The Everything Store: Jeff Bezos and the Age of Amazon (33 page)

In 2004, Apple’s dominance in digital music spawned fresh soul-searching at Amazon. The sales of books, music, and movies accounted for 74 percent of Amazon’s annual revenues that year. If those formats were inevitably transitioning to digital, as Apple’s accomplishment seemed to demonstrate, then Amazon had to move quickly to protect itself. “We were freaking out over what the iPod had done to Amazon’s music business,” says director John Doerr. “We feared that there would be another kind of device from Apple or someone else that would go after the core business: books.”

Investor Bill Miller from Legg Mason often discussed the digital transition with Bezos when the two got together. “I think the thing that blindsided Jeff and helped with the Kindle was the iPod, which overturned the music business faster than he thought,” says Miller. “He had always understood this stuff was going digital, but he didn’t expect to have his CD business eviscerated like that.”

Bezos ultimately concluded that if Amazon was to continue to thrive as a bookseller in a new digital age, it must own the e-book business in the same way that Apple controlled the music business. “It is far better to cannibalize yourself than have someone else do it,” said Diego Piacentini in a speech at Stanford’s Graduate School of Business a few years later. “We didn’t want to be Kodak.” The reference was to the century-old photography giant whose engineers had invented digital cameras in the 1970s but whose profit
margins were so healthy that its executives couldn’t bear to risk it all on an unproven venture in a less profitable frontier.

Bezos was apparently contemplating a dedicated electronic reader as early as 2003—around the time Gemstar pulled the Rocketbook from shelves. Andreas Weigend, Amazon’s short-lived chief scientist, remembers Bezos speaking to his technical team about such a device and saying, “It’s for one-handed reading.” Upon imagining what the
other
hand might be doing, Weigend started to laugh out loud, and then everyone else in the small conference room did as well. “Jeff, the good kid that he is, had no idea what one-handed reading could refer to,” Weigend says.

In 2004, Amazon executives were considering shutting down their own fledgling e-bookstore, which featured books in Adobe and Microsoft formats. The store was everything Bezos hated: its selection was small, its prices were high, and the customer experience of downloading titles and reading them on the screen of a PC or PDA was terrible. But Bezos, according to Piacentini, seemed determined. Despite these early flaws, e-books were clearly the future of bookselling.

A few weeks into these discussions, in an S Team meeting, Bezos announced that Amazon would develop its own dedicated electronic reading device for long-form reading. It was a stunning edict. Creating hardware was expensive and complicated. It was also well outside of Amazon’s core competency—its litany of obvious skills. There was a chorus of vehement objections. Jeff Wilke in particular had the background in manufacturing to know what challenges lay ahead for the company if it tried to make and sell its own devices. “I thought it would be difficult and disruptive and I was skeptical that it was the right use of our resources,” he says. “It turned out that most of the things I predicted would happen actually happened, and we still powered through it because Jeff is not deterred by short-term setbacks.”

Diego Piacentini also protested. He had watched firsthand as Apple struggled through the 1990s with disastrous surpluses of
products and massive inventory write-offs. “It was seen by me and all the small thinkers as a very risky investment,” he says.

Bezos dismissed those objections and insisted that to succeed in books as Apple had in music, Amazon needed to control the entire customer experience, combining sleek hardware with an easy-to-use digital bookstore. “We are going to hire our way to having the talent,” he told his executives in that meeting. “I absolutely know it’s very hard. We’ll learn how to do it.”

Within Amazon there is a term used to describe the top executives who get to implement Jeff Bezos’s best ideas:
Jeff Bots.
The playfully derisive phrase that undoubtedly hides a little jealousy connotes slavish devotion but also loyalty and effectiveness. Jeff Bots draw fuel from their CEO’s ample idea tank and then go out into the world and dutifully execute the best notions. They have completely absorbed Bezos’s business philosophy and molded their own worldviews around it, and they recite rote Jeffisms—how they start from the customer and work backward, et cetera—as if these were their prime directives. To interview a Jeff Bot as a journalist is to witness his or her remarkable ability to say absolutely nothing of substance while going on about Amazon’s inventiveness and its unmatched, gee-whiz enthusiasm for the customer. Jeff Bots would surely rather chomp down on their cyanide-capsule-implanted molars than address topics that Amazon has programmed them to never publicly discuss—subjects such as the competition and any possible problems with products.

Throughout Amazon history, there was perhaps no more faithful or enterprising Jeff Bot than Steve Kessel, a Boston-born graduate of Dartmouth College and the Stanford University Graduate School of Business. Kessel joined Amazon in the heat of the 1999 expansion after a job consulting for browser pioneer Netscape. In his first few years at the company, he ran the book category at a time when Amazon was cultivating direct relationships with publishers and trying to assuage their fears about third-party merchants selling
used books on the site. During this grinding period of Amazon’s greatest challenges, Bezos grew to trust him immensely.

One day in 2004, Bezos called Kessel into his office and abruptly took away his impressive job, with all of its responsibilities and subordinates. He said he wanted Kessel to take over Amazon’s fledgling digital efforts. Kessel was skeptical. “My first reaction was that I already had the best job in the world,” he says. “Ultimately Jeff talked about building brand-new things, and I got excited by the challenge.” Bezos was adamant that Kessel could not run both the physical and digital-media businesses at the same time. “If you are running both businesses you will never go after the digital opportunity with tenacity,” he said.

By that time, Bezos and his executives had devoured and raptly discussed another book that would significantly affect the company’s strategy:
The Innovator’s Dilemma,
by Harvard professor Clayton Christensen. Christensen wrote that great companies fail not because they want to avoid disruptive change but because they are reluctant to embrace promising new markets that might undermine their traditional businesses and that do not appear to satisfy their short-term growth requirements. Sears, for example, failed to move from department stores to discount retailing; IBM couldn’t shift from mainframe to minicomputers. The companies that solved the innovator’s dilemma, Christensen wrote, succeeded when they “set up autonomous organizations charged with building new and independent businesses around the disruptive technology.”
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Drawing lessons directly from the book, Bezos unshackled Kessel from Amazon’s traditional media organization. “Your job is to kill your own business,” he told him. “I want you to proceed as if your goal is to put everyone selling physical books out of a job.” Bezos underscored the urgency of the effort. He believed that if Amazon didn’t lead the world into the age of digital reading, then Apple or Google would. When Kessel asked Bezos what his deadline was on developing the company’s first piece of hardware, an electronic reading device, Bezos told him, “You are basically already late.”

With no personal knowledge of the hardware business and no internal resources at the company to draw on, Kessel went on a fact-finding mission to Silicon Valley, meeting with hardware experts from Apple and Palm and with executives from the famed industrial design firm Ideo. He learned that Amazon would need not just designers but electrical engineers, mechanical engineers, wireless engineers—the list was endless.

Following Christensen’s dictates as if they were instructions in a recipe, Kessel set up another subsidiary in Palo Alto in addition to A9. To take the helm of the new division, he hired Gregg Zehr, an easygoing former vice president of engineering at Palm Computing who kept a jazz guitar in his office. Jateen Parekh, a former engineer at set-top-box maker ReplayTV (an early TiVo rival), became the first employee, and a few others were hired as well. There was no office to report to, so they set up shop in an empty room in the headquarters of A9. Zehr and his colleagues set about furnishing the new division with a name alluring enough to attract the best and brightest engineers from Silicon Valley. They eventually settled on Lab126. The
1
stands for
a,
the
26
for
z;
it’s a subtle indication of Bezos’s dream to allow customers to buy any book ever published, from
a
to
z.

They didn’t get their marching orders right away, so Zehr and his team spent the first few weeks investigating the possibility of building an Internet-connected set-top box and even an MP3 player. Finally Amazon’s new hardware geeks were given their mission: they were to build an electronic reading device. “We were told to do one great thing with maniacal focus,” says Tom Ryan, a software engineer from Palm whom Zehr brought over that fall. “The aspiration was to be Apple.”

The group piggybacked on A9’s infrastructure for the next year. When the search division moved to the former offices of a law firm on Lytton and Alma in downtown Palo Alto, Lab126 moved with them and took up residence in the old law library. They researched existing e-readers of the time, such as the Sony Libre, which required triple-A batteries and sold poorly. They concluded the
market was wide open. “It was the one thing that wasn’t being done well by anyone else out there,” says Parekh.

Lab126 was soon given extensive resources but it also had to contend with the unfettered imagination of Bezos. Amazon’s founder wanted his new e-reading device to be so easy to use that a grandmother could operate it, and he argued that configuring devices to work with WiFi networks was too complicated for non-tech-savvy users. He didn’t want to force customers to connect the device to a PC, so the only alternative was to build cellular access right into the hardware, the equivalent of embedding a wireless phone in each unit. Nothing like that had been tried before. Bezos insisted that customers should never have to know the wireless connection was there or even pay for access. “I thought it was insane, I really did,” Parekh says.

In those early months, much of the early direction for the Kindle was set. Zehr and Parekh made the decision to explore the low-powered black-and-white display technology called E Ink that, years before, Martin Eberhard had found too primitive and expensive. It used millions of tiny microcapsules, each about the diameter of a human hair and containing positively charged white particles and negatively charged black particles suspended in a clear fluid. When a positive electric field is applied, positively charged particles move to the top of the microcapsule, making that spot appear white; when a negative electric field is applied, negative particles migrate up, and the spot appears black.

Unlike LCD systems, the technology worked well under direct sunlight, used very little battery power, and was exceedingly easy on the eyes. In a sense, Amazon got lucky. A technology perfectly suited for long-form reading on a device (and terrible for everything else) just happened to be maturing after a decade of development.

In those waning months of 2004, the early Lab126 engineers selected a code name for their new project. On his desk, Zehr had a copy of Neal Stephenson’s
The Diamond Age,
a futuristic novel about an engineer who steals a rare interactive textbook to give to his daughter, Fiona. The early Lab126 engineers thought of the
fictitious textbook in the novel as a template for what they were creating. Michael Cronan, the San Francisco–based graphic designer and marketing executive who baptized the TiVo, was later hired to officially brand the new dedicated reading device, and he came up with Kindle, which played off the notion of starting a conflagration and worked as both a noun and a verb. But by then Kessel’s team was devoted to the name Fiona and the group tried, unsuccessfully, to convince Bezos to keep it. In a sense, the knowledge-starved Fiona of Stephenson’s fictional world became Amazon’s patron saint in its risky journey into the digital frontier.

While Zehr and his crew at Lab126 worked on software and developed relationships with Asian manufacturers, the early industrial design work on Amazon’s new e-reader was contracted out to the San Francisco office of global design firm Pentagram. Zehr had worked with a partner there, Robert Brunner, at Apple in the 1990s, and he introduced Brunner to Steve Kessel with the suggestion that Pentagram could offer a nimbler and perhaps more discrete style of collaboration than larger firms like Ideo. Brunner assigned two of his employees, Tom Hobbs and Symon Whitehorn, to the job.

The Pentagram designers, both British born, began by studying the actual physics of reading—the physical aspects of the pastime, such as how readers turn pages and hold books in their hands. They forced themselves to read on existing e-readers, like the Sony Libre and the old Rocketbook, and on PDAs like the iPaq from Compaq and Palm’s Treo. They brought in focus groups, conducted phone interviews, and even went up to Seattle to talk to Bezos himself, trying to deconstruct a process that for many hundreds of years people had taken for granted. “We were pushing for the subconscious qualities that made it feel like you are reading a book,” says Hobbs. One of the primary conclusions from their research was that a good book disappears in the reader’s hands. Bezos later called this the top design objective. “Kindle also had to get out of the way and disappear so that you could enter the author’s world,” he said.
¹⁰

The Pentagram designers worked on the Kindle for nearly two years. They met with Steve Kessel, Greg Zehr, and Charlie Tritschler—another Palm veteran who’d joined Lab126—every Tuesday morning at A9 in Palo Alto and later at the new Lab126 offices in Mountain View. They periodically traveled to Seattle to update Bezos on their progress, and they had to present to the CEO in the customary Amazon way, with six-page narratives.