Books
Missing the story. The book business has been shaken by mergers and consolidation, the disappearance of the local independent bookshop and by the internet. Two new books chart the way ahead
Published 23 April 2001
Amazon.com: get big fast (inside the revolutionary business model that changed the world)
Robert Spector Random House Business Books, 271pp, £13.99
ISBN 0712684581
At the Frankfurt book fair, it was my job, as the Bookseller magazine's financial reporter, to field all the crazies who wanted publicity for their new business ideas. I recall 1995 being a particularly bad year. The combination of new technology and easy money had thrown up a whole range of half-baked possibilities.
My first meeting was with a southern Bible salesman with a new gadget that resembled a cross between an early 1970s "pocket" calculator and one of those machines that are used in supermarkets to test the temperature of the refrigeration units. By plugging in the relevant memory unit (pink for Old Testament, yellow for New Testament), you could have at your fingertips an appropriate biblical quotation for any situation.
Next up was a wild-eyed schmuck from Seattle who was setting up an internet bookstore. I patiently listened to him for half an hour, but afterwards made no effort to write up anything for the magazine. He was someone from whom I never expected to hear again.
Shuffling through my old Frankfurt business cards recently, I found one belonging to Jeffrey P Bezos. His story has now been written up by Robert Spector, in Amazon.com: get big fast.
I missed a great story, but it wasn't a great story then. In 1995, Amazon was just one of a number of businesses that had spotted an opportunity to sell books over the internet. What made Amazon different, and what allows it to claim that it changed the world, is the way in which it turned the rules of finance upside down.
For a period of four years between 1996 and 2000, the very rapid growth rates achieved by Amazon encouraged investors to ignore the profitability of businesses and to focus instead on some distant potential. But the Amazon story is not just about how the investment community was temporarily blinded by hope and greed. In the engine room were the spike-haired, grunge-loving Seattle slackers who had been electrified by the Amazon experience. They found themselves working 20-hour days, seven days a week, with an almost religious zeal, driven by share options, a feeling that they were changing the world, and free Tylenol when it got too much. In the end, they were betrayed.
Bezos insisted on hiring bright graduates, even for the packing room. You had to be academically outstanding to get a job in customer service: Bezos was building an entirely new business model, so he wanted people who could think on their feet.
Spector tells a story about the early days of the Amazon warehouse. In a small basement with no furniture, the entire staff are battling on their knees to get books into boxes and out to customers. "We've got to do something about this," Bezos announces. "We've got to get knee pads." A colleague looks at him quizzically, then asks: "What about packing tables?"
As Bezos saw his fortune grow, in just a few months, from thousands to millions, and eventually to billions and tens of billions, he seems to have lost confidence in those bright kids. A new layer of management was inserted between the chief executive and his staff: senior old-economy managers who knew about packing tables and every other aspect of running a billion-dollar business. They were given old-economy pay packages (one was given an option package, which would pay out a minimum of $20m at the end of the contract). They did old-economy things such as build warehouses, start lawsuits, hire their friends, use data on Amazon customers in distasteful ways, sack staff and put an end to free Tylenol.
They may have made the business more efficient, but they didn't find a solution to Amazon's fundamental problem: it does not make money. In fact, the "revolutionary business model that changed the world" seems to be little more than a scheme to persuade private shareholders to subsidise book sales.
The model worked wonderfully when $1 of sales growth was valued by the markets at more than $100; but over the past year, since the markets decided that $1 of sales growth was worth zero unless it earned a profit, things have not been going so well. Analysts are now claiming that Amazon will run out of money before the end of the year.
When the Amazon story is finally over, it will make a great story, but it won't be written up by a business-book hack such as Robert Spector. It will be written by one of those bright twentysomethings bringing some of that famous Seattle irony to bear on the question of why they gave so much of their life for the privilege of being just another powerless Dilbert in a failing large corporation.
Christopher Gasson is a publishing analyst
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