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Jeff Bezos
CEO, Amazon.com
Answers to Written Questions from the Floor:
Q. Amazon has experienced quite a loss from operations even though it’s sales have soared. Approximately when do you expect to be earning a profit, and what will change to allow you to make that profit?A. Amazon.com was actually profitable in December 1995; it must have been for, oh, about one hour. It’s a conscious decision on our part to invest at this time, and we will continue to invest at more and more aggressive rates as long as we continue to be successful. It’s a formula of success-based investing. We’re going to continue to push what works.
We’ll try to watch the growth rates and be appropriate, so if we’re not able to get new customers and introduce ourselves to new customers in a cost-effective way, then we’ll stop spending such large amounts of investment dollars on marketing expense. So today, we are trying to build an important and lasting company.
To do that online in e-commerce, you have to have a scale business. This kind of business isn’t going to work in small volumes. We have to level the playing field in terms of purchasing power with the established booksellers, and we have to firmly establish our brand name. Those are expensive things.
It’s also expensive to develop all the software to continue to improve the customer experience. So that’s where our investment dollars go, but we believe that this is the absolute time when introducing ourselves to customers will be the least expensive it will ever be, so this is when we have to make that big push.
Q. How do you keep online customers loyal when there’s really no cost, no risk to switching and trying new brands?
A. I would claim that switching costs long-term, should actually be higher in the online world than in the physical world. Let me give you an example of this. Let’s say that you live three miles from a Barnes & Noble superstore and you’ve been going there for three years. You’ve always liked the service, you’re pleased with the experience you’ve had and it is a great experience, so you consider yourself a loyal customer.
What happens to your loyalty in that situation if Borders opens a superstore two miles closer? So now you only have to drive a mile to get to Borders. I suspect that for most people, they would switch to Borders. So, that’s a very low switching cost.
In the online world, businesses have the opportunity to develop very deep relationships with customers, both through accepting preferences of customers and then observing their purchase behavior over time, so that you can get that individualized knowledge of the customer and use that individualized knowledge of the customer to accelerate their discovery process.
If we can do that, then the customers are going to feel a deep loyalty to us, because we know them so well. And if they switch to a competitive website – as long as we never give them a reason to switch, as long as we’re not trying to charge higher prices or providing lousy service, or don’t have the selection that they require; as long as none of those things happen – they’re going to stick with us because they are going to be able to get a personalized service, a customized website that takes into account the years of relationship we’ve built with them.
Q. Are you afraid of Microsoft entering your space?
A. If they entered our space, I would be afraid of them. The reason why Microsoft is such a talented company is the executives. They not only have a half-dozen people at the top of the company who are among the best executives in the world, they’ve got 40 people underneath them who are among the best executives in the world, and then a couple-hundred people under them who are among the best executives in the world. Executive bandwidth is so important that if they really focus on something and decide to be aggressive about it, they can do just about anything they want.
Even though they do have a lot of resources, they do have to pick their shots and figure out what they are going to be good at and what they are going to focus on. So far, they haven’t shown any tendency to get into the online bookselling area and I encourage them in that regard.
Q. What is the future of purely electronic books, for example, of downloadable books?
A. I’m a huge believer in downloadable books. It’s not a question of if, it’s a question of when. I think that it’s still early. I suspect that it’ll take a few more years – who knows exactly how many: three, five, maybe even ten years – before electronic books are a big deal. The limiting factor at this point for electronic downloadable books isn’t bandwidth. With downloadable music and downloadable video, the limiting factor is bandwidth. With books, it’s something completely different; it’s display technology.
It’s still the case that paper is just a darn good display device and is much better than any computer display device we have. It’s higher resolution, higher contrast; it doesn’t need backlighting, blah, blah, blah. So, at some point, technology will catch up with paper, and then I think you’ll see electronic books be very important.
Q. How much of your business is international? How is your international business different than in the U.S.?
A. About 22 percent of our sales are outside the U.S. We ship regularly to 160 different countries. The main difference for today, when we’re mostly shipping English-language books from the U.S. to these countries all over the world, is that they either have to get their books very slowly, or they have to pay a lot of money to have them delivered very quickly.
So they can get DHL express delivery, which gets them their books anywhere in the world in two days, but it’s very expensive. So, one of the things that we would like to do as we expand with our international strategy is to have distribution centers in key places, so that we can provide international customers the same level of service that our U.S. customers have grown to expect.
Q. Do you have a commitment to showcase worthy literature that might not get the commercial push of a major author/publishing house?
A. Yes, we do, and this is actually one of the places where I think that Amazon.com is doing a great job. Part of it just comes from the model of selling online. We can carry everything. We don’t have to worry so much about the constraints of shelf space. And, in fact, there are some small books that are great books but don’t get the marketing budgets to break through. For those books to develop an audience, what they require is a lot of time. Where shelf space is a limiting factor, those books won’t get it.
It’s just a simple fact of economics; they cannot get the shelf-space time that they need to develop a loyal following. Even if the author of those books is pounding the road, doing readings, going out, getting themselves on NPR and all the other things that you can do to be a successful author – even if they do all those things and get themselves on a radio show – they go into the bookstore and they don’t have their book.
So the people want to buy their book, but they can’t. So, at least we’ve solved that half of the problem. We have and regularly do feature and showcase more obscure books; it’s part of the discovery that we are trying to do. Moreover, if we find with our recommendations technology a particular customer base – there are people out there who basically like a certain kind of book; it has to be somewhat obscure; it has to be literary fiction; etc., – our recommendation technology today does start to identify those kinds of people and start to recommend those kinds of books to people. It gets those books into the right hands.
As a small author or a small publisher, it’s a home run to sell 20,000 copies of a book. That’s a big deal and considered to be a huge success. So you don’t have to find a million customers for your first book to be discovered; you’ve got to find 20,000. This is one of the ways that the Internet and Amazon.com can help those authors.
Q. Are there plans to acquire more Internet companies in the future, besides Bookpages, Telebook, etc.?
A. We acquired an online bookseller in Germany; they’ll be the base of our operations in Germany, and one in the U.K. for the same reason. And then this really great, unbelievably cool company called Internet Movie Database, IMDb. The guy who runs it is the most passionate movie fanatic that you ever have met. He watches movies while he works and is smart enough to get away with it. In terms of future acquisitions, as a matter of policy, we just can’t comment on what we might do.
Q. What has been the impact of paid advertising on your business?
A. The advertising work that we’ve done has, I think, been very important in terms of helping us build our brand and also helping us introduce ourselves to new customers. It’s still the case, even with all of the dollars that we’ve spent; our spending is very large for an online company, for an Internet company. Keep in mind that Internet companies are still small in general.
Our ad budget wouldn’t even show up in a slide with the McDonald’s or General Motors ad budgets. But, even though for us this is a lot of ad spending, the majority of our customers that come to us everyday are coming by word of mouth. I think that the best money we spend on acquiring new customers is actually spent on customer experience.
Q. What books do you read?
A. I happen to be a huge science fiction fan, and I probably read two or three books a month. Probably two of them are science fiction books and one of them is a business book. And then my wife occasionally convinces me to read some real literary fiction, and actually a couple of years ago introduced me to my favorite book of all time, which is Remains of the Day, which is just the perfect novel.
Q. What motivated you to leave your past employer and create Amazon.com, and do you have any personal inspirations that came from that?
A. When I decided to leave my former employer – where by the way, I was incredibly happy and really loved what I was doing – it was a tough decision. When I went and resigned, my boss took me on a long walk through Central Park and basically got me to reconsider for 48 hours. So I spent the next two days trying to figure out: How am I going to make this decision? What’s the right framework in which to make this decision?
I finally realized that the right framework was a regret minimization framework. So I projected myself to age 80 and I looked back – already, I’m an optimist – and I said, “What I want to have done at that point is to have minimized all the regrets in my life.” When you are in the thick of things, you can get confused by small stuff. I knew when I was 80 that I would never, for example, think about why I walked away from my 1994 Wall Street bonus right in the middle of the year at the worst possible time.
That kind of thing just isn’t something you worry about when you’re 80 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. When I thought about it that way, in the regret minimization framework, it was incredibly easy to make the decision.
Q. What percent of your sales are coming from or via other website referrals? What percent is via your own associate relationships?
A. Again, I can’t answer those questions directly, again for competitive reasons. We don’t disclose that level of detail. What I can tell you is that we have over 100,000 associate websites, from the biggest websites on the Internet like Yahoo! and AOL.com, Excite and GeoCities, all the way down to some of the smallest websites on the Internet. One of my favorites bills itself as the Web’s oldest and best place to buy meteorites, and now they also sell meteorite books as an Amazon.com associate.
With over 100,000 associates, that’s been a very successful program for us and it’s really a win, win, win. It’s good for us because we get to introduce ourselves to new customers. It’s good for the associate because they get 15 percent of revenues, and anybody who has a website can do this. And it’s good for the customer, because now they have somebody who’s an editorial expert putting the books into context.
