pay you back, I'll go out, and I'll work an extra podcast if you need me to. I don't want to go to Delaware. By the way, Delaware is lovely. I just don't want to go on

the I'm sure the drive is gorgeous. Taking the mud if you can go like a mile down the street versus a state over. But my Ohio just came out by by referring to as a stick in the mud. That was really that's okay. I would hate to think of what the southern version of that would be. I wouldn't even be abill tell you, because I'm a nice person.

I don't call people things like that anyway. So also, they became the first online retailer to to one million customers, and uh, and you know this, this is kind of interesting to you. You sit there and think about the fact that Bezos kind of had this vision of totally revolutionizing the way people do shopping, and and at first you might think, well, that's just ridiculous, But then It really wasn't that long ago that we had before before the era of department stores. So the department store era

totally revolutionized the way people did shopping. Yeah, it's I mean, you know it's there. There's more than one thing that you sell here. You sell different types of things. I can go to a different department and get clothing, and then another one and get some housewares, and it's it's it's not a general store where your selection is limited by the actual tiny space or if you want to

go back even further. Uh, you know, you're talking about buying things directly from the people who made them, or from a traveling salesman, as is depicted in the documentary music Man Um The But yeah, the uh, this wasn't really that unusual to say we could completely revolutionized Lawrence. Just it was just here, I was gonna be okay, but I was like, no, it's the slow disapproval shake of the head for the music Man reference, and I

could not make it through the sentence. But no, the you know, it really wasn't that big of a stretch. It just was hard to see at the time because what was so new. Yeah, it was so new and not that many people. I mean, I mean, goodness, my gracious, that was still you know, people were still on geo cit. Let's not talk about it like it was that long ago, because I was well out of college and married by then, so I was in high school. Shut up anyway. So

so so anyway, ninety seven comes to an end. That was a big, big year for Amazon. And talk about a big year. They hit a high of three hundred and sixty one dollars per share um and uh and really in I'm not I'm gonna go back to nine in a second. They ended up splitting the stock a

couple of times. Now, on a stock split, what you're doing is, you know, you're taking the amount stock you have, you increased the number of stocks based upon that, and you then reduce the uh, the the value of each individual stock, so that the value of the company remains the same, but you can sell to more people, right right, So suddenly you have twice as much stock. It's worth the same amount collectively what you had before. But now if you wanted to sell half of it off, you

would still have a sizeable amount um. And so they did that a couple of times, and they did it in a three to one split, which reduced the the the price to just over a hundred dollars per share. Uh, back in, but we'll get into that in just a second. They also bought another little website that you may have heard of, the Internet Movie dat Database. Yeah. Yeah, what a pleasant place that can be. That's I never never read the comments on anything. And it's still it's still

much more civil than YouTube. Um, but then so was Moss Eisley. Uh, but yeah, I am dB. Yeah, let's say they purchased that. So, uh, it was an interesting move again because for a moment you sit there and say, well, what's up with that? And then uh, if you knew, if you knew where Amazon was going. And except for the fact that at the time they had still been selling just books. Yeah, that's all they sold. All they sold up until they also opened to Amazon stores music

and DVD video. That's right. And so you think about the reason why they started with just books was that it was it was something that was scalable and it was a manageable business. And also he had the benefit of, like I said, those two big distributors with their exhaustive databases,

a lot of the work was already done. Now that he's raised money, Bezos, that is, now the Basos is raised money and the companies raised money, the company could start to look into diversification, which was kind of the plan all along, but really starting with books was the most important step. So once they opened up the music and DVD stores. Music, by the way, we're talking about hard mediads. We're not talking about digital files yet. Um.

You know. Once he did that, Basos also came up with another decision which was an important one in Amazon's um existence, and that was that he wanted to have a lot of control over all of this. It's one of the reasons why it was very it was very important to him for Amazon to own its own warehouses.

And the reason for that was that if a customer put in an order and asked for say, books from different publishers as well as a c D and a film, all of that could be placed in one box and sent to the customer, as opposed to Okay, here's here and all of these losses or or have to pass that on to the customer and just everyone gets angry, right yeah, or you know, they get two thirds of their order but the final third is lost. Or now this way, it gave a lot more control to Amazon.

That was very important to Bezos. So uh, he had these warehouses and decided to make use of them in that way. So here's an example I have created and uh and listeners, you have a challenge here. The challenge, listeners is to find out how each one of the items I'm about to list has a connection to me. Because I'm an egomaniac and the universe revolts. Here's my example. So, I want to order the Kim McKee book Atlanta Bones.

I also want to order a CD of a production of The Rats and the Walls, which was, you know, an HP Lovecraft story that was produced by the Atlanta Radio Theater Company. And I want a copy of the film on DVD. I want a copy of the Signal. So if I put all those orders in on Amazon, because they have these warehouses where they have all the different types of media together, they can put that all in one package and send it to me and I get it all in one neat delivery. And uh. So again, listeners,

tell me how I'm connected to all three of those things. Uh. They may not be the same connection in each case, by the way, it may be different connections. Moving on, they also launched the uh the Amazon Advantage program, which let companies and creators sell their works through Amazon. They also acquired major booksellers in the UK and Germany. Uh and yeah, it was more before the end of the year. Um and and remember last year they had hit one

million customers. By the end of had hit three million. Yeah, so so lots of growth. They're still, of course, not profitable. Uh. Do you have anything else, because that's that's what I got. All right, let's move on to h They opened up another fulfillment center. I like that they call them fulfillment centers. It sounds very you know, zen, it reminds me of gladows honestly, but welcome to the fulfillment center. Uh huh, that's not bad. But anyway, this one was in a

friendly Nevada. Now, the reason for opening in Nevada not having to do directly with that state's sales tax. It was actually more to do with the state of California. They wanted to have of a fulfillment center that was closer to California to deliver to California more quickly. But California's sales tax is uh is fairly complex. And also you know, it's something that that Amazon did not want to deal with, so instead of opening up a fulfillment

center within the state, they opened it in Nevada. I think they opened actually three other fulfillment centers other than that one, and I have not written down where they are. Yeah, well, at this point forward, they start opening up all the points.

Actually there was another point Bezos said, uh that there was a point where he had a discussion with his the other members of the executive team at Amazon, and they were saying that he should open up four fulfillment centers, and he said, no, we should open five fulfillment centers. And they all balkedd that because I said, well why we we we need for what we can use is for right and uh And he ended up getting his way.

Often gets his way, note not all the time. And yeah, there's sometimes where he talks about how some of his employees like came up to him and gave him a suggestion and he said that sounds like too much trouble, and then they went ahead and did it anyway and

then came to him with the solution. He's like, no one, no one listens to me around here, but thank you anyway, Um, they did listen to him at this top point, and they built the five fulfillment centers and uh and as as it turns out, because of the the incredible growth in customer base and orders and sales, that fifth fulfillment center was necessary for them to maintain the customer service that they had established. Again, just another very forward thinking,

very I like that phrase. I just I just realized, yes, alright, no, that's fine, go ahead, let's let's promote it. Um, yeah, no, you know, I agree. It was. It was very important for him to uh, to think ahead and to anticipate that. You know, it wasn't just that they could not have done the job with four they might they might have been able to, but with five they were able to do it and ensure the customer service level that they had already established. Yes, with the sort of growth they

were experiencing at the time. UM. Yeah, See, at that point, their market value was about twenty two point one billion dollars, which meant that they were more valuable than Kmart and J. C. Penny combined. And keep in mind, this is before Kmart had its financial problems. Um. They also opened six new stores on Amazon dot Com. Consumer electronics, toys and games, home improvement software, video games, and gift ideas is grown

in there. Gift gift ideas is one of those UH user experiences that is also really critical to the way that Amazon has grown and become uh the leader in online sales. Yeah, they they really invested heavily in getting programmers to design algorithms that would help customers in their shopping so that and really help Amazon ultimately to help

Amazon stuff. You have the idea that you know, are customers who were interested in this also looked at blah blah blah, or hey, you bought this thing, you might also want this thing. All of those recommendations that you get every single time that you get on Amazon are are based on a lot of your of what you're looking at, what people that you know might be looking at, what other people who yeah, and what other people who purchased the same thing you bought what you know, things

they found useful. There have been times where I that service has been invaluable to me where I've purchased something and I said, hey, you bought this thing. If you wanted to work, you may also want this thing, Like, well, yes, I do want it to work, I will buy that thing, and sure enough, I mean it wasn't It wasn't opportunistic

and it was genuinely helpful to me. So, uh, you know, it sounds like it can be opportunistic, and I guess in some cases it can be, but ultimately it's trying to give the consumer the best experience, because if it's not, then it isn't working and it's just a distraction. Um. Also, this is what makes some of those really snarky Amazon

dot com uh product reviews so incredibly entertaining. If you've ever found one of the products that just has people writing up complete farcical yeah, really, there's there's a Two of my favorites are the bick for her. Yes, those are so those are so funny. That was delightful that that was. That was bigs adventure into pens for women and they were all pastel colors and I guess ergonomic for lady fingers. I'm not sure that means fingers belonging

to a lady. Not the delicious not the delicious snack kick Um that that one. And my my current favorite is that banana slicer. Oh, yes, yes, that's a good one. Now there's a whole bunch too. There's one that's like for gallons of milk. There was one that was for for for specific kind of warning tape. Uh, it was a kind of duct tape. There was one for uh,

for enriched uranium. There's some fun ones out there. And and the nice thing is is that because Amazon's algorithms work, it actually will point you to other ridiculous products that also have and I don't delightful. I don't know that that's intentional, but it does work, and it's funny. It's a great way to lose an entire afternoon. By the way, they also ended up launching a product called Amazon Auctions,

which was kind of their answer to eBay. Um. It ended up not really getting a lot of traction and uh, and eventually they would abandon Amazon Auctions. And that's not unusual in fact for Amazon. They've They've got quite a few projects that they ultimately either phased out or made or reincorporated in a different way, kind of took down piecemeal. Z Shops is another thing that they opened, which was their third party retailer outlet. Yeah, they eventually phase that

out in favor of the marketplace. But yeah, that's another that's a great example that was where they built in all these features and then they said, this isn't working. Let's rebrand it. Let's let's let's tweak it, maybe incorporate some of the stuff and something new. They also wired a company called tool Crib of the North. They inquired

they acquired their online and catalog sales. There was a great story about Bezos saying talking about how how to make it profitable to to ship a one ton drill press. That was kind of funny. Um, like you said, they started offering up lots of other products in various categories. Um. Oh, and from a great article and Wired. I know I mentioned Wired all the time, but they really do some great stuff. And they in edition of Wired, in an article called the Inner Bezos. Uh, there was a quote.

One thing to keep in mind, this is from Bezos. He says is for many of these people, meaning the people who are suddenly wealthy in Amazon, the wealth that they have is paper wealth, and it will exist at that level only for as long as we continue to

serve our customers. Well, so what he's staying here is that there were people in Amazon who had become millionaires because they owned stock in the company, and the company stock was on the rise, and Basis was pointing out like, well, yeah, if you look at it on paper, we're millionaires, but in reality, if we would have to cash out and liquidate all those assets in order to really be millionaires. And so we have a responsibility to keep our company moving,

moving ahead and being in good shape. This is incredibly important because this is what I'm saying in n and uh. Well but before were no, no, no, I'm gonna say like in a in a year, that's going to be a very ympathetic thing, right, Yeah, And and yes, that that was the was also the year that Basis was named Times Person of the Year. Yeah, that's a big deal. And also, um, that was the year that Barnes and Noble made a move that was potentially scary for Amazon.

They purchased Ingram, one of those two of the giants distributors and Barnes and Noble and Amazon obviously competed in the space of as far as booksellers go, and and Barnes and Noble was probably out of all the other brick and mortar stores. They were the ones doing the doing the best job, and they were extremely savvy. They have been for for basically their entire and in the publishing industry as compared to other big box stores, to say,

for example, Borders that didn't make it. Yeah, and and really Barnes and Noble and Amazon had been competing quite a bit, uh and so that that kind of raised some potential threats. But but Amazon was actually working very hard to create relationships directly with publishers. So since you skip the distributor entirely and you go straight to the publisher, this would of course change even more in the future when we talk about the publishing, right, we're still years

away from that. Um and then uh, we kind of move into two thousand and this is this is a monumental year on the web. It's also where we're going to conclude the episode. Uh, two thousand is when in March two thousand, Specifically, in fact, if you want to get really specific, March two thousand is when the the dot com bubble burst. Now, this was something that happened because the web was seen as this wild West land

of opportunity. It was like the gold rushed Yeah. Yeah, Ever, everyone was was out in uh Silicon Valley and doing crazy stuff, and everyone was really psyched about it and running around, and everyone's saying like, this is the way we're gonna be able to print our own money. Essentially,

we're gonna be uh, we're gonna be so rich. And you have lots of dot com companies going public and raising crazy amounts of money in in crazy stock deals, and employees being paid in stock and said like, okay, well we can't afford to actually pay you a paycheck, but here here's a here's ten thousand shares in the company. You are surely nothing will go wrong overnight. You're a millionaire. So just like Basis was saying, like on paper, these

people were millionaires. But the problem was that the expectations of how the web was going to deliver versus the reality of what it actually could deliver didn't match up. And then investors started getting scared because they're saying, wait a minute, I thought this was gonna just be a license to print money, but now I'm not seeing any return of my investment. I'm getting out right and and

and there were a lot of reasons for it. I mean, there was an infrastructure problem where you know, not not enough people were online, and there were a lot of companies that were just terrible at managing their funds. This is one of those things I've talked about in the past, how a small company could get a huge amount of money and then mismanage it terribly because they that wasn't what they were expecting, Like they're they're operating costs would

have been at a certain level. They raised way more money than that, and then they say, well, heck, let's get a penthouse for everyone. Everyone gets a super cool desk made out of steel and glass. We're all lex

Luthor in this world. And then, you know, eventually they think, oh, wait a minute, we were supposed to deliver something for all that money they gave us instead of just you know, giving ourselves these amazing offices, and things started to fall apart, and uh, you know, it's not that the people were necessarily bad people, it's just that things didn't and uh.

And actually Amazon was hurt by this in multiple ways, one of which was that, you know, unlike the other companies, it had not expanded so um, but they did invest invested a lot of other stuff and took dramatic losses. Yeah, like Pets dot com, Living dot com, Cosmo dot com. He said specifically, here's another quote from that article. We invested in a lot of high profile flame outs. The only good thing is we had lots of company. It didn't take us off our mission, but it was a

waste of capital. So in other words, you know, a company that already has not turned a profit has lost more money in bad investments. This would not be the only time this happens. To get some other utments coming up in our next episode. Yeah, but I mean, I mean, meanwhile, they I mean, a lot of stuff happened for Amazon in two thousand. They launched Amazon France, Amazon Japan, UM, and Uh, they launched Marketplace, which would would eventually replace

z shops. At this point they were two separate entities. Um they started selling kitchen goods and also Cameron Photo. Yep, so you know, Amazon still diversifying. But but two thousand was a tough year. And that was a tough year for companies across the web. We saw lots and lots of them fold and we even saw big ones like Amazon take a hit. And uh, and that's a good

place for us to wrap up. In our next episode, we will talk about how Amazon went from pros possibly the lowest point of the company as far as the market value is concerned to really turning it around and becoming you know, a juggernaut again in industry, and and again that's another way of pointing out that there is no such thing as being too big to fail. And also we'll learn more about Bezos's fascination with space, but

that's that's in our next episode. So guys, if you have any requests for things that we should cover in future episodes of tech Stuff, I highly recommend you get in touch with us. Let us know in an email our addresses tex stuff at Discovery dot com, or drop us a line on Facebook for Twitter or handle up both those locations. Is text Stuff H. S. W and Lauren and I will talk to you again about Amazon

as it turns out really soon. For more on this and thousands of other topics, is it how stuff works dot com