Expecting the Unexpected From Jeff Bezos

August 17, 2013

Expecting the Unexpected From Jeff Bezos


EARLY employees of Amazon still remember the day the company took away their aspirin. It was late 1999. After years of heady excess, the Internet boom was beginning to falter. Amazon, among the most celebrated of the dot-coms, was burdened with debt and spiraling losses. Jeff Bezos, its founder and chief impresario, had to impress Wall Street that he was serious about cutting costs. But how? Amazon had never indulged employees with Silicon Valley perks like massages or sushi chefs. Just about the only thing that workers received free was aspirin. So the aspirin went.The removal created a lot of muttering, but the cost-cutting — including layoffs — and promises of future profit helped Amazon escape the jaws of doom. Now, 14 years later, Mr. Bezos, 49, has become so rich and successful that he can surprise the world by buying The Washington Post for the equivalent of pocket change, which in his case is $250 million.

No one, apparently including Mr. Bezos himself, seems to know what he intends to do with that fabled newspaper. This is, after all, a man who once said the quality he most wanted in a wife was the ability to spring him from a third-world prison. He can probably be counted on to think unpredictably.

The aspirin take-away and similar incidents over the course of Mr. Bezos’ career show a determination to do whatever is necessary to succeed and a fanatic attention to detail, even at the expense of appearing ridiculous. Also, he does not care about your headache.

“Jeff may be outwardly goofy, with that trademark laugh, but he’s a very tough guy,” said James Marcus, who was Amazon employee No. 55. “If he goes even halfway through with his much-vaunted reinvention of journalism, there is no way he’s not going to break some eggs.”

Mr. Bezos is the sole founder, the public face, the largest shareholder and the visionary of Amazon. “For many of us, creating Earth’s biggest bookstore would have been enough,” said Kerry Fried, employee No. 251. “Jeff’s goal was a touch grander: to conquer the world.”

He has more than his share of detractors — just ask your neighborhood bookseller, if you can find one. But it is increasingly hard to dispute that he is the natural heir of Steve Jobs as the entrepreneur with the most effect on the way people live now.

Amazon, which is as much a reflection of Mr. Bezos’ personality as a corporation worth $125 billion can be, is by far the fastest-growing major retailer, although that simple label long ago ceased to suffice. It is also a movie studio, an art gallery (a 1962 Picasso, “Jacqueline au Chapeau Noir,” can be had for $175,000) and a publisher. It is an empire that spans much of the globe and even has its own currency, Amazon Coins. What it does not have much of, and never did, are old-fashioned profits.

The company has all sorts of regulatory and competitive concerns, making for a minefield of possible conflicts of interest for the owner of The Post. Amazon has opposed states’ efforts to have e-commerce companies collect sales tax. It was the main beneficiary of the Justice Department’s successful pursuit of five publishers and Apple on antitrust grounds. It is locking horns with major companies like Walmart and I.B.M. And as it expands into same-day delivery of its products, it will come up against grocery chains and drugstores.

Through its thriving data storage division, Amazon is becoming an important contractor to the government bureaucracy that is a mainstay of The Post’s reporting. If persistent rumors are true and the company produces an Amazon phone, yet another set of antagonists will arise.

Other newspaper publishers have similar, if fewer, conflicts. The Washington Post Company owns Kaplan, the for-profit education business that came under Congressional scrutiny, and the company fought efforts to impose regulations. But the newspaper nonetheless maintained its commitment to investigative journalism. Some argue that it would to take more than a change of ownership to transform that culture.

“Newsrooms are very conservative,” said Bill Buzenberg, executive director for the Center for Public Integrity. “They have difficulty changing and certainly they have difficulty selling out their core principles.”

Perhaps. But then, few newsrooms have ever been confronted with a new owner whose zeal for disruption is matched by his obsession with tinkering until he gets it right. As Steve Yegge, a former employee, once put it, “He just makes ordinary control freaks look like stoned hippies.” A relevant fact: Mr. Bezos originally thought of naming Amazon “Relentless.”

Mr. Marcus, now the executive editor of Harper’s Magazine, said it all made sense, kind of: “Bezos is fascinated by broken business models. And whatever else you think of newspapers, the business model is broken.”

THERE is a reason that not even the most imaginative press critics ever thought that Jeff Bezos might one day buy The Washington Post: he has never seemed much of a fan of journalism or journalists.

He gives interviews only when he has something to promote, and always stays on message. He likes his privacy; there are no “at home with” magazine features with him lounging with his wife, MacKenzie, and four children at his luxurious Seattle lakeside estate. Amazon’s quarterly earnings calls with analysts and journalists are festivals of vagueness.

Even a number as basic, and presumably impressive, as how many Kindle e-readers the company sells is never released. There are no bold signs on its growing Seattle headquarters complex to identify what is contained within. And there are fewer leaks out of Amazon than the National Security Agency.

The philanthropic Bill Gates, whose wife, Melinda, served on The Post’s board, might have been a more likely buyer. Mark Zuckerberg, who adopted Donald E. Graham, the Post Company’s chief executive, as a mentor, could have been plausible. When it turned out to be Mr. Bezos instead, no one minded admitting astonishment. Neither his managerial style nor his entrepreneurial success nor his passion for secrecy seem to necessarily transfer over to his newest possession.

“Every story you ever see about Amazon, it has that sentence: ‘An Amazon spokesman declined to comment,’ “ Mr. Marcus said.

Drew Herdener, an Amazon spokesman, declined to comment.

Though indisputably one of the great marvels of the age, Amazon is a curious beast that offers few obvious lessons for how a newspaper like The Post might become profitable. Financial writers have noted that Apple makes more than twice as much money in a quarter than Amazon earned during the last decade. Last quarter, Amazon had a net loss of $7 million. But Wall Street loves Amazon anyway, despite its slim margins.

Amazon tends to give its profits directly to its customers. It sells to them at a discount, will often ship free and, if a customer wants to return an item, will refund the money before even receiving the return.

Sometimes it will even do more. Say you buy a book, and then decide it’s not for you. You tell Amazon you are returning it. You might get a message like this: “Keep this item and receive a refund! It’s on us!”

That’s a sure way to win friends and lose money. But Wall Street believes that the company will someday monetize tens of millions of customers — in other words, make a real profit each time it sells them something. Maybe next year. Or the year after. From the very beginning, Mr. Bezos has made Amazon an investment story about the company’s potential rather than its reality.

People who have worked closely with Mr. Bezos say he refuses to waste time on anything that isn’t directly about the customer. “That’s where his ego is,” one former colleague said.

As tech companies grow old and big, they strive to keep the energy and boldness of the start-up they once were. They almost always fail. Amazon is the exception. “If a new product was launching, sometimes the day would never end,” a former employee said. As an Amazon joke has it, work-life balance is for people who do not like their work.

In Seattle, employees who are partly paid in stock have been rewarded with its 600 percent climb in the last five years. Out in the warehouses, where most of Amazon’s 90,000 employees work, starting pay is about $12 an hour and workers can quickly lose their jobs if they slow down.

It was so hot in Allentown, Pa., in May 2011 that some workers at the Amazon warehouse there collapsed. Another company with different attitudes might have installed air-conditioning, or simply sent workers home during heat spells. If Amazon did that, however, East Coast customers might not get their Jay-Z CDs or diapers or jars of heather honey as quickly as they expected.

So the company chose a different solution. It arranged to station ambulances and paramedics out front during five days of excessive heat, according to The Morning Call, the Pennsylvania newspaper that broke the story. Fifteen workers were taken to area hospitals after they fell, and as many as 30 more were treated by paramedics at the warehouse. Workers quoted by the paper said the heat index in the facility, a measure that includes humidity, was as high as 114 degrees. Amazon had little to say to the newspaper, even when it later installed air-conditioning.

It is unlikely that Mr. Bezos will treat The Post’s reporters the way he treated his warehouse workers.

“I don’t expect him to turn off the air-conditioning,” said Ken Doctor, an analyst at Outsell. But Mr. Doctor suggested that Mr. Bezos did have one particularly relevant area of expertise: gathering data and using it to figure out what consumers want. “The Washington Post has a major political news audience,” Mr. Doctor said. “Yet it hasn’t been able to segment that audience commercially.”

One other competency that Mr. Bezos has: money, and lots of it.

“There’s not a person in this world that can save the newspaper industry,” said Craig Huber, an independent research analyst. “He’s going to be dealing with operating losses as far as the eye can see. I think The Washington Post sold to him because he’s going to be more willing to absorb those losses.”

A CORE role for any newspaper is to cover the local government. For The Post, that includes the federal government. In recent years, however, Amazon has become a government contractor — in effect, the government’s digital filing cabinet.

Amazon Web Services, Mr. Bezos’ cloud computing operation, is a leading service for third-party rental of computing and data storage. Besides hundreds of thousands of individuals and businesses, more than 2,000 research institutions and 500 government institutions worldwide use A.W.S. Amazon runs several large data centers, each containing hundreds of thousands of servers, along with 42 smaller facilities around the world.

The operations of these data centers, like most other details about A.W.S., are a closely held secret. Even the company’s senior executives must have a valid reason to be inside one of the big facilities.

In addition to the eight major centers, A.W.S. operates a separate data center, called GovCloud, for the United States government. GovCloud is compliant with the government’s International Traffic in Arms Regulations, or ITAR, controls. Only United States citizens can use these computers. Much other government work, for both the United States and foreign governments, is done in other A.W.S. centers as well.

In one important recent development, A.W.S. was awarded a contract valued at $600 million to provide computing services to the Central Intelligence Agency. James Staten, an analyst with Forrester Research, said the C.I.A. contract was a breakthrough for Amazon. “Every other national intelligence service will want the same kind of computing, if they can get it,” he said.

Every other cloud services company, meanwhile, wants a piece of the action. I.B.M. formally protested the award on undisclosed grounds. The Government Accountability Office, while finding generally for Amazon, said the C.I.A. should re-examine the deal. Amazon is expected to officially apply for the original award to stand.

Although Mr. Bezos, not Amazon, bought The Post, his role as Amazon’s chief executive and biggest shareholder makes for awkward relationships. Kate Martin, director of the Center for National Security Studies, said, “It’s a serious potential conflict of interest for a major newspaper like The Washington Post to have a contractual relationship with the government and the most secret part of the government.”

But Steve Aftergood, director of the project on government secrecy for the Federation of American Scientists, said that if The Washington Post did not publish a story about the C.I.A. because of Amazon’s business relationship with the agency, “there would be no shortage of other venues that would be eager to publish the information in question.”

Bob Woodward, The Post’s most famous reporter, said he first met Mr. Bezos at a Forstmann Little conference in Colorado about a decade ago and that they spoke “a number of times at those conferences and elsewhere.”

Mr. Woodward said that when he discussed projects and books with Mr. Bezos, “he always struck me as very serious about it and in tune with the values of independence, aggressiveness.” He added that he hoped that because Mr. Bezos ran a company that was “customer focused,” the entrepreneur would recognize how much readers appreciate high-quality reporting.

Mr. Bezos has made the right noises. Referring to a famous assertion that John N. Mitchell, President Nixon’s 1972 campaign director, directed at Katharine Graham, The Post’s publisher, the Amazon chief wrote in a letter to Post employees that “while I hope no one ever threatens to put one of my body parts through a wringer, if they do, thanks to Mrs. Graham’s example, I’ll be ready.”

Mr. Bezos’ critics, however, have been clamoring to put him through a wringer for years now. Leaving aside the complaints of bookstores, publishers and distributors, all groups whose viability he is challenging, two controversies seem to prefigure the sort of conflicts he will have as The Post’s new owner.

WikiLeaks briefly used Amazon Web Services in late 2010 to host its purloined classified documents, but then Amazon pulled the plug. The company said that contrary to news reports, it was not acting at the government’s request. Instead, it said it took WikiLeaks offline for violating Amazon’s rules against posting material you do not own. The Electronic Frontier Foundation said Amazon “ran away with its tail between its legs.”

A more recent complaint involves the opposite of the WikiLeaks situation. Ask.fm, a Web site for anonymous teenagers, is being pilloried in the British media for allowing cyberbullying that was blamed in the suicides of four youths. Amazon, which reportedly hosts Ask.fm, has been asked to take it down for violating its rules against hate speech. An Amazon spokeswoman declined to comment or even confirm that the company hosts Ask.fm.

LARGELY overlooked in the commentary over what Mr. Bezos will do with The Post is the fact that he has already commanded a large editorial team.

In the early days of Amazon, he set up a department to produce reviews of the books that Amazon was selling. It was an impressive gesture: Whoever heard of a store with editors? But it offered Amazon instant credibility. Mr. Bezos never suggested that the reviews be positive, and he gave the department his full support.

Until he did not. People at Amazon at the time describe a struggle between high-minded reviewers and data-driven M.B.A.’s, otherwise known as the Vulcans in a tribute to Mr. Bezos’ favorite television show. The Vulcans pointed out that relatively few customers actually read the reviews, so maybe Amazon shouldn’t spend so much to produce them.

“It was a culture war and the Vulcans won,” said Tim Appelo, who worked in the editorial department. “Many people in Amazon editorial were embittered because Bezos scuttled us.”

The professional reviews yielded to the innovation of customer reviews — sometimes an impartial evaluation, sometimes a love song by the author’s mother disguised as an impartial evaluation. There was no way to tell, and no one in management seemed to care. Many of the reviewers quit or were laid off.

Mr. Appelo was not bitter. In fact, he went back to Amazon for a second stint, introducing its digital video store in 2006. (He is now at The Hollywood Reporter.)

“Bezos knows that there is a difference between the marketplace and the marketplace of ideas,” Mr. Appelo said. “He is relentlessly and ruthlessly inventive but I don’t think he’ll indulge his Vulcan side too much.”

Put like that, it sounds somewhere between a gut feeling and a heartfelt wish. In these troubled times for newspapers, that may be the most The Washington Post can expect.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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