An Eye on the Future

| | Jeff Bezos loves being on the move. He sits in the back of a white van, beaming as usual, surrounded by an entourage of lanky young lieutenants from Amazon.com, the Web's biggest retail store and, someday, if Bezos gets it right, Earth's Biggest Store. The early-morning landscape of southeast Kansas hustles by: wood-frame houses, trailers, motels with lots of pickup trucks in their parking lots, a Kum & Go convenience store, cow pastures and the dull, forever flatness of the prairie. You've heard of places described as cow towns? Coffeyville was actually labeled Cow Town on maps on account of the stockyards here. In the 1860s the name was changed to honor Colonel James A. Coffey, who set up a grand trading post on the frontier, selling stuff to Native Americans.

Today's frontier is hidden from the physical world, burbling and buzzing along the interconnected wires, routers and computers of the Net. But the possibilities for trade are far more fabulous than could ever have been imagined 100--or even 10--years ago. That's where Bezos comes in. His van rounds a corner, passes an airfield, heads down a two-lane road and pulls into a long driveway that leads to the biggest warehouse you've ever seen. The place is known as the Coffeyville Distribution Center, and Bezos (pronounced Bay-zos), who's never been here before, is giggling with excitement. He tells the driver to stop so he can snap a picture of a workman pounding a help wanted sign into the turf. Bezos, 35, a meticulous documentarian, is worried that his life is scrolling by too fast to remember, a life that is so fantastic as to verge on the unbelievable. So he takes plenty of pictures and awful, jittery amateur videos. At the very least, they'll help tell his story to the Bezoses' first child, a boy due in March.
Here in Coffeyville is another piece of the proof that Bezos' early and fervent belief in the Internet--that it would rock retailing, that it would change the way we live--stands as one of the more prescient assumptions ever made by a businessperson. We're trying to build something lasting, Bezos says, looking at this 850,000-sq.-ft. monument to free trade. The warehouse is stocked with books, CDs, TVs, stereos, video games, software, toys. And yet only 10% of the area is being used. The rest is stretch space, here for the ongoing e-commerce revolution.



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BEZOS' REVOLUTION
If all goes according to his daring--some might say outlandish--plan, this warehouse will be at capacity within the next few years and will handle everything: washing machines, cars, rubber gaskets, Prozac, exercise machines, marmalade, model airplanes, everything but firearms and certain live animals. You name it, Amazon will sell it. Anything, says Bezos, with a capital A. And that's the point: Jeffrey Preston Bezos is trying to assemble nothing less than Earth's biggest selection of goods, then put them on his website for people to find and buy. Not just physical things that you can touch, but services too, such as banking, insurance, travel.

It's incredibly risky. How elastic is the Amazon brand name? How much can you stretch it until it simply explodes and becomes meaningless to consumers? And how long can the money hold out? Bezos has already burned through a bank's worth of cash with no sign of slowing down. If anything, he's upping the ante--according to estimates, the company's net loss could be $350 million this year alone.

And the e-commerce world has changed enormously since Seattle-based Amazon jumped out to its first-mover advantage. There are plenty of second, third and fourth movers to battle. They come in the form of category killers that overwhelm you with selection, expertise, price and service for a given class of goods. Adornis.com is bauble central for luxury items, for instance, and Petopia.com is one of dozens of sites that will shower you and your doggie with selection. On the other side are e-malls such as Buy.com and Shopnow.com. Traditional retailers are making the transition to the Web too, and one of them--Wal-Mart--could be letting a monster loose when its new website debuts early next year. And don't forget eBay, the other e-commerce revolutionary. eBay's many-to-many approach to selling--the world is just one big auction--completely opposes Amazon's one-to-many, fixed-price universe. And it's been profitable from Day One.

The sheer number of competitive websites alone will put pressure on Amazon's growth--one reason Bezos is adding categories as fast as he can. During the past year, he's added video games and DVD movies, toys, electronics, software, home-improvement products, auctions and zShops--an online flea market where anyone can sell anything. Bezos says he wants to double his offerings again next year. The company also has minority stakes in other e-commerce companies such as Drugstore.com, Pets.com, HomeGrocer.com, Gear.com and Della.com, a wedding and gift registry.

But how long can you build warehouses to the sky and not fill them? Says Scott Sipprelle, founding partner of the investment firm Midtown Research Group: The chance of a painful failure goes up as they increase the chips on the table. Just look at the metrics. As the company grows in scale, the absolute dollars it's losing are greater and greater: debt is going up, margins are going down and cash burn is increasing.

Bezos, naturally enough, is unmoved by the naysaying because he's convinced that as more customers come to his site, he'll be able to offer the lowest prices. And they will come because Amazon simply does the best job of helping them find stuff. But what if they use his site for research, then go elsewhere for the cheapest price? Bezos has considered that as well. And he has a possible solution: Membership clubs! he says. If you want to see all the information we collect on Amazon--the customer reviews, the professional reviews and use our agenting technology--you have to pay $30 a year. Those membership fees would be used to help drive down the price of items, which would be sold almost at cost. Nonmembers could shop there, of course. They just wouldn't have access to Amazon's rich data and whizzy technology.

Most of the market is betting that Bezos wins and that Amazon emerges from what will surely be massive carnage among Internet retailers over the next few years. During the past two weeks, with holiday sales booming, Amazon's stock price has soared to $94. The stock has split three times. Sales are expected to crest $1 billion this year. We firmly believe, says Salomon Smith Barney's Holly Becker, that Wall Street will look back on these growing pains and realize management's foresight in developing one of the smartest strategies in business history.

Bezos & Co. conceived an entirely new way of thinking about the ancient art of retailing, from creating a flow experience that keeps customers coming back to Amazon's website to read product reviews or one another's wish lists, to automating as much as possible a complex process that starts when you hit the patent-protected 1-Click buy technology and ends when your purchase is delivered to your door. The Coffeyville center, for instance, is part of a nationwide distribution network specially designed to handle e-commerce. Half a dozen warehouses like it have been strategically placed in low- or no-sales-tax states around the U.S.--3 million sq. ft., at a cost of $200 million--and are built to do what traditional warehouses can't do: deliver items directly and efficiently to customers rather than by pallet to retail stores. It requires new ways of thinking about employees--and customers too.

You can see it in each of the distribution centers. Here in Coffeyville, the high walls are painted white, and the endless rows of stock shelves shine in fluorescent yellow--the better to see the billboard-size banners that festoon the aisles and walls. Our vision, reads one, is the world's most customer-centric company. The place where people come to find and discover anything they might want to buy online. Another banner floats above one of the aisles and lists the company's Six Core Values (customer obsession, ownership, bias for action, frugality, high hiring bar and innovation). It's like the Cultural Revolution meets Sam Walton. It's dotcommunism!

The Chairman himself has been on a Long March for the past five years, and shows no signs of tiring. Bezos is pathologically happy and infectiously enthusiastic. Today's whistle-stop is typical. As usual he's smiling, shaking hands and shocking new employees with his distinctive laugh, a rapid honk that sounds like a flock of Canadian geese on nitrous oxide. He's an average-size man with thinning hair, warm brown eyes and a face that suggests Kevin Spacey with more than a hint of Frank Perdue. His uniform tends to be white or blue button-down shirts with collars that efficiently snap rather than button down. Also khakis. You get the feeling that if he wore a tie (he doesn't), it would fly behind him like the parachute behind a dragster. Even now, as he's supposedly being led on a tour of the warehouse, he's at the front of the line, sailing down a narrow corridor that doglegs and decants into a huge room.

For a heartbeat, he's surprised. Seated there, eight to a row in folding chairs, are the latest recruits: 300 employees leap to their feet as a boss on a p.a. system yells, Let's welcome Jeff Bezos! They give him a standing O. Thank you! says Bezos. Let me say, Thank you for working here! And he laughs that startling laugh.

He climbs a podium and launches into his Six Core Values speech, which is the linchpin of most of his speaking engagements. He always begins with the watchword of his faith: the customer comes first. Wake up every morning terrified--not of the competition but of our customers.

Lots of hands shoot up during the Q.&A. period. Bloomberg says Amazon is going to fall flat on its face, asserts one person. Bezos dismisses the comment. We have a ton of doubters, and the fact of the matter is, we don't try to convince them, he says, pointing out that he will start making a profit when the cone of opportunity begins to narrow--that is, when there's no room left for more competitors to enter. The questions go on for 15 minutes. What does your house look like? (It's lovely, and we are amazingly fortunate to live there, he replies, pointing out that until four months ago, he and MacKenzie, his wife of six years, lived in a 900-sq.-ft. apartment.) Just how many items do we sell? (Eighteen million, so far.) He answers them all, patiently and directly, without a trace of defensiveness, punctuated by the laugh. Finally, a woman in the front says, I have two questions ... One, why the name Amazon? And two ... can I have your autograph?

And then a surprising thing happens. The workers in the first four rows start handing up their white hardhats to be signed too. Then a group of workers behind them gets up and encircles Bezos, proffering hats, dollar bills, scraps of paper--anything--for his signature. Welcome to Bezosville, U.S.A.

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