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few months ago Amazon reached what its founder and CEO Jeff Bezos demurely
tells me was "an interesting milestone." The retailing giant, so ubiquitously asso-
ciated with books, then music and video, now has more than 20 million products
in stock—and a majority of them are nonmedia goods: drills, dress shoes, tennis
rackets and almost anything else that a human can ship. Adults may srill mentally
link Amazon widi Barnes & Noble, but to teenagers Amazon is now synonymous with .store.
That remarkable turning point might be Bezos' greatest accomplishment. In officially trans-
forming Amazon fi-om an online bookstore that sells other stLiff to a retailer—and husiness ser-
vices provider—that once sold niosriy books, he has taken one of the original Internet bonanzas
and created a success story all over again. Its stock is up 397% in the last five years.
BEST CEOS
Bezos' 10 Rules 79
Could You Work
for Amazon? 84
Update on the Web
Heroes of 1998 86
MEL KARMAZIN 88
CEO PAY DATA 94
BEST BOSSES EOR
THE BUCK 96
76 I FORBES APRIL 23.2012
PHOTOGRAPHS BY MICHAEL PRINCE FOR FORBES
JEFF BEZOS GETS ITIn an era when high-flying tech companies outdo each other with worker
perl<s, the no-frills billionaire is proving the potency of another model:
coddling his 164 million customers, not his 56,000 employees.
BY GEORGE ANDERS
APRIL 23.2012 FORBES I 77
FORBES
THE BEST CEOS —AMAZON'SJEFF BEZOS
with a net worth of some $19 billion, the 48-year-old is
one ofthe 30 richest men in the world. Yet he still dashes
around Amazon with the intensity of a startup boss trying to
make his first payroll, as well as the glee of a teenager dis-
covering all the fun you can have at overnight camp. "I'm a
legitimately happy person," Bezos explains on a recent, rainy
Friday morning at Amazon's Seattle headquarters. "My wife
says: 'If Jeff is unhappy, just wait five minutes.' "
What's not to he happy about? He's the numher one CEO
in America. The passing of Steve Johs has left him, without
question, as the corporate chief that others most want to
meet, emulate and deify. And his primacy can be proven
with numbers: FORBES' ranking of top CEOS—using a
bang-for-the-huck methodology that factors in sustained
performance, modest compensadon and the ability to pull
ahead of one's peers—has Bezos comfortably in the top spot
Indeed, he's in the highest 5% in every single metric.
Across numerous e-mail back-and-forths and face-to-
face questions with Bezos, I've come to understand why.
More than a century ago another legendai-y retailer,
Chicago's Marshall Field, championed the fatalist's slogan:
"The customer is always right" Bezos, perhaps more than
anyone, has taken that mantra into the digital era, incre-
mentally cracking one of the business's gi-eat mysteries: fig-
uring what customers want before the cash register rings
and then making those insights pay off In an era when
high-flying tech companies outdo each other with worker
perks, no-frills Bezos is proving the potency of another
Amazon's new digs are in Seattle's elegantly rehabbed South Lai<e Union district. One building is named Rufus in honor of a beloved dog.
78 I FORBES APRIL 23.2012
model: coddling his 164 million customers, not his 56,000
employees.
JEFF BEZOS' MANAGERS AT AMAZON find him formi-
dable enough. But the figure that overwhelms their lives goes
by the internal nickname "the empty chair." Bezos periodi-
cally leaves one seat open at a conference table and informs
all attendees that they should consider that seat occupied by
their customer, "the most important person in the room."
If the empty chair is the ultimate boss at Amazon, then
Bezos is its billionaire enforcer, the guardian of what he calls
the "culture of metrics" that tries to give that inanimate ob-
ject a loud, clear voice. Amazon tracks its performance
against about 500 measurable goals. Nearly 80% relate to
customer objectives. Some Amazonians try to reduce out-of-
stock merchandise. Others race to huild a bigger library of
downloadable movies. Intricate algorithms turn one i^roup of
shoppers' past habits into custom recommendations tor new
customers. Hourly bestseller lists identify what's hot. Weekly
reviews keep track of who is on course—and where correc-
tive attention is needed.
Amazon is so confident of its ahility to personalize the
site for each user that the company hardly ever creates clas-
sic customer-segment personas, such as "soccer moms" or
"gearheads." Such marketing standhys are too imprecise for
Team Bezos.
Feisty dehates over what metrics to watch are Amazon's
way of life. "There's an incredible amount of challenging the
JEFF BEZOS' TOP TEN MAXIMS, DECODED
With the passing of Steve Jobs, Jeff Bezos is now tech's leading philosopher-CEO. His advice
ranges from what to read (give the Declaration of Independence a shot) to how to deal with stress
("Laugh a lot"). Mostly, though, Bezos sticks to business.
"BASE YOUR STRATEGY ON THINGS
THAT WON'T CHANGE."
Selling lipstick, tractor seats, e-book readers
and data storage are all part of one big plan
with three big constants: offer wider selec-
tion, lower prices and fast, reliable delivery.
"OBSESS OVER
CUSTOMERS."
Early on Bezos brought an empty chair into
meetings so lieutenants would be forced to
think about the crucial participant who
wasn't in the room: the customer Now that
surrogate's role is played by specially trained
employees, dubbed "Customer Experience
Bar Raisers." When they frown, vice
presidents tremble.
"WE ARE WILLING TO BE
MISUNDERSTOOD FOR LONG
PERIODS OF TIME."
Many of Amazon's expansions look like money-
losing distractions at first. That sometimes
sends the company's stock price skidding and
evokes analysts' scorn. Bezos shrugs. If the new
initiatives make strategic sense to him, a five-
to-seven-year financial payoff is okay
"THERE ARE TWO KINDS OF
COMPANIES: THOSE THAT TRY
TO CHARGE MORE AND THOSE
THAT WORK TO CHARGE LESS.
WE WILL BE THE SECOND."
Lots of retailers talk about holding down costs
and passing the savings to the consumer. Few
do so as intently as Amazon, where "frugality"
is one of eight official company values. The
reward for putting up with cheap office
furniture: a $90 billion stock market valuation
and 35% revenue growth.
"DETERMINE WHAT
YOUR CUSTOMERS NEED,
AND WORK BACKWARDS."
Specs for Amazon's big new projects such as
its Kindle tablets and e-book readers have
been defined by customers' desires rather
than engineers' tastes. If customers don't
want something it's gone, even if that means
breaking apart a once powerful department.
"OUR CULTURE IS FRIENDLY AND
INTENSE, BUT IF PUSH COMES TO
SHOVE WE'LL SETTLE FOR INTENSE."
Data reigns supreme at Amazon, particularly
head-to-head tests of customers' reactions to
different features or site designs. Bezos calls
it "a culture of metrics." With dozens of these
gladiator-style showdowns under way each
week, there isn't much time for soothing
words or elaborate rituals of social cohesion.
"IF YOU WANT TO BE INVENTIVE,
YOU HAVE TO BE WILLING TO FAIL."
Early on the company hired a lot of editors
to write book and music reviews—and then
decided to use customers' critiques instead.
A foray into auctions flopped. Bezos regards
such stumbles as a part of life, as long as
Amazon can learn something useful.
"IN THE OLD WORLD, YOU DEVOTED
30% OF YOUR TIME TO BUILDING
A GREAT SERVICE AND 70% OF YOUR
TIME TO SHOUTING ABOUT IT. IN THE
NEW WORLD, THAT INVERTS."
Amazon's ad budgets are surprisingly small
for a retailer of its size. Bezos believes old-
fashioned word-of-mouth has become even
more important in the digital age—so he
prefers low-key process improvements that
are meant to get happy customers buzzing.
One favorite: Amazon's war on clamshell
packaging, so toys and other shipments will
be easier to open.
"EVERYONE HAS TO BE ABLE
TO WORK IN A CALL CENTER."
Complaints can be devastating in the age of
viral tweets and blogs. Bezos asks thou.sands
of Amazon managers, including himself, to
attend two days of call-center training each
year. The payoff: humility and empathy for
the customer
"THIS IS DAY 1 FOR THE
INTERNET. WE STILL HAVE
SO MUCH TO LEARN."
Bezos first made that observation in 1997, in
his initial letter to Amazon's shareholders. He
hasn't budged from it. At Amazon's new
headquarters two of the largest buildings are
Day 1 North and Day 1 South. In interviews
Bezos still talks about the internet as an
uncharted world, imperfectly understood and
yielding new surprises all the time. —G.A.
APRIL 23,2012 FORBES I 79
FORBES
THE BEST CEOS —AMAZON'SJEFF BEZOS
other person," says Manfred Bluemel, a former senior mar-
ket reseai'cher at Amazon. "You want to have absolute cer-
tainty about what you are saying. If you can stand a harrage
of questions, then you have picked the right metric. But you
had better have your stuff together. The best number wins."
Bezos is even stricter about what customers don't want.
They hate delays, defects and out-of-stock products, so the
metrics patrol at Amazon constantly tracks such numbers,
looking to make them as rare as possible. Even the tiniest
delay in loading a Web page isn't ti'ivial. Amazon has metrics
showing that a 0.1 second delay in page rendering can trans-
late into a 1% drop in customer activity.
Former executives all have stories about Bezos' obsessive
focus on the customer. Simon Murdoch, the former head of
Amazon's British operations, remembers offering customers
in the U.K. next-day delivery if their order was in by 4 p.m.;
Bezos personally hammered him to extend that delivery
v indow to 6 p.m., 7 p.m. and later, even if it meant radical
changes in wareliouse hours. (Today Amazon offers same-
day delivery for much of Britain and ten U.S. cities if the
order gets in that morning.) Another one-time insider re-
members a relentless push for sturdier-than-usual cardboard
so customers could reuse its boxes for other shipments or
presents, creating goodwill and putting Amazon's name in
front of a second set of potential customers.
Tina Patterson, a senior Amazon brand manager fi-om
2007 to 2011, recalls tense moments previewing television
ads for the soon-to-launch Kindle. Early versions included a
whimsical snippet where a Kindle-carrying reader trans-
formed into a brave matador, tossed into the air by a charg-
ing bull. Everyone giggled—except Bezos. He hit the rewind
button and silently replayed the matador scene. Then he
ttnuieil to the gi^oup and adopted a gi^ade-school teacher's
somber voice: "I know it's cute, and lots of people will think
the hull is funny. But the customer right there is getting his
ass kicked. We can't let him get hurt."
Bezos' zealous protection has paid off Each yeai- the Uni-
versity of Michigan calculates a customer-satisfaction index
for 225 of America's largest companies. Amazon has led the
online retailing category for years and has repeatedly placed
in the top 10 among all companies. Currently only Heinz,
Clorox, Apple and three car brands topped Amazon.
But great customer service doesn't fully explain Amazon's
exti'aordinaiy success. Other high-touch online retailers
can't match the $48 billion in sales Amazon did last year.
Meanwhile, traditional retailers like Target and Costco play
up customer service too—yet their combined market capital-
ization trails Amazon's $98 billion.
For Bezos a data-driven customer focus lets him take risks
to innovate, secure in the belief that he's doing the right thing.
"We are comfortable planring seeds and wairing for them to
grow into ti'ees," says Bezos. "We don't focus on the oprics of
the next quarter; we focus on what is going to be good for
customers. I think this aspect of our culture is rare."
Amazon's Kindle, for example, came into being because
Bezos, internalizing hundreds of data points, helieved mil-
lions of people would want a crisp e-book reader that could
download any book in 60 seconds or less. He set that delivery
target without getring pinned down by technical is.sues about
the right compression rarios or transmission speeds for hook
files. Engineers were free to solve technical challenges as they
saw fit. They just needed to make it right for consumers. It
took years for Ainazon to master the hardware necessary to
build such devices, hut Bezos didn't blink. When one finance
execurive asked how much he was prepared to spend on the
project, the CEO shot back: "How much do we have?"
That kind of tliinking has ti"ansformed Amazon. After wild
swings associated with the dot-com boom and crash, Ama-
zon's performance was essenrially flat between mid-2003 and
early 2007, in lockstep with the industries it was associated
with: books, music and the like. Then Amazon t(K)k off afresh,
as investors realized that Bezos had been quietly building a
mulritude of new growth engines inside his company. All
were rooted in the same theoiy: If Amazon lets customers set
the specs, it could conquer any number of consumer products
and services. Bezos also decided to court business customers
(and freak out his own engineers) by turning Amazon's inter-
nal software architecture inside out and selling access to it.
The boss' new diktat upended Amazon's approach to tasks
ranging from quality a.ssurance to interteam communicarion.
In 2006 he launched Amazon Web Services a.s a stand-
alone business. It rang up an esrimated $1 billion in revenue
last year, with $2 billion in its sights, thanks to an even faster
growth rate than Amazon's main storefront. It serves cus-
tomers ranging from NASA to Netflix with dozens of c-heap,
on-demand computer services via the "cloud." During the
Cassini space prohe's explorarion of Saturn, raw data for
180,000 photos were processed on Amazon's computers
within flve hours, at a cost of less than $200, says Tomas
Soderstrom of NASA's Jet Propulsion Lab. Doing the job in-
house would have taken 15 days, he says.
Last October's launch of the Kindle Fire, a computing
Introducing the entirely new Acura RDX. Intelligently built for the size ofyour life.
it's big without being too big. It's small without being not big enough. Powerful but not gluttonous. Stylish but
not ostentatious. It has the best highway fuel mileage for a V-6 in its class'yet it boasts a surprising 273 horsepow
It's everything you're looking for in a luxury crossover And more. And less. The entirely new Acura RDX
ifkatim
reg!sleridlrs:l^
THE BEST CEOS —AMAZON'SJEFF BEZOS
Kiva bystems' robots make warehouses more efficient. Amazon bought the firm last month.
tablet that can play music and videos, has again hurt short-
term profitability. Amazon's selling price of $199 doesn't ap-
pear to cover costs. Bezos isn't perturbed. He calls the Fire
"the most successful product we've ever launched." To him
the bullish case for the Fire is obvious. If it induces owners
to buy more from Amazon, the costs of spreading these
tablets globally will be well worth it.
THIS RENEWED AMAZON is basically a personal mani-
festation of Bezos, who is equal parts quant and dreamer.
Growing up in Houston and Miami, Bezos never paused for
a traditional retailer's apprenticeship—i.e., selling things.
Rather, he crunched numbers, once proudly telling his
gi-andmother that he had calculated how much her cigarette
habit was shortening her life. He went to Princeton to study
physics and ended up in computer science, which led to a
brief, lucrative career on Wall Street.
The dreamer side of Bezos wants to be at the frontier. His
teenage hope was to become an astronaut, and he pushed
himself to be high-school valedictorian to improve his
chances. He spent .summers as a teenager on his grandfa-
ther's 25,000-acre ranch in Texas, fixing machines, working
with cattle and learning about self-reliance.
The respect for that ethic explains why Amazon screens
its job candidates for a strong bias to action and an ability to
work through ambiguity. Both help identify people who can
innovate fast and do right by the customer. One popular in-
terviewing tack: asking candidates to create an action plan as
brand managers in an area where they lack any direct
knowledge—and then being told they have no budget.
Stumped candidates will find their path into Amazon slip-
ping away. Those who cobble together guemlla answers—in-
formal polls throu^ free online tools
such as SurveyMonkey—tend to thrive
at Amazon. They are the same people
who might have challenged Bezos in
math class and also succeeded on
Grandpa's ranch.
Efficiency—cheapness, in the eyes
of Amazon's detractors—is as much a
part of the Amazon culture as the
empty chair. In fact, Bezos links the
two. In his 2009 letter to sharehold-
ers, Bezos declared that Amazon had
begun waging wai' on niuda, the
Japanese word for waste. The more
he could get rid of needless costs, the
easier it would be to deliver rock-bot-
tom prices to customers. This crusade,
he wrote, was "incredibly energizing."
During interviews for this story
Bezos cited Amazon's recent success
in improving its warehouse usage 23%, "recapturing 6 million
squai'e feet of undemtilized space." He also takes pride in
Amazon's work to presort packages for carriers such as
FedEx, so shipments aren't delayed by the carriers' need to
carry out further "sortation."
Soitation? "We use that word so frequently that it rolls off
our tongues," Bezos says with a smile. "But it's not a com-
mon word, is it?"
The company's executives feel the pinch. Bezos keeps an
eerily tight rein on expenses, eschewing color printers in
favor of trusty old black-and-white models. No one fiies first
class (though Bezos sometimes rents private jets at his own
expense). Experiments are hatched and managed by the
smallest teams possible; if it takes more than two pizzas to
feed a work group, Bezos once observed, then the team is
too big. Offices still get cheap desks made of particleboard
door blanks, a 1990s holdover that Bezos refuses to change.
Managers may grumble, but they learn to bring sandpa-
per to work so their merino sweaters don't get shredded by
splinters. None of the company's five top officers earns more
than $175,000 in cash a year. Bezos last year took $81,840 in
salary and hasn't had a raise since 1998. He has rai.sed at least
$750 million since 2010 by selling Amazon shares, but that's
how you make your money at his company. Stock and op-
tions are the big honeypots; many on the leadership team
have $20 million or more in unvested shares.
This mind-set is an outlier in an industry that views tal-
ent as a delicate asset in need of constant pampering; in Sil-
icon Valley perks like free on-site massages are as rote as a
pot of coffee in the kitchen area. At Glassdoor.com, where
current and former employees rate their companies as a
place to work, Amazon generates a middling 3.1 out of 5,
82 I FORBES APRIL 23.2012
FORBFS
THE BEST CEOS —AMAZON'SJEFF BEZOS
COULD YOU WORK
FOR JEFF BEZOS?
Amazon.com is on a hiring spree. Its global workforce now
exceeds 56,000 employees—and jobs are open in 53 depart-
ments, including account management and website produc-
tion. Before you start imagining yourself on Team Bezos, how-
ever, take this diagnostic quiz. Then you'll know better if the
highly idiosyncratic culture is right for you.
Dn ynii ¡¡ke making multicolor pie charts?
Try McKinsey
At Amazon the
office printers
are strictly
black-and-
white. The boss
says color costs
too much.
Do you like talking trash about the competition?
Try Oracle
At Amazon referencing
rivals in public or private
won't help your career.
Focus on the customer.
Do you like flymy
first class or business?
At Amazon
executives
travel in coach.
Do you want your
clothes dry-cleaned,
free of charge?
Try Facebook
At Amazon
frugality is a
company
value. Silicon
Valley-style
perks don't
exist.
Do you expect the company to
throw an all-hands t>ash when
a big project is done?
At Amazon stock options
are the main reward.
Work hard, do well and
you might get rich.
putting it somewhere between Delta Airlines (3.2) and
Burger King (3.0).
Steve Yegge, a Google employee and former Amazon en-
gineer, chronicled his frustradons last Octoher in a 4,500-
word Internet posdng that has atti-acted more than 100,000
readers. He complained about the decor at Amazon, the
food, the pay and the need to do grungy tasks at dmes. He
poiti-ayed his former boss as Dread Pirate Bezos, who issues
mandates that cause people to "scramble like ants being
pounded with a rubber mallet."
Yet Yegge also saluted Bezos' ability to push massive
changes through the organizadon, in pai-dcular the inidadves
that led to Amazon Web Services. Those small two-pizza-or-
less innovadon teams are nimble, and because they're cost-ef-
fecdve, Bezos can deploy dozens. Even Google hasn't been
able to react so quickly with its own Web sei-vices, Yegge
added. That comparison alamied him—when Yegge quit lean-
and-mean Amazon, it was in favor of opulent Google, where
free shuttle buses with Wi-Fi whisk employees to their jobs.
AMAZON, STARTED IN A GARAGE and numircd in a
rundown stretch of Seattle waterfi-ont, is now settling into
its fifth headquarters, in Seattle's elegantly rehahhed South
Lake Union district. The company's new campus consists of
nearly a dozen shiny glass and steel huildings, complete
with couityards, cafes, restaurants and a little bit of public
ai-twork on display.
Jefï Bezos should be there a long time. He just turned 48
in Januai-y and could easily run Amazon another two
decades. That's good for stahility. It could he a challenge in
terms of retaining other executives with aspirations of be-
coming a CEO. Bezos says he knows when to avoid meddling
so that his project leaders can find their own paths. Yet it's
congenitally hai-d for founders to he hands-off for long—an
effort to bring in a chief operadng officer to work directly
under Bezos didn't work out a decade ago.
How much power can Bezos share when the customer, as
channeled by Amazon's founder, calls all the shots? Rather
than kibhitz with a number two, Bezos acttially reads over-
the-transom e-mail, which most CEOs regard as unhearable
clutter. He scanned customer notes avidly when Amazon
was tiny, and he hasn't shaken the habit Dozens of times a
year, unsolicited suggestions turn into feature improvements.
Even angry e-mails are "fantasdc if you want customers to
be honest," Bezos says.
Then there's the fan mail. Asked about customer e-mails
that have become his favorites, Bezos forwarded to FORBES
a note from a woman recounting how Amazon has touched
her life over the past 12 years. First she hought hooks and
compact discs when she was in her late 20s. Then she spent
$79 a year to qualify forfi-eeshipping as part of the Amazon
Prime program for heavy users.
84 I FORBES APRIL 23.2012
FORBES
THE BEST CEOS —AMAZON'S JEFF BEZOS
Now, she writes, Amazon is "helping me choose a mat-
tress and a crih for my son." Instead of heing over-
whelmed by all the shopping associated with preg^iancy
and the arrival of a child, she feels in control. She con-
cludes hy writing: "Thank you so much for making my life
simpler and easier.... They say it takes a village, but,
in this case, all a mom needs is Amazon, her Amex and
an iPhone."
That last need, ironically, seems to he Amazon's next tar-
get: smartphones. Lab 126, Amazon's Silicon Valley unit
where the Kindle was developed, has been hiring fiurries of
mobile-technology engineers the past two years. Amazon
hasn't confirmed anything, but it hasn't made much of an
effort to swat down speculation. If Amazon does storm the
lush smartphone market, it will do so with valuable
strengths such as customers' physical addresses, purchasing
histories across a broad array of categories and credit card
data. Even Apple can't claim all of those.
In the short term Bezos will continue to attack muda.
Last month Amazon bought Kiva Systems, a maker of small
robots that whiz goods to the right spots within a ware-
house, for $775 million. Kiva "could speed the cycle time in-
side our fulfillment centers," Bezos says. Owning Kiva gives
Amazon first crack at its technology, which means "getting
products to customers even more quickly."
In some ways this is the area Bezos least needs to worry
ahout: Last December he was "very proud" that Amazon
was able to make good 99.99% ofthe time on its promises to
get packages to customers before Christmas. No small feat
(just ask Best Buy). To Bezos, though, this also means they
came up short one time in 10,000. "We're not satisfied until
it's 100%."
WHERE ARE THEY NOW?
Internet hype was at full throttle when our July 1998 cover united 13 CEO/founders to watch. Only one regained
pre-bubble heights. Jeff Bezos (left page, center) is worth more than the others combined.—/?yaA7 Mac
Larry Rosen
N2K
His early ancestor to
iTunes merged with
CDNow. Sold to
Amazon in 2001.
Rosen now runs his
own jazz production
and events company.
Halsey Minor -|
CNET
Profligacy has brought
him low. He and his wife
sit atop California's list of
top 250 tax dodgers
with a $14 million debt.
a 1
Henry Nicholas
Broadcom
Left as CEO in 2003
Indicted on, clearec
of backdating and
drug charges. Worth
more than $1 billion
EarthLink
Went on to start four
other firms, including
Helio, Business.com
and Boingo Wireless,
a hot-spot provider
that went public in
May. Surfs a lot.
RealNetworlcs
Streaming-audio
pioneer ceded
CEO title in 2010.
Still chairman with
$100 million stake.
Also a VC at Accel.
, - Kevin O'Connor DoubleClick
His banner-ad network lost 75%
of its customers after dot-com
crash. Soid it in 2005 to Heil-
man & Friedman, which flipped
it to Google in 2007 for $3.1 bil-
lion. Now backs startups.
Jerry Yang Yahoo
Market cap then; $213
billion. Now: $18 bil-
lion. Yang finally gave
up trying to run the
company in January.
Shikhar Ghosh Open Market
Teaches at Harvard. He forgot to tell
his wife he was on the cover. When
he asked her to pass the rice at din-
ner she said, "You're a 'Master of
the Universe.' Make it come to you."
J L GilShwed
Check Point Software
IT security firm's shares
have tripled since 2008.
Shwed is worth
$2 billion.
Mike Levy
SportsLine
Took news/scores site
through the worst of
times before selling
to Viacom in 2004.
His fantasy-game
service Open Sports
closed in 2011 after
three years of effort.
USWeb
Left his Net consul-
tancy to pursue the
theory that ail tech-
nology comes from
aliens. Now runs
websites aimed at
merely understand-
ing the cosmos.
Jerry Kaplan
Onsale
Merged the online
auctioneer with
Egghead, which got
folded into Amazon.
Now runs social
gaming site Winster.
86 I FORBES APRIL 23.2012
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Jeff bezos gets it

  • 1. ^^ A few months ago Amazon reached what its founder and CEO Jeff Bezos demurely tells me was "an interesting milestone." The retailing giant, so ubiquitously asso- ciated with books, then music and video, now has more than 20 million products in stock—and a majority of them are nonmedia goods: drills, dress shoes, tennis rackets and almost anything else that a human can ship. Adults may srill mentally link Amazon widi Barnes & Noble, but to teenagers Amazon is now synonymous with .store. That remarkable turning point might be Bezos' greatest accomplishment. In officially trans- forming Amazon fi-om an online bookstore that sells other stLiff to a retailer—and husiness ser- vices provider—that once sold niosriy books, he has taken one of the original Internet bonanzas and created a success story all over again. Its stock is up 397% in the last five years. BEST CEOS Bezos' 10 Rules 79 Could You Work for Amazon? 84 Update on the Web Heroes of 1998 86 MEL KARMAZIN 88 CEO PAY DATA 94 BEST BOSSES EOR THE BUCK 96 76 I FORBES APRIL 23.2012
  • 2. PHOTOGRAPHS BY MICHAEL PRINCE FOR FORBES JEFF BEZOS GETS ITIn an era when high-flying tech companies outdo each other with worker perl<s, the no-frills billionaire is proving the potency of another model: coddling his 164 million customers, not his 56,000 employees. BY GEORGE ANDERS APRIL 23.2012 FORBES I 77
  • 3. FORBES THE BEST CEOS —AMAZON'SJEFF BEZOS with a net worth of some $19 billion, the 48-year-old is one ofthe 30 richest men in the world. Yet he still dashes around Amazon with the intensity of a startup boss trying to make his first payroll, as well as the glee of a teenager dis- covering all the fun you can have at overnight camp. "I'm a legitimately happy person," Bezos explains on a recent, rainy Friday morning at Amazon's Seattle headquarters. "My wife says: 'If Jeff is unhappy, just wait five minutes.' " What's not to he happy about? He's the numher one CEO in America. The passing of Steve Johs has left him, without question, as the corporate chief that others most want to meet, emulate and deify. And his primacy can be proven with numbers: FORBES' ranking of top CEOS—using a bang-for-the-huck methodology that factors in sustained performance, modest compensadon and the ability to pull ahead of one's peers—has Bezos comfortably in the top spot Indeed, he's in the highest 5% in every single metric. Across numerous e-mail back-and-forths and face-to- face questions with Bezos, I've come to understand why. More than a century ago another legendai-y retailer, Chicago's Marshall Field, championed the fatalist's slogan: "The customer is always right" Bezos, perhaps more than anyone, has taken that mantra into the digital era, incre- mentally cracking one of the business's gi-eat mysteries: fig- uring what customers want before the cash register rings and then making those insights pay off In an era when high-flying tech companies outdo each other with worker perks, no-frills Bezos is proving the potency of another Amazon's new digs are in Seattle's elegantly rehabbed South Lai<e Union district. One building is named Rufus in honor of a beloved dog. 78 I FORBES APRIL 23.2012
  • 4. model: coddling his 164 million customers, not his 56,000 employees. JEFF BEZOS' MANAGERS AT AMAZON find him formi- dable enough. But the figure that overwhelms their lives goes by the internal nickname "the empty chair." Bezos periodi- cally leaves one seat open at a conference table and informs all attendees that they should consider that seat occupied by their customer, "the most important person in the room." If the empty chair is the ultimate boss at Amazon, then Bezos is its billionaire enforcer, the guardian of what he calls the "culture of metrics" that tries to give that inanimate ob- ject a loud, clear voice. Amazon tracks its performance against about 500 measurable goals. Nearly 80% relate to customer objectives. Some Amazonians try to reduce out-of- stock merchandise. Others race to huild a bigger library of downloadable movies. Intricate algorithms turn one i^roup of shoppers' past habits into custom recommendations tor new customers. Hourly bestseller lists identify what's hot. Weekly reviews keep track of who is on course—and where correc- tive attention is needed. Amazon is so confident of its ahility to personalize the site for each user that the company hardly ever creates clas- sic customer-segment personas, such as "soccer moms" or "gearheads." Such marketing standhys are too imprecise for Team Bezos. Feisty dehates over what metrics to watch are Amazon's way of life. "There's an incredible amount of challenging the JEFF BEZOS' TOP TEN MAXIMS, DECODED With the passing of Steve Jobs, Jeff Bezos is now tech's leading philosopher-CEO. His advice ranges from what to read (give the Declaration of Independence a shot) to how to deal with stress ("Laugh a lot"). Mostly, though, Bezos sticks to business. "BASE YOUR STRATEGY ON THINGS THAT WON'T CHANGE." Selling lipstick, tractor seats, e-book readers and data storage are all part of one big plan with three big constants: offer wider selec- tion, lower prices and fast, reliable delivery. "OBSESS OVER CUSTOMERS." Early on Bezos brought an empty chair into meetings so lieutenants would be forced to think about the crucial participant who wasn't in the room: the customer Now that surrogate's role is played by specially trained employees, dubbed "Customer Experience Bar Raisers." When they frown, vice presidents tremble. "WE ARE WILLING TO BE MISUNDERSTOOD FOR LONG PERIODS OF TIME." Many of Amazon's expansions look like money- losing distractions at first. That sometimes sends the company's stock price skidding and evokes analysts' scorn. Bezos shrugs. If the new initiatives make strategic sense to him, a five- to-seven-year financial payoff is okay "THERE ARE TWO KINDS OF COMPANIES: THOSE THAT TRY TO CHARGE MORE AND THOSE THAT WORK TO CHARGE LESS. WE WILL BE THE SECOND." Lots of retailers talk about holding down costs and passing the savings to the consumer. Few do so as intently as Amazon, where "frugality" is one of eight official company values. The reward for putting up with cheap office furniture: a $90 billion stock market valuation and 35% revenue growth. "DETERMINE WHAT YOUR CUSTOMERS NEED, AND WORK BACKWARDS." Specs for Amazon's big new projects such as its Kindle tablets and e-book readers have been defined by customers' desires rather than engineers' tastes. If customers don't want something it's gone, even if that means breaking apart a once powerful department. "OUR CULTURE IS FRIENDLY AND INTENSE, BUT IF PUSH COMES TO SHOVE WE'LL SETTLE FOR INTENSE." Data reigns supreme at Amazon, particularly head-to-head tests of customers' reactions to different features or site designs. Bezos calls it "a culture of metrics." With dozens of these gladiator-style showdowns under way each week, there isn't much time for soothing words or elaborate rituals of social cohesion. "IF YOU WANT TO BE INVENTIVE, YOU HAVE TO BE WILLING TO FAIL." Early on the company hired a lot of editors to write book and music reviews—and then decided to use customers' critiques instead. A foray into auctions flopped. Bezos regards such stumbles as a part of life, as long as Amazon can learn something useful. "IN THE OLD WORLD, YOU DEVOTED 30% OF YOUR TIME TO BUILDING A GREAT SERVICE AND 70% OF YOUR TIME TO SHOUTING ABOUT IT. IN THE NEW WORLD, THAT INVERTS." Amazon's ad budgets are surprisingly small for a retailer of its size. Bezos believes old- fashioned word-of-mouth has become even more important in the digital age—so he prefers low-key process improvements that are meant to get happy customers buzzing. One favorite: Amazon's war on clamshell packaging, so toys and other shipments will be easier to open. "EVERYONE HAS TO BE ABLE TO WORK IN A CALL CENTER." Complaints can be devastating in the age of viral tweets and blogs. Bezos asks thou.sands of Amazon managers, including himself, to attend two days of call-center training each year. The payoff: humility and empathy for the customer "THIS IS DAY 1 FOR THE INTERNET. WE STILL HAVE SO MUCH TO LEARN." Bezos first made that observation in 1997, in his initial letter to Amazon's shareholders. He hasn't budged from it. At Amazon's new headquarters two of the largest buildings are Day 1 North and Day 1 South. In interviews Bezos still talks about the internet as an uncharted world, imperfectly understood and yielding new surprises all the time. —G.A. APRIL 23,2012 FORBES I 79
  • 5. FORBES THE BEST CEOS —AMAZON'SJEFF BEZOS other person," says Manfred Bluemel, a former senior mar- ket reseai'cher at Amazon. "You want to have absolute cer- tainty about what you are saying. If you can stand a harrage of questions, then you have picked the right metric. But you had better have your stuff together. The best number wins." Bezos is even stricter about what customers don't want. They hate delays, defects and out-of-stock products, so the metrics patrol at Amazon constantly tracks such numbers, looking to make them as rare as possible. Even the tiniest delay in loading a Web page isn't ti'ivial. Amazon has metrics showing that a 0.1 second delay in page rendering can trans- late into a 1% drop in customer activity. Former executives all have stories about Bezos' obsessive focus on the customer. Simon Murdoch, the former head of Amazon's British operations, remembers offering customers in the U.K. next-day delivery if their order was in by 4 p.m.; Bezos personally hammered him to extend that delivery v indow to 6 p.m., 7 p.m. and later, even if it meant radical changes in wareliouse hours. (Today Amazon offers same- day delivery for much of Britain and ten U.S. cities if the order gets in that morning.) Another one-time insider re- members a relentless push for sturdier-than-usual cardboard so customers could reuse its boxes for other shipments or presents, creating goodwill and putting Amazon's name in front of a second set of potential customers. Tina Patterson, a senior Amazon brand manager fi-om 2007 to 2011, recalls tense moments previewing television ads for the soon-to-launch Kindle. Early versions included a whimsical snippet where a Kindle-carrying reader trans- formed into a brave matador, tossed into the air by a charg- ing bull. Everyone giggled—except Bezos. He hit the rewind button and silently replayed the matador scene. Then he ttnuieil to the gi^oup and adopted a gi^ade-school teacher's somber voice: "I know it's cute, and lots of people will think the hull is funny. But the customer right there is getting his ass kicked. We can't let him get hurt." Bezos' zealous protection has paid off Each yeai- the Uni- versity of Michigan calculates a customer-satisfaction index for 225 of America's largest companies. Amazon has led the online retailing category for years and has repeatedly placed in the top 10 among all companies. Currently only Heinz, Clorox, Apple and three car brands topped Amazon. But great customer service doesn't fully explain Amazon's exti'aordinaiy success. Other high-touch online retailers can't match the $48 billion in sales Amazon did last year. Meanwhile, traditional retailers like Target and Costco play
  • 6. up customer service too—yet their combined market capital- ization trails Amazon's $98 billion. For Bezos a data-driven customer focus lets him take risks to innovate, secure in the belief that he's doing the right thing. "We are comfortable planring seeds and wairing for them to grow into ti'ees," says Bezos. "We don't focus on the oprics of the next quarter; we focus on what is going to be good for customers. I think this aspect of our culture is rare." Amazon's Kindle, for example, came into being because Bezos, internalizing hundreds of data points, helieved mil- lions of people would want a crisp e-book reader that could download any book in 60 seconds or less. He set that delivery target without getring pinned down by technical is.sues about the right compression rarios or transmission speeds for hook files. Engineers were free to solve technical challenges as they saw fit. They just needed to make it right for consumers. It took years for Ainazon to master the hardware necessary to build such devices, hut Bezos didn't blink. When one finance execurive asked how much he was prepared to spend on the project, the CEO shot back: "How much do we have?" That kind of tliinking has ti"ansformed Amazon. After wild swings associated with the dot-com boom and crash, Ama- zon's performance was essenrially flat between mid-2003 and early 2007, in lockstep with the industries it was associated with: books, music and the like. Then Amazon t(K)k off afresh, as investors realized that Bezos had been quietly building a mulritude of new growth engines inside his company. All were rooted in the same theoiy: If Amazon lets customers set the specs, it could conquer any number of consumer products and services. Bezos also decided to court business customers (and freak out his own engineers) by turning Amazon's inter- nal software architecture inside out and selling access to it. The boss' new diktat upended Amazon's approach to tasks ranging from quality a.ssurance to interteam communicarion. In 2006 he launched Amazon Web Services a.s a stand- alone business. It rang up an esrimated $1 billion in revenue last year, with $2 billion in its sights, thanks to an even faster growth rate than Amazon's main storefront. It serves cus- tomers ranging from NASA to Netflix with dozens of c-heap, on-demand computer services via the "cloud." During the Cassini space prohe's explorarion of Saturn, raw data for 180,000 photos were processed on Amazon's computers within flve hours, at a cost of less than $200, says Tomas Soderstrom of NASA's Jet Propulsion Lab. Doing the job in- house would have taken 15 days, he says. Last October's launch of the Kindle Fire, a computing Introducing the entirely new Acura RDX. Intelligently built for the size ofyour life. it's big without being too big. It's small without being not big enough. Powerful but not gluttonous. Stylish but not ostentatious. It has the best highway fuel mileage for a V-6 in its class'yet it boasts a surprising 273 horsepow It's everything you're looking for in a luxury crossover And more. And less. The entirely new Acura RDX ifkatim reg!sleridlrs:l^
  • 7. THE BEST CEOS —AMAZON'SJEFF BEZOS Kiva bystems' robots make warehouses more efficient. Amazon bought the firm last month. tablet that can play music and videos, has again hurt short- term profitability. Amazon's selling price of $199 doesn't ap- pear to cover costs. Bezos isn't perturbed. He calls the Fire "the most successful product we've ever launched." To him the bullish case for the Fire is obvious. If it induces owners to buy more from Amazon, the costs of spreading these tablets globally will be well worth it. THIS RENEWED AMAZON is basically a personal mani- festation of Bezos, who is equal parts quant and dreamer. Growing up in Houston and Miami, Bezos never paused for a traditional retailer's apprenticeship—i.e., selling things. Rather, he crunched numbers, once proudly telling his gi-andmother that he had calculated how much her cigarette habit was shortening her life. He went to Princeton to study physics and ended up in computer science, which led to a brief, lucrative career on Wall Street. The dreamer side of Bezos wants to be at the frontier. His teenage hope was to become an astronaut, and he pushed himself to be high-school valedictorian to improve his chances. He spent .summers as a teenager on his grandfa- ther's 25,000-acre ranch in Texas, fixing machines, working with cattle and learning about self-reliance. The respect for that ethic explains why Amazon screens its job candidates for a strong bias to action and an ability to work through ambiguity. Both help identify people who can innovate fast and do right by the customer. One popular in- terviewing tack: asking candidates to create an action plan as brand managers in an area where they lack any direct knowledge—and then being told they have no budget. Stumped candidates will find their path into Amazon slip- ping away. Those who cobble together guemlla answers—in- formal polls throu^ free online tools such as SurveyMonkey—tend to thrive at Amazon. They are the same people who might have challenged Bezos in math class and also succeeded on Grandpa's ranch. Efficiency—cheapness, in the eyes of Amazon's detractors—is as much a part of the Amazon culture as the empty chair. In fact, Bezos links the two. In his 2009 letter to sharehold- ers, Bezos declared that Amazon had begun waging wai' on niuda, the Japanese word for waste. The more he could get rid of needless costs, the easier it would be to deliver rock-bot- tom prices to customers. This crusade, he wrote, was "incredibly energizing." During interviews for this story Bezos cited Amazon's recent success in improving its warehouse usage 23%, "recapturing 6 million squai'e feet of undemtilized space." He also takes pride in Amazon's work to presort packages for carriers such as FedEx, so shipments aren't delayed by the carriers' need to carry out further "sortation." Soitation? "We use that word so frequently that it rolls off our tongues," Bezos says with a smile. "But it's not a com- mon word, is it?" The company's executives feel the pinch. Bezos keeps an eerily tight rein on expenses, eschewing color printers in favor of trusty old black-and-white models. No one fiies first class (though Bezos sometimes rents private jets at his own expense). Experiments are hatched and managed by the smallest teams possible; if it takes more than two pizzas to feed a work group, Bezos once observed, then the team is too big. Offices still get cheap desks made of particleboard door blanks, a 1990s holdover that Bezos refuses to change. Managers may grumble, but they learn to bring sandpa- per to work so their merino sweaters don't get shredded by splinters. None of the company's five top officers earns more than $175,000 in cash a year. Bezos last year took $81,840 in salary and hasn't had a raise since 1998. He has rai.sed at least $750 million since 2010 by selling Amazon shares, but that's how you make your money at his company. Stock and op- tions are the big honeypots; many on the leadership team have $20 million or more in unvested shares. This mind-set is an outlier in an industry that views tal- ent as a delicate asset in need of constant pampering; in Sil- icon Valley perks like free on-site massages are as rote as a pot of coffee in the kitchen area. At Glassdoor.com, where current and former employees rate their companies as a place to work, Amazon generates a middling 3.1 out of 5, 82 I FORBES APRIL 23.2012
  • 8. FORBFS THE BEST CEOS —AMAZON'SJEFF BEZOS COULD YOU WORK FOR JEFF BEZOS? Amazon.com is on a hiring spree. Its global workforce now exceeds 56,000 employees—and jobs are open in 53 depart- ments, including account management and website produc- tion. Before you start imagining yourself on Team Bezos, how- ever, take this diagnostic quiz. Then you'll know better if the highly idiosyncratic culture is right for you. Dn ynii ¡¡ke making multicolor pie charts? Try McKinsey At Amazon the office printers are strictly black-and- white. The boss says color costs too much. Do you like talking trash about the competition? Try Oracle At Amazon referencing rivals in public or private won't help your career. Focus on the customer. Do you like flymy first class or business? At Amazon executives travel in coach. Do you want your clothes dry-cleaned, free of charge? Try Facebook At Amazon frugality is a company value. Silicon Valley-style perks don't exist. Do you expect the company to throw an all-hands t>ash when a big project is done? At Amazon stock options are the main reward. Work hard, do well and you might get rich. putting it somewhere between Delta Airlines (3.2) and Burger King (3.0). Steve Yegge, a Google employee and former Amazon en- gineer, chronicled his frustradons last Octoher in a 4,500- word Internet posdng that has atti-acted more than 100,000 readers. He complained about the decor at Amazon, the food, the pay and the need to do grungy tasks at dmes. He poiti-ayed his former boss as Dread Pirate Bezos, who issues mandates that cause people to "scramble like ants being pounded with a rubber mallet." Yet Yegge also saluted Bezos' ability to push massive changes through the organizadon, in pai-dcular the inidadves that led to Amazon Web Services. Those small two-pizza-or- less innovadon teams are nimble, and because they're cost-ef- fecdve, Bezos can deploy dozens. Even Google hasn't been able to react so quickly with its own Web sei-vices, Yegge added. That comparison alamied him—when Yegge quit lean- and-mean Amazon, it was in favor of opulent Google, where free shuttle buses with Wi-Fi whisk employees to their jobs. AMAZON, STARTED IN A GARAGE and numircd in a rundown stretch of Seattle waterfi-ont, is now settling into its fifth headquarters, in Seattle's elegantly rehahhed South Lake Union district. The company's new campus consists of nearly a dozen shiny glass and steel huildings, complete with couityards, cafes, restaurants and a little bit of public ai-twork on display. Jefï Bezos should be there a long time. He just turned 48 in Januai-y and could easily run Amazon another two decades. That's good for stahility. It could he a challenge in terms of retaining other executives with aspirations of be- coming a CEO. Bezos says he knows when to avoid meddling so that his project leaders can find their own paths. Yet it's congenitally hai-d for founders to he hands-off for long—an effort to bring in a chief operadng officer to work directly under Bezos didn't work out a decade ago. How much power can Bezos share when the customer, as channeled by Amazon's founder, calls all the shots? Rather than kibhitz with a number two, Bezos acttially reads over- the-transom e-mail, which most CEOs regard as unhearable clutter. He scanned customer notes avidly when Amazon was tiny, and he hasn't shaken the habit Dozens of times a year, unsolicited suggestions turn into feature improvements. Even angry e-mails are "fantasdc if you want customers to be honest," Bezos says. Then there's the fan mail. Asked about customer e-mails that have become his favorites, Bezos forwarded to FORBES a note from a woman recounting how Amazon has touched her life over the past 12 years. First she hought hooks and compact discs when she was in her late 20s. Then she spent $79 a year to qualify forfi-eeshipping as part of the Amazon Prime program for heavy users. 84 I FORBES APRIL 23.2012
  • 9. FORBES THE BEST CEOS —AMAZON'S JEFF BEZOS Now, she writes, Amazon is "helping me choose a mat- tress and a crih for my son." Instead of heing over- whelmed by all the shopping associated with preg^iancy and the arrival of a child, she feels in control. She con- cludes hy writing: "Thank you so much for making my life simpler and easier.... They say it takes a village, but, in this case, all a mom needs is Amazon, her Amex and an iPhone." That last need, ironically, seems to he Amazon's next tar- get: smartphones. Lab 126, Amazon's Silicon Valley unit where the Kindle was developed, has been hiring fiurries of mobile-technology engineers the past two years. Amazon hasn't confirmed anything, but it hasn't made much of an effort to swat down speculation. If Amazon does storm the lush smartphone market, it will do so with valuable strengths such as customers' physical addresses, purchasing histories across a broad array of categories and credit card data. Even Apple can't claim all of those. In the short term Bezos will continue to attack muda. Last month Amazon bought Kiva Systems, a maker of small robots that whiz goods to the right spots within a ware- house, for $775 million. Kiva "could speed the cycle time in- side our fulfillment centers," Bezos says. Owning Kiva gives Amazon first crack at its technology, which means "getting products to customers even more quickly." In some ways this is the area Bezos least needs to worry ahout: Last December he was "very proud" that Amazon was able to make good 99.99% ofthe time on its promises to get packages to customers before Christmas. No small feat (just ask Best Buy). To Bezos, though, this also means they came up short one time in 10,000. "We're not satisfied until it's 100%." WHERE ARE THEY NOW? Internet hype was at full throttle when our July 1998 cover united 13 CEO/founders to watch. Only one regained pre-bubble heights. Jeff Bezos (left page, center) is worth more than the others combined.—/?yaA7 Mac Larry Rosen N2K His early ancestor to iTunes merged with CDNow. Sold to Amazon in 2001. Rosen now runs his own jazz production and events company. Halsey Minor -| CNET Profligacy has brought him low. He and his wife sit atop California's list of top 250 tax dodgers with a $14 million debt. a 1 Henry Nicholas Broadcom Left as CEO in 2003 Indicted on, clearec of backdating and drug charges. Worth more than $1 billion EarthLink Went on to start four other firms, including Helio, Business.com and Boingo Wireless, a hot-spot provider that went public in May. Surfs a lot. RealNetworlcs Streaming-audio pioneer ceded CEO title in 2010. Still chairman with $100 million stake. Also a VC at Accel. , - Kevin O'Connor DoubleClick His banner-ad network lost 75% of its customers after dot-com crash. Soid it in 2005 to Heil- man & Friedman, which flipped it to Google in 2007 for $3.1 bil- lion. Now backs startups. Jerry Yang Yahoo Market cap then; $213 billion. Now: $18 bil- lion. Yang finally gave up trying to run the company in January. Shikhar Ghosh Open Market Teaches at Harvard. He forgot to tell his wife he was on the cover. When he asked her to pass the rice at din- ner she said, "You're a 'Master of the Universe.' Make it come to you." J L GilShwed Check Point Software IT security firm's shares have tripled since 2008. Shwed is worth $2 billion. Mike Levy SportsLine Took news/scores site through the worst of times before selling to Viacom in 2004. His fantasy-game service Open Sports closed in 2011 after three years of effort. USWeb Left his Net consul- tancy to pursue the theory that ail tech- nology comes from aliens. Now runs websites aimed at merely understand- ing the cosmos. Jerry Kaplan Onsale Merged the online auctioneer with Egghead, which got folded into Amazon. Now runs social gaming site Winster. 86 I FORBES APRIL 23.2012
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