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Hey, quiet listeners. In the time between when we recorded this episode and now when we're releasing IT, long time amazon board member and major adventure group found her. Tom alberg sadly passed away. And we wanted to, instead of our usual funny cold opener here, take A A moment and dedicate this episode to time.

Tom had such a huge impact on David, my careers. Tom also had such a huge impact on seattle and really the whole technology ecosystem, helping to build the law. And perkins cui and the telephonically firms, western wireless and mccallum that really make up a large part of the infrastructure we all use for our phones today.

We also we're lucky enough to uh, have time on acquired. And I was really wonderful getting to spend the time in person with him. Gosh, four, five years ago now event.

yeah, tom was the longest serving amazon board member. Other than jeff himself, I believe twenty three years was the lead independent director that had a huge impact acting on the company. And of course.

on us all. Remember time he gave back in so many wonderful ways. And this episode is dedicated to you time. Thank you.

Who got. The true who got you? Easy, you will see me down story. On move .

welcome two, season eleven, episode two of acquired the podcast about great technology companies and the stories and playbooks behind them. I'm been gilbert and I, the co founder and managing director of seattle based pioneer square labs and our venture fund.

psl ventures, and i'm David role, and I am an angle investor based .

in o and we are your hosts. Our story today is probably the single most interesting business of the past thirty years. For the longest time, David night resisted doing a name is on epsom because IT almost felt like a trope, or that we needed to do something. Maybe more unexpected.

We've tackled bits and pieces like our interview with former board member tom alberg in the m zon IPO episode, our episode, Alfred lin on that post, and of course, by referencing basotho ous two thousand and nine speech about out sourcing anything that does not make your beer taste Better over and over and over again and over. But we decided that no self respecting technology business historians like ourselves could skip over this incredible to mutual destin ying. And and ultimately very, very successful story today will be tackling amazon dot com, the website that sells books and now everything else on the worldwide web.

As you know, amazon is also one of the rare companies that built a completely separate and dominant business in amazon web services and will save that for our next episode. This story is, for a long time, students of amazon and newcomers alike. So well, you may be familiar with jeff fly wheel diagram, or the themed door desk, or the barr's article from the dot combust, headlined amazon dot bomb. I can tell you from staring at my mountain of notes that um there are some details in here that I certainly didn't know and you may not have known either.

Uh, it's just such a good story too. Yeah, i'm so glad we did wall mark first. We almost didn't because IT is perfectly sets the stage for amazon.

Oh yeah, yeah. The big thing that we're doing today is we're going to try to answer the question, how did amazon succeed to such an incredible degree that IT has were so many of their dot cob siblings burst into flames. So first, we have some big, big news here at acquired world H Q.

After seven years of beating back requests, we are finally launching a merge store. We've been holding onto this bit for a while because we can think of no Better episode to launch our internet storefront here on the amazon episode. So we're partnering with what I think is the single highest quality merchandise platform on the internet.

Cotton, they make really nice stuff that I have tones of in my closet. We are launching with men and women's t shirts, sweaters, t tanks and even once these, if you like, David, have a little one at home. And if you decide to be first in this first wave of people to support the fashionable acquired merge, you should tweet at us, add acquired F, M, and we will retweet some of our favorites. So the link is in the shower notes or you can go to acquired data m slash store. Okay, listeners, now is a great time to tell you about long time, a friend of the show service now.

yes, as you know, service now is the A I platform for business transformation, and they have some new news to share. Service now is introducing A I agents. So only the service now platform puts A I agents to work across every corner of your business.

yep. And as you know from listening to us all year, service now is pretty remarkable about embracing the latest AI developments and building them into products for their customers. A I agents are the next phase of this.

So what are A I agents? A I agents can think, learn, solve problems and make decisions autonomously. They work on behalf of your teams, elevating their productivity and potential. And while you get incredible productivity enhancements, you also get to stay in full control.

Yep, with service now, AI agents proactively solve chAllenges from I T H R. Customer service software development. You name IT. These agents collaborate, they learn from each other, and they continuously improve handling the busy work across your business so that your teams can actually focus on what truly matters.

ultimately, service. Now, an agenda I is the way to deploy A I across every corner of your enterprise. They boost productivity for employees, enrich customer experiences and make work Better for everyone.

Yeah, so learn how you can put A I agents to work for your people by clicking the link in the showed tes or going to service now dot com slash A I dash agents. Well, if you finish this episode, go check out the lp show by searching acquired lp show in the podcast player of your choice.

Our next episode will be an interview with Austin for dera, who many, many of you know from the acquired slack, where he's been a member since, like twenty sixteen, Austin is at the salona foundation, very deep in the world of web three, encrypt u, and gave us a great, great primer on the world of web three today. So check that out. And if you want early access, it's already live for paid.

Acquire L, P, S at, acquire data. M ash, L, P. All right now, without any further a do David onto our story and listeners, this show is not investment advice, David.

I may have investments, certainly have investments. Certain the companies discuss this time, do your own research. And this is for entertainment purposes only.

And amazon was my, not only my idea dinner pick at the arena show, but has been like my favorite company and stock and number one position in my portfolio for at least ten years now. I think more than ten years, the incredible company.

I had some conversation with you in maybe twenty fourteen about how you basically owned amazon stock by owning seattle real state, and you are doubly long amazon with your very concentrated holdings in the company and doing your house .

in seattle that you the only time i've ever sold any meaningful amount was to buy our first seattle house. I needed the capital for the doyen, and I figured that was like essentially getting a tracking to one.

Yep, yep, yep.

Are right. Well, we start in a very fun place today, which is the end of the most recent acquired episode, walmart. And I realized I would couldn't swarm that. We said this on the episode, but I went back and I read the transcript.

We didn't you tweet about IT, but at the end of made in amErica sam rights in nineteen ninety two, literally, as he lays dying, see him well, rights at the end. The biography, could a walmart type story still occur in this day, in age? Of course, somewhere out there right now, there's someone with good enough ideas to go all the way, providing that someone wants IT badly enough to do what IT takes.

Oh, such a good quote. And he was running that in nineteen ninety two. Well, jeff basis was ideating on what ideas could work on the internet working at D. E. shaw. Oh my god, if he only .

knew I was like the profit speaking. Yes, he was describing reality in history as IT was happening and he had no idea.

amazing. yeah.

Well, speaking a books, we have a big thank you that we are the braddon and the everything to our bread is just the best we've done episodes with bread in the past. The everything store is the canonical history of the first twenty years of amazon, for sure. We actually talks to red the other week were preparing for this.

What we had to you was both the question of like, okay, with ten years or whatever it's been of history, what else would you want to say that wasn't in the everything story? And also give us some context around IT.

no doubt in my mind, that is one of the best business books written over the last twenty years. You know of the two thousands for sure, it's a thriller. Yeah, brand actually said this one we are talking to.

I was like there's two reasons to write a business book. One is it's a thrilling, the other is is a how to manual and the everything store is both of those. Yep, are right.

We jump from one thousand and ninety two in benny ila r console two alboher key, new mexico on january y's wealth, one thousand nine hundred and sixty four, where one Jeffery present georgann is born. Many people listening, especially if you read, read book, you know this story, but it's pretty amazing. When Young Jeffery's mother became pregnant, SHE was sixteen.

His father, ted dorgan's son, was eighteen. They went to the same high school in Albert key. They were dating at the time. Turns out their fathers actually worked together. And this is the part of the story. There was a very specific reason why both their families lived in Albert key, and that is because both of their fathers worked together at Sandy national laboratories, which.

for folks you don't know, that laboratory was established, I think, because you played a huge part in the nuclear programme development for united states.

so low, almost new mexico, what I think is like an hour and half north of Albert coke. I think that's where the man had project happened, and that's where the atomic bomb was developed after world war 2。 Though quite a while after world war two, the government split the U.

S. Nuclear program into like research. And that was most almost in a bunch of other labs around the country. And then actually like management of the weapons. So there is like nuclear researcher to nuclear energy, and there is nuclear weapons.

So say, india is the organization developed by the government and is actually private Operation now that manages nuclear weapons. And so both of jeff basis biological grandfathers who work there together. And jeff s.

Mom, jackie, her dad was named Lawrence, pressed in gey pop. He went by pop. casey.

He actually not only worked at sandia, he was the head of sandia. Oh, wow. He ran the U.

S. Nuclear, her weapons program. And before that, he was one of the original members of darpa.

Wo he encourages the development of the arpanet internet, the darpa chAllen. Obviously, that was much after his time. But man, you can't make this stuff up.

That's crazy. yeah. So their kids managed to get pregnant in high school, and ted and jackie decide to get married before the baby, which they do.

The marriage doesn't last. That opens not really set up for success here. And when jeff is about eighteen months old, the end up getting divorced. And jacky jeff, mom takes the baby, moves back in with her parents because he's still only only like eighteen or nineteen years old at this point.

Eventually, a couple years later, when jeff is four, jackie remarries and moves in with her new husband, who is a petroleum engineer for x on. And her new husband's name is miguel, and yell visus paris today, who goes by my mike basis? yeah.

Jeff pu is adopted father, and his story is incredible and actually sort of touches our stories in a very small way. Ha, mike is from cuba. And he was a student at a like elite private high school in cuba when the revolution happened in castle red, took over. And his parents, we're able to get him out and send him to miami.

Wasn't there some like exploit ration program through the church for gifted Youngsters?

There was mike was part of this. So he gets shift to my ami does know anybody in amErica doesn't speak english. He ends up from miami getting shipped to wilmington, deliver where he lives in a group home and he attends soldier of high school, which I, that probably doesn't nothing to you high school, and like I did, but I played the boards against Sally.

He's growing up. This is so awesome. Me, he and jackie last year just gave a twelve million dollar donation to solissited m, which I think might be like the largest single donation to a catholic high school in america.

wow. Mike and jackie must have really made some smart investment decisions at some point life to be able to make that kind of investment.

H, we will get into IT. David.

how does every single episode have some light southeast pencil and deliver? I know I think we're picking favorite here.

There are. So mike is super smart, quickly learns english. And by the next year, when he graduates from sleeze anum, he ends up getting a full scholarship to go to the university of albuquerque to study engineering.

And while he's there, he pays his living expenses working his way to your college by working at a local bank where he meets jacky, like all in love. They get married. My adopted jeff as his adopted son. They go on to have two more children. And when mike graduates, he gets the job with x on, end up working his whole career at x on and .

becoming like a pretty senior executive.

right? Very senior executive. So he heard in capital to invest a few years later.

But we will get into, and they move the family to houston. A mike story is just amazing. B BIOS grew up. His dad work for exon. Like standard oil, like there is the connection .

right and group in houston around the space program. I mean, we're I could get into blue origin on this episode, but I think the last time we would have sort of talked about jeff s space routes would have been, I think on the virgin galactic episode, we are talking about the development of the x prize and sets the college organization for students for the think it's exploration and development ment of space, something like that.

But basically the college space club, jeff was the head of that club, the president of the one and maybe the founder of IT at princeton. And so there is a very clear through line from spending time during his childhood in houston through that. And obviously e loria .

in I didn't think about that definitely pop gey. His grandfather has a big influence on jeff we'll talk about in one sec and introduced him the science fiction in space because he was involved in all that at darpa. But I didn't think that that yeah jeff grew up in houston during the Apollo era.

This was the hate of NASA. yeah. Super cool. So jeff goes to a monetary free school in houston, and he gets put into a new program for gifted Young students in the eastern elementary school system. This is crazy.

So at the time, there was a woman named Julie ray who was writing a book about this whole new concept, timely, gifted streams in elementary school education. And, uh, houston is one of the kind of leading school systems that's doing this. So he goes to the administration and he is like, hey, is there, you know, a student that I could shadow and like, see how gifted education is working? They're like, we have exactly the student for you. Jeffery y baths.

I mean, there's a number of ways we could highlight how special jeff was, even as a very, very Young child. But this is a pretty done good one. He was the students chosen for the person writing the book on this type of special program in the school, selected for special gifted programs. I mean, was like one of one of one. And he would go on to be venditte an of many things in his life but here is sort of a first sort of proxy for that.

a super quote. There's a quote in the book so it's up written under he's a student. He could not go tim in the book to .

protect the identity of a child who can't yet pick if they want publicity, right?

Total, he's in elementary school. So this is quoted there where jewelry, the author asks tim, jeff s. Teacher, with great level he's performing at, so he may must be like second or third great at this point. And the teacher says, I really can't say, except that there is probably no limit to what he can do given .

a little guidance .

for shadowing. So right around the time when the family moved to host and pop retires from Sandy a, and he and jeff grandmother moved back to a big range in west texas. And by big branch, I mean a twenty four thousand acre branch in west texas that is one hundred miles from the nearest retail outlet. And starting at this point, jeff four, when this happens, jeff spans every summer on the ranch, living with his grandparents hundred miles from the nearest store. And he's just hang ging out with his grandparents .

as pretty formative and in a number of ways, one of which is that his grandpa well won his remote. And so you can go buy anything. You need to be unbelievably self sufficient, but like, what an interesting playground for the mind and being around his hyper intelligent grandfather and having sort of just a nothing but time in space bread rights .

about this in the book. But and jeff talks about this too, like I think this is one of the most formative experiences of the person that becomes jeff basis because for the months that he's there, every summer, they have to do everything like they build their own tools. They perform their own veteran work.

There's a story about performing surgery on one of the bird dog's tails. It's crazy. The rebuilding farm equipment when IT breaks.

However, we had, we went two hundred fifty episodes out, a bird dog never coming up. And now two episodes, two D, D.

Clearly, there's a, there's a connection .

is great retailers growing up on bird dogs.

But yet, like you said then, it's not like he's just doing manual labor out in the countryside. He's doing IT with this guy who ran the nuclear weapons programme for america.

Man, it's so hard to do a podcast about amazon and jeff bezos now because the company and jeff as a person are a symbol for so many different things to so many different people. But I think one of the sort of things that hit me when, you know, of course, I follow jeff on on instagram, see him in sort of his cowboy boots with the blue origin rocket. And remember when I first saw those before, really understanding his past, I was like, let's sort of didn't generous, like tech billionaire y throws on his cowboy boots and heads to west texas and he's like acting like one of the locals, but like, but that would not grow .

up doing on the farm yeah and I now where the blue origins, uh, Operations are based, like it's like it's there. That's why it's in west .

texas and there's a lot of space, pretty place launch rockets.

There is literally space to launch. So when jeff, a teenager for high school x on moves, is dead to florida, first to pencil a and then to miami, I this is like, IT was so cool. Little cap for this episode to mike story, he comes back to miami.

You do all these years later, as this big time executive at acts on which I think was the largest company in amErica at that point time had to be yeah, he goes from, like, literally steps off the plane of my amy has nothing. And now he brings his family back to miami with so much so cool. Jeff, as you said, graduates high school has valid Victorian. And like all great, talented high school graduates, instant biased. Of course, a few of his fellow prince onions, well, he's in college studying.

really, what have you say .

that that this is this? Yes, I printanier.

Can I see.

or or a tiger for being less pretentious here? A A couple of follow tigers. While jeff is studying computer science at princeton, brook shields, Michelle obama and jeff wilky is also there. At the same time, I don't think they, I don't think they were friends. Jeff was a couple years behind, but they were there at the same time.

fascinating.

So when jeff graduates from college in nineteen eighty six, he does go on the finance right away. He goes and works for a startup. He works for this company called fi tel, which had been founded by a couple columbia computer science professors and was developing like a very, very early network technology for high speed trading with, huh? They were like tech for, I don't know who's exactly like today.

All the stuff is colored in data centers with the as deck and the new york to change. But they can press to that. So he does that for two years.

And then in nineteen eighty eight, he's like I like I working for this startup, building infrastructure for this then completely new discipline of finance of like quantitate tive trading and finance. Those guys are customers are actually making a lot more money. Maybe I should go work for them.

but IT is pretty good. I've been great experience at that point in time. Being around early network computing was pretty beneficial to give him not just the sort of like basic understanding of how works, but also like what all the numbers mean. Like when i'm watching bits and bites fly back and for or i'm looking at pack accounts or I am looking at what hardwork can support what what are the practical implications so you can sort of feel the types of applications you can build using infrastructure of the day.

The reason are spending so much time on jeff early years, and now we're going to spend a lot of time on this chapter. It's totally like one of these Steve jobs things like you can connect the dots looking forward. But when you look back through jeff past joy coffee, who will talk about actually has like this quote that he gives the bread down like it's like a straight line you know from birth to jesus today like IT makes total sense.

Well, it's really hard to cover amazon as a business without IT being a jeff basis of biography because in so many ways, amazon isn't an extension of jeff bases. Is brain like IT really is a company made in his image. And that's kind of the case for a lot of these types of people like you look at apple.

So very much the case for Steve jobs also, by the way, and adopted sun of immigrants. I've always just found that interesting, but in some ways i'm thinking OK cool. Let's get to the amazon story. But even though it's called amazon. At least for a very long time, call IT its first decade IT really is just jeff bazo at scale.

probably arguably for longer than that, I mean, until recent times. Yeah so in one thousand and eighty eight, he leaves file the startup and he goes to work actually in banking, I believe almost early, I don't offer sure, but I can't imagine he's not doing quantitative trading and finance. He's a technical guy, is a computer science graduate.

He had been working in this sort of network Operations for early stage quant finance. That's probably what he's doing who goes to investment bank bankers trust, which then there series of merges, as always happens on wall street, becomes part of doctor bank, dota bank. Come back up later in the episode p he's going to start up.

See you computer scientist. He's got this entrepreneurs kind of bug. So on the side, he becomes friends with a guy named healthy minor, which listeners probably bn to bell to go, and they almost start a start up together at this point time. The idea was that was going to be a financial newsletter idea, but they become buddies that doesn't work out. But halls you you like right around this time, right after that, goes on the start .

sennet crazy. The internet was so freaking small then. And also, like if you were a and described scene at a really high level, it's like distributing the written word over this budding worldwide web, which is sort of what amazon did yeah ultimately IT distributed them through an abstraction layer. Or you print the words on paper first, and then you ship the paper, but they would go on to start businesses .

writing the same wave. You and I think they remain friends for what? Certainly for a while, if cannot, still to this day.

And bases does always sort of chuck le at that where people would say, wait, you're starting this business that's meant to take advantage of this new piece of technology and the new piece of technology is particularly good at distributing hypertext over a globally available network. And the way that you're doing that is specifically not by putting the text in the browser, which can read the hypertext directly onto a screen.

And IT does always struck le about that, but he is funny. To this day, you still care really search books. You google searched something, you're gonna get websites. You're not gonna get books. And despite the amazon and google and everyone trying, the book publishers have sort of very physically D R M of these books such that you cannot search them in a very digitally native internet way.

Yeah, it's funny even today. So in one hundred and ninety, jeff gets a free for call from a headhunter. Jeff happy. Where is he was thinking about starting this started.

And h convinced is jeff to go interview at a new firm, finanical firm, that has been started just a couple years earlier, cod e shop. And jeff, I think unexpectedly, ly completely falls in love. Fall in love in many ways 啊。 So some history on D E.

Shaw for fox, I don't know. I didn't know a lot of this, so the founder, David e. Shaw, was a stanford computer science P.

H. D. From the eighties, who then went on to become a computer science professor at colombia university.

I assume with some of the professors who went on the go found fatal, that jeff originally worked for, yeah, he was like, serious is a serious academic. He's actually back in academia now. He won the .

gordon bell Price back in acai. H well.

not that institution, but he's remember the national academy of engineering and the national academy of sciences. Like he's the real deal. His stepfather, when he was growing up, was a finance professor at E C L.

A. And so we'd always kind of been interested in finance, but had studied computer science and was an academic. In nineteen eighty six, he left columbia to join Morgan and then started shah in nineteen eighty eight. And I think his model for this was jim Simons, who in thousand and eighty two started rena sance technologies and retired. I bet actually a lot of people listening don't know like I name a lot of what guys talking .

about on't have as like, oh, right, the firm that consistently produces the greatest returns of all time, but they're not taking any more capital. And so you can get your capital .

in to rent tech. And Simons is unreal. I'm pretty sure they are the best performing investors of all time full up period. We should do an episode on red tech .

if we can get any information. I think that's the interesting thing about reteach is like it's a fortress.

So supposedly, the core medan fund, which is now all private capital of rented employees and Simon themselves, if there's no outside investors, average a sixty six point one percent annual return from nine, nine, eight, eight to two thousand and eighty and thirty years at sixty six percent. And .

nobody.

but that was the inspiration for D. E. shaw. And d. Shah has not performed that well.

But of hedge funds today that people can actually invest in, like D. E. Shaw on a couple of others, are the legacy of that, right?

And while this was the business model of D. E. Shaw being a quana hatch fund, they always resisted the idea that that's what defined them.

They very much thought of themselves as the sort of group of creative artisans who, you know, investing in businesses and started businesses and came up with new ideas and view the world through different lenses. And sure, this is how to make money. But desk, or D E S. Co, was so much more than .

that totally. And I think this is what jeff falls in love with about the first man about David. So jeff joins, he realized through the ranks super quickly, he becomes the fourth senior vice president at the farm slc, highest level below David.

And I assume by far the Youngest, hey again, is middle twenty, is at this point he is like the future, like the rising star D. H, and he and David become super close. Now there's not a lot written about at which your baby C Y in a second, but they were very close.

And I to imagine that David can I saw himself as I, you know, I entered you, jeff, all for sure. So jeff loves that there. He's involved in recruiting, bringing in all these super smart people of all disciplines in the d shot.

And the mo was kindly like, we just want to find the smart st. People in the world. IT doesn't matter if they know nothing about business and finance is kind of bridge water today, this kind of the inherit of this lake, just bring them in here and we'll figure out stuff for them to do. So a bunch of people who become really key early amazon employees. Jeff holden, I believe business is involved in recruiting .

who would later, of course, join name is on right around two years after its founding. Amazing how that happens. Conspired sly close to two years exactly after jeff left issaa.

Yeah maybe like there's a non computer.

something non solicit.

Nicholas love joy and another printing grad who joined the farm, my kenza Scott title. And that's what we were referring to. Object falling in love at t shine more ways.

Then one of mace's, ie. Wood, get married. And I think technically mean, zi was the first. him. I M ly.

yes, it's interesting. I don't know technically in terms of like literally was he the first person to become A W tube employee? But certainly he was already doing work, I think particularly on accounting, working with legal, kind of setting up the Operation to the business before jeff hired shell cain, who was the first of engineer, the first sort of full time higher other than he, Mandy.

But the Kenny was like definitely like an employee of the business doing work on the business. So within dee shot, can I like you said, there are this quantity first. And like, yeah, that's how to make their money.

But they view themselves as being kind of entrepreneurs and starting these other businesses and doing stuff. And so David has jeff working on a bunch of this stuff. The first project he leads is building out what they call the third market business. And I was an idea that to create a sort of separate market from the exchanges where retail investors could trade without paying at that time, you're paying a lodin commissions to your burker, Charles. So the could which by the way.

this feels like it's probably the predecessor to dark pools.

I mean.

if they are make transactions of exchange and then batch shipping them to exchanges to get lower fees, that is sort of the financial world that we live in today where lots of transactions happen off the exchange, then that's sort of the processor to payment for order flow. I mean, they were the early days of all this stuff.

Robin hood. They definitely work because at the same time, the internet is it's so early, you know we're in like early you know mosaic nets, cape days, like ninety two, ninety three. But David and jeff, you know, given their backgrounds and like David having done, is PHD at stanford. They know all these people that are starting the internet and .

even based on himself, I mean, when he was, I think in college, he had used the internet when I was fully just command prompt based and there was no gooey IT was just a very basic critical ls and a unique commander and all. And you can maybe tell that was around at that point.

But yeah, there is no worlwide web. yes. So David and jeff really excited about this. And David kind of real signs, jeff, as one of the most senior people in the firm, that the two of them are gna work together to come up with business plans, that they're gonna start internet opportunities within the shot. So I think the first one that they do is a online retail brokers for financial critical like e trade. There was a competitive 1 trade， and I don't know for sure, but I wonder if that maybe the third market business the jeff was working on might have like transformed into this because IT makes so much more sense .

over the internet. Yeah, totally agree. They also started juno, which that became reasonably successful. Like remember seeing commercials for IT, get in cds for IT and that was like, really email.

do you know, was one of the first free email services that's right on the web and then they merged with net zero and became an I S. P. And an email provider.

yeah. But he was started by jeff and David within the show. Both of these is like that what they're doing during these years, you know, I think that's like jeff s. Main job is the to them with me. Every week they would bring storm ideas. Jeff would then go off for the rest of the week and like research, you know, the feasibility, the ideas and then like work on them with within the they did this with a couple businesses.

and they were the only ones doing this. It's interesting how there were other people who observed. Oh my god, the internet.

And I was like, okay, cool. Like this is clearly the next technology wave. Like we had the PC. What do we do with this thing? And microsoft is one that comes to mind.

This is the rich barton story with expedia that was a division of microsoft looking at internet potential businesses and saying, how do we start them? And of course, I think long time listeners will know that the way study ended up happening is rich basically said, hey, this online travel agency thing needs to happen if we keep IT in microsoft too long. It's gonna ill IT.

I spit out, broken that deal. D E. Shaw, I think, was actually before microsoft in realizing, okay, the internet is going to be huge by a handful of years. But the thing that kind of LED to the docker mania was people realizing all at once, oh my god.

the title wave is coming. They were ahead of the backroom for sure. There were not many folks that were recognizing this at this point time. So they've done the online trading thing, the e trade competitor that ended up getting acquired by marylynn. They did you know and there you know brain forming all these other ideas and one day they come up with an idea that they both get pretty excited about, uh, as bad rights about in the book. The name for the idea is the everything store.

which ends up being a pretty great day for a book.

So the concept was, in one way, he was on that com. exactly. But there was also a pretty fundamental difference in the idea at this point time. The idea was that you could use the internet to build a whole new intermediary layer between consumers and manufacturer that would bypass traditional retail. So you know, the discounters, walmart, kr, know, see all that physical stuff using going to cut them all out. And this kind of beautiful internet business is gonna be just the you can algorithm matchmaker between customers that want to buy stuff and manufacturers who mixed up. And that sort of what amazon is there .

is definitely this like, well, you know, the internet is gna change so much that factories will just be able to cell right to consumers online. And it's sort of like rounding away all the messy middle that we talked about on our episode with jeremy for my talk of you've got the manufacturer, you've got the product designers, you've got the distributor or you've got the brand that you've ultimately got retail and maybe you can own two parts of that, but you're probably not going to own all of IT. Yeah, IT was like this sort of very low as picture of the way that retail .

landscape worked. This totally ranks of lake, nineteen ninety nine era N, B, A business player. Like, you know, i'm going to dropped out of H B S.

I've got this start of idea of business plan and i'm going to get to funding go. No, to their credit, there were a few years ahead of this. And like nobody knew at the time, like nobody actually knew how the internet was gna play out.

Yeah, this seemed maybe plausible. You know, if that would work, you'd be beautiful, right? Like you wouldn't have to actually do anything.

You d just sit in the middle and take attacks on transactions. And so the idea was that the manufacturer would drop. The orders directly with customers a right out .

of their factory, which is totally your core confidence. Yeah totally. Like that's good work. But importantly, well, jeff is still at D E. Shaw and sort of regularly doing this ideating. He starts to dive really deep on what categories could make sense for this as a starting place.

yes. So the two of them, they are both very excited about this as they should be. Commerce, pretty big market.

Uh, yeah turns out like retail in the amErica is maybe other than U. S. Real estate, maybe the biggest market .

in the world yeah auto, I think, and maybe food.

So they like you said, and they they quickly realized, OK, we're gona do this. You can just start with the everything store. You need to pick one category, build that, build the consumer brand and you know the website in the traffic, and then you can add categories over time on top of that.

So jeff goes off. You do doing his weekly research activity is your researchers and sides that books are the idea of category for a few reasons. One, they are perfect commodities so like a paper book copy of book x is a paper book copy of book x doesn't matter where you bought IT, how you bought to the customer experience.

It's basically the same thing yeah. Two, there are only two major actual distributors of physical books in america. They're many publishers, but distributors who actually like have the inventory, the books ingram and Baker and Taylor or .

and do you know where ingram is located?

Origin right?

Yeah roseburg organ, a convenient one day drive or less half day drive from seattle.

although jeff was not thinking about that at the time.

No, not yet. That'll be the next step.

So would actually be pretty easy to enter this market because all you need to do is establish accounts with inger man, Baker and Taylor or and then you get the vast majority of the commercial market for commercial books. You have access to the inventory.

Yep, there are a few other things too like especially books are great because when you um you know with music, there's six different record labels that you'd have to get each of them on birthday. He considered music because obviously shipping books and shipping cds pretty comparable experience from a weight perspective and packing perspective and all that. So to the extent that it's going to be shipping to people, then you sort of have to just look at the industry dynamics of each of those because just like books, cds are perfect copies, perfect commodities .

are many dimensions. They are Better than books later. Way to ship standard as packaging is a yes.

but with books, unlike we're music that we talked about, our Taylor swift episode of their six labels, there are forty, two hundred book publishers. So well, you can sort of very quickly get the whole catalogue of the two distributors if you end up actually negotiating with publishers.

There's a lot of individual publishers, and all these small publishers actually do matter because there are three million different books that are active and in print worldwide. And the long tail matters. It's not just like everyone wants to listen to a tailor swift in books. There are lots of rare or out of print books that people totally want.

The, the, the nitty.

the ym and the sad quote is going to burn the noble and special ordering something in paying a bunch of extra money for that. So I can arrive in a month.

And I think David jeff considered music cds as well. I suspect this is probably the reason they decide to go with books. Actually, brad quotes jeff in the everything store quote, with that huge diversity of products, three million books in print, you could build a store online that simply could not exist in any other way. You could build a true super store with exhaustive selection and customers value selection. You know, borders and barn in nobel, they'd like say their book superstores, but I think they only stock like eighty thousand or so, maybe titles like which is a lot, but it's not three million.

It's not the infinite shelf space of the internet. Also worth noting, barto noble and borders each only had less than twelve percent of the retail market each. So it's not like there was somebody who already had eighty percent market are that you had to go fight. You sensibly could reasonably ly quickly become Barnes and noble .

or border scale up.

And David, he said something important there, which is that only with the internet could you really build this true super store and bezos keys on this very quickly. In the very first interview that he gave, which will link to in the sources, IT was actually at A A conference in seattle. So one sort of just interviewed him right outside the conference, and I think people have Price seen this video or screen shots of this video.

It's worth watching the whole few minutes because it's unbelievably president. He basically points out, if you can do something in the old paradigm, you should. And when there's a new paradigm like the internet, you basically want to find things that you could not do any other way. Love that in order to really exploit the power of the new part.

Oh, that's such a gay playbook theme. And we did highlight here like I I am i'm thinking about web three, right? Like all I like IT so obvious. Yeah, you can build stuff in web three that you can do in web two and like that sort of fine. But like really, you want the stuff, you want to find the stuff that you can't do.

Others as right don't go create the Better add and slapped on the internet and like it's like a magazine, the internet no invent the feed .

format totally. That's so great. Hadn't seen that interview. That's awesome. So jeff, you don't think we've ve been he just keep getting more and more excited about this.

The more he digs in in here in a couple other employees at the shaw, they start researching competition because there were other online bookstore at this point time, there is books that com. A few kind of local physical bookstores around the country had started up e commerce internet storefronts. You could buy books from X, Y, Z.

Local bookshop around the country and have them ships to you. And so they start experimenting with the competition. And they realized the nobody y's guy, the whole catalog, so to speak, the infinite selection is still all in this kind of old school physical paradise. Like, yeah, we ll put up A E commerce storefront, we'll put up a website, but we're just selling our inventory out of the what we ve got in the back here.

And importantly, IT IT was basically all static. The notion of a web server was a very new thing. There were hm l pages, and you could put those up on ub a server so that somebody using a browser could hit IT and get that set of page back.

But this notion of like code executes when you hit A U R L to dynamically generate a page that really wasn't happening yet. And so all you can ever do is fetched these static sites. And so I kind of just relied on whatever bookstore put up that page to make sure was updated with what's actually in the store.

Yeah, so jeff is like, map this a big idea. There is a window to go do this right now. Or somebody going to figure this out.

Do you know the state on internet growth?

Yes, he gets the wrong right.

I think the state is that as jeff looked at two different research reports and basically approximated the middle, what he was analyzing was basically .

the amount of traffic. Yep, the number of .

packets .

sent over the end of web, packets sent over the year of .

one thousand nine hundred ninety three, IT grew twenty three hundred percent in that single year.

No, no, no, no. This is the error that that grads about. The book IT grew twenty three hundred x from january first one thousand ninety three to january first one .

thousand eight ninety four way.

He was off by one hundred, yes, which is two hundred and thirty thousand percent.

what?

Somehow I miss that? yeah. He would later quote in speeches that he read this report, and he saw the traffic was growing twenty three hundred percent. And like IT, jolted him out of his complacency and realized, this idea is huge. I got to go like, do this on my holy crap.

Now I mean, I was going to make the point of, like, if you see anything growing twenty three hundred percent, you should start a business on top of IT. But I didn't realize that I was with the outdated.

that there is a minimum thread hold at which you should stop doing whatever you're doing. If you see something like this and go do that, that threshold is below twenty three hundred percent. But if you see something that's growing two hundred and thirty thousand percent in one year, you really got ta quit your job and go do this. IT is crazy like.

you know, being in venture we sort of look for like go, what's the next technology wave and what's the next paradigm? Is IT web three and is IT some form of vrar?

You and I have never seen this in our professior lifetimes.

We have never witnesses. No.

we have never seen anything within an order of magnet de of this.

Mobile didn't happen this quickly. There was no single year in mobile that was nearly as fast as the repeated of the internet adoption. And so a lot of us in venture and start up plan right now, we're starting businesses and investing in businesses that it's innovating around the edges and it's innovating on stuff that's pretty mature. There is nothing that is this sufficient a barrel opportunity of suddenly, everyone appeared over there using garbage tools. And all we have to do is make a pretty good tool, and everyone's .

already on the thing. Yes, I think pausing episode right now and highlight everything comes from this, like all we are doing now is like capitalizing on the rip effects or the aftershocks of this giant earthquake, of which we will probably never see another one in our lifetimes. The internet is IT is all the internet. And this is the beginning. Everything now is still just derivative of the internet.

Yeah, the idea that suddenly everyone is network together and can obtain any information very quickly, there wasn't even really an interaction model yet. IT was just about a obtaining information there will get request, but there weren't post request. And I don't know that's technically true, but that's one reasonable way to think about IT is you could load any web page, but there weren't a whole lot of forms. You could type things into decent information back to those companies of those servers.

In jeff s head and lived experience, this is all like happening at once. He's been working on the asset, internet stuff. There's this new idea that there we're going on that is pretty more excited about than any the other ideas he reads these reports you know ultimate is complacency.

He's like, dang, i've got this really coastal job here. 第一 下。 But I might need to leave this, and I do this on my own.

What happens next is sort of open for debate. No, jeff, restless with this decision for a little bit. kinds.

You, they just got married. They love their life. They love D. E. shaw. They love living in new york. Jeff really is kind of the air apparent to take over d. shah. And actually, like i'd said, IT, just a few years later, in two thousand, one David retires, goes back to computer science research, leaves the firm in the hands of other people. Like, very reasonable that that could have been jeff if .

he hadn't left. Yeah, absolutely.

Jeff calls up his parents, calls up my jacky. Like, what's I do know? Like, oh, you should stay A D show.

Of course it's very successfully. Get a great salary. Your well thought of in your industry .

yeah how many twenty year old, thirty year olds have the kind of success, an opportunity that you do? Not many just thinking about what to do and he talks about he later comes up with this framework for making the decision that he calls the regret minimization framework.

I love this and really .

is it's such a beautiful way to think about big life decisions like this. I've used IT. It's really great.

absolutely.

to the framework for people who don't know is when i'm eighty years old and i'm looking back on my life and I look back at this fork in the road here, which path am I going to regret the least? What will cause the least amount of regret when I am eighty and i'm looking back, and like I made that decision, do I regret IT more or less than what the alternative would have been um and when you look at IT that way, the answer is to bring dead obvious when his eighty looking back and he's like, well, I could have built amazon but I stayed a dish that can be some serious regret and he really .

is just an entrepreneur. IT ultimately wasn't really a choice because he wasn't going take over this thing and be a manager of someone else. Is vision that holy unus is funny?

I actually been to think, like i've used the regret minimization framework to make decisions. I was thinking about this, preparing for the episode. I want to make all these decisions anyway.

Who is this justification if you onna do, what is in their blood to do? I think, and you're so right, this was in his blood. He was gonna do this.

yeah. So he goes to tell David that he's gona leave. He's going to build the everything store on his own. Yeah.

not only i'm gonna leave to be an entrepreneur to capitalize on the internet, i'm gna do the exact thing that we've been the most excited about that i've been working on.

on your time. Yes, this is where the legend is, David. Like, let's go for a walk and they go off from the skyscraper office in the town, manhattan.

Go for a walk through central park for, like, two, three hours. They talk through at all. And David supposedly says to jeff, look, you ve got a future here.

I very much want you to stay and build this within the e shah. I will compensate you appropriately. IT will be worth your time.

But I also understand the entrepreneurial impulse. Like I left Morgan stanly to start. I get IT i've been in your shoes.

Yes and if you leave and do this on your own like i'll regret IT, but you have my blessing. That's the legend of how I went. Whether that actually is what happened like I I genuinely don't know, but it's a very nice legend for that .

year suggesting that I could be a little bit more every special or that there could be a little bit of a will will of, hey, I thought you were working on this thunder, the umbrella of the e shaw, right?

Well, jeff goes to raise money for ramazan and he .

doesn't raise IT from David.

Yeah right. Like that would be an obvious source of capital.

And it's not like jeff magically had to check waiting for him. Jeff ended up taking the Better part of a year to raise one million million dollars over sixty meetings, ultimately from twenty two different investors to sell twenty percent of the company in order to her. Is that first million? If IT was an option for him to call David and shortcut that you would think he would have.

At the end of the day, none of this matters because I am one hundred percent convinced there is no down down in my mind. Nor, I think, should there be in anybodies that had jeff stayed at the shot, there would be no amazon, regardless of IT being worth jeff time or compensation like this is the beauty of venture capital and the american entrepreneurs system. Usually building things that are great are hard. And usually when things are hard, if you are just an employee making a salary in somebody else owns the company.

you don't have level of maniacal progress. Yes, that amazon did in its early days.

certainly, certainly did I we're going to talk about so and the idea was completely flowed like the business plane was worthless because lots of people had their business plan, you know.

and IT was completely unrealistic, right? IT is interesting thinking about who the internet appealed to at this moment. And IT appealed to jeff, or he was on jeff s.

Radar, because jeff is a nerd. Yes, he has A C. S.

background. He was really in the star track. He loved obscure novels. He loved storytelling.

And the internet appealed to technical librarians at this point in history. That's probably the best way to describe the cult following. That boot strapped the original network of the internet. IT was academics, and IT was people who loved libraries and programing.

IT was also the counterculture movement, or the legacy of the counterculture movement, which had kind of die down and morphed into this out in california.

for sure. So this is the sort of thing that put him on. Jeff s. Radar is also the sort of thing that really defined who would be willing to join jeff on this crazy adventure.

IT wasn't that he was going in recruiting right away the very sort of best and brightest st out of the top institutions with the shiniest resume is, and who could really do anything. IT was people whose heart burn for, I want to make IT easier for the world to consume knowledge. I want to make IT easier to find rare out of print books. Yes, that was the sort of seed of the original culture of the people who were attracted to amazon, both as customers and employees.

which was not the uh.

no.

And I think this is also another reason my Jeffery y struggled with that because he loved the shah. He met his wife there, right? He love those people. Eventually that DNA would come into amazon. But yeah, let's talk about shock happen and the first non mackenzies employee of amazon to move .

the story along. So he decides is doing this. He decides, okay, I need to incorporate the company. He picks a few candidate cities that he could Operate the business. And because manhattan is not a wonderful place to be running a sort of bootstrap start up at the time.

By this point time, I think he had finally figured that out that should I might actually have to take delivery of some of these books and then ship them back out. The customers in midtown manhattan is not a gay place for that.

right? He starts sort of narrowing IT down. There's three cities on the list. Seattle, obviously one of them of a candidate city, in part because of its proxim ity to rosberg organ.

I believe the second candidate city was bored, but anyway, they end up deciding on seattle. And of course, part of IT is that proximity reason. The other part is a related to the sort of tax environment of washington state. As folks know, there is no state income tax in washington state, much like fda or texas.

But you would think given jeffe history, florida or texas would right make more sense.

But there is another big one too. There are two more big one. One of them is the access to technical talent.

Yes, microsoft was just absolutely in a tea and jeff respected what bill gates and crew had built and thought, you know what, opening up a business right next to microsoft. If i'm going to be attracting programmer seems like a good idea. yes. And IT wants .

the fourth. Well, the fourth, you have to rewind a little bit to the recruiting of shell. So shell, jeff gun, introduced to actually through A D.

H. colleague. And shell was an engineer, a programmer who lived in sana ws, california. And I worked for a bunch kind of early silicon valley startups and including stored brand in .

the whole earth catalogue, oh yeah yeah.

At the whole earth truck store in mental work.

which is like a rare books retailer, right? You know.

was counter culture. IT was seven. IT was like curiosities that store thought was cool and would be in the whole catoche. And then they sold out of back of a truck in menlo park.

perfect. And for listeners who are like whole earth catalogue, start brand, what are you talking about? Well, there is one other element of tech history which will quickly sort of jot you out of your seat and go, oh, that's what we're talking about here. When Steve jobs, who is sort of widely attributed to the quote, stay hungry, stay foolish, when he originally invoked that he was citing Stuart brand and IT, was printed in the cover, I think the inside cover of the whole earth catalogue.

IT was of the last issue. The last issue, when they stop publishing IT to the photo. The iconic photo from outer space of the earth has seen from outer space.

And that said, stay hungry, stay foolish. And with get total inspiration for Steve jobs. yes. So shell was working there.

which is so cool as then store sort of gets woven into the emison story in this way, of course. But then basis also has reference for the whole of catalogue to spend time with to a brand and a bunch of those .

folks down the line, too. Yeah, and they work on the clock of the long. Now I think IT is the ten thousand years clock.

which is investment from these expeditions. I think IT was one of the earliest sort of projects that he backed when he became .

individually wealthy. Oh, how did jeff become individually wealthy? Wasn't necessarily from selling his maison chairs to that. Yeah, you are not going to believe that when we tell that story.

how jeff also became a billionaire, nothing to do with him.

As on our com, that would be the click date. If we were like youtube native pocket, that would be .

the title of the episode in that may be will lip into put IT on the .

acquired stories. Chat for shoot crazy, oh my.

uh, youtube s men, right? So jeff cuttino duce to shell shells.

part of this deeper legacy of everything, so they can valley started up. You know, what becomes the internet? I believe the original intention was G, F, M. Kenney were going to move out to santa. And they're gna build amazon and silicon valley like that.

Why wouldn't you? Yeah maybe it's a little further to organ to ingrams, but like got that much father is fine, but I didn't realize how recent this had happened like this all of the same time in one thousand ninety two, the supreme court has ruled on a decision that retail company is do not have to collect sales tax in states where they don't have physical presents like Operations right now. That doesn't mean that customers don't have to pay sales tax when they buy items from a retailer that is not physically located in their city .

means that the burden is on the customer instead of the retell.

not on the retailer.

Which of course, individuals going out and say, what purchase did I make last year that I should paying sales tax on that may not have been charged .

to me by the crypto taxes.

Yeah, people pay taxes if it's easy, they have a hard so .

jeff finds that, reads about this and is like, oh, no, no, no, no, no. We cannot business company in california, not new york, not new york, not texas, probably not florida. What is the one diagram of, like, close to a book distributor has access to technical talent.

not too populous.

but enough technical people I can hire, but not so much that i'm alizon cutting out a huge swath of my market. Seattle is the obvious choice.

which you wouldn't pick today because this self perpetuating thing, because of amazon and the ecosystem that they and microsoft would jointly create here, seattle population has been going crazy, especially with people with unbelievably high disposable income. And so you would not want to.

in this day in age, make the same decision.

execute strategy and make the decision about washington state total. Jeff, S. S. Hadn't created games on yet. And so therefore .

I was a perfect place story. Jeff had zero connection to see, know anybody. I was actually the same way when I came to see .

at a place where you got A C job offer and you were like, I want to .

A C land. yeah. And IT was the land of opportunity for jeff faces. You know, the legend is that he machinist iran across country. They realize this. They like bear hard to the right in texas, and instead of go and do west to california, they go north west to seattle. Meanwhile.

I think they've been on the phone with lawyers or a lawyer incorporating the business while they've been driving out. And that's the whole think about the name at prior story worth telling.

Definitely the viewing to the rate while driving that didn't happen.

but it's a good story. But I think I think that did happen while mckinsey is driving and jeff is sort of working on the drive out. Is jeff on the phone with the lawyer? He's like, incorporate the business. I want you to be called .

kadabra A H it's magic. I can get, you know.

whatever I want, anything I want, whatever I want. And you know, jeff like, yeah kadar a and he's like cadaver. And so that was like the first sign of this may not be the best name. He would have a series of other potentially .

bad names .

to amazon.

Yeah, supposedly he and mackenzies both really liked relentless, less that com. This may be completely false solid. You don't hold me to this, but I wonder if that's a little subtle dig A D sha of lake, i'm going to go be an entrepreneur lentz like I wouldn't be relentless if I were in a cushy skyscrapers in manhattan.

It's not a very customer centric name.

No, it's definitely not.

It's very much like i'm going to come at you competitors.

Well, that's I wonder where did that come from?

Yeah I mean, would use IT to describe just personality, but it's an odd name for the business.

definitely. So eventually friends convince them that relentless sounds kind of sister and the story goes jeff starts looking in the dictionary at a words. Now, I don't know if he was specifically looking at a words. If so, he was very smart, because a names are names, starting with the letter a.

He actually was because sites like yahoo, like portal sites, directory sites, listed alphabetically totally.

I think, like we've been such a eneus ier quiet.

this is a secret, the vesta's internet total.

because things are listed alpha ticket on, or we will talk about yahoo. He's looking at a names and he's going into the last, and he sees amazon perfect, earth's largest river, earth's largest election on amazon a com. A is the, how could you be anymore perfect.

So perfect. So they just need one more thing. If hired shell, at this point, he's moving up to seattle. They rent a house. And bell view, famously you actually bugged by at the other day, right?

I did. I was on neighbour od and I was listening to, uh great podcast on the international history podcast with friend of the show, brian makola. He was interviewing shell about the early days about this you know how the jeff mackenzies lived in and they have the garage retrofitted to be an office, was on first office and shells programing sitting in that garage. And I looked at as a few blocks for me, like I got to ride by.

He texted me the photo.

I was so, so jealous, which felt wrong. You know, someone lives .

there and all that, but IT is A I think that's fine. So they just need one more thing, which is capital. You know, jeff macan, I created dish 啊。

So they put in ninety five thousand dollars to start shell himself. Puts in five thousand dollars. This takes me back to the walmart episode.

So smart vely having your employees actually invest in the business. Jeff's parents, Michael jackie, put in another hundred thousand dollars. So if two hundred hundred thousand dollars, that's enough, they hire a couple more engineers to work with shell, start building out the site.

Jeff goes and starts working on relationships with ingram and Baker Taylor makins, doing all the book keeping and this sort like the first C. F. O of the company.

Jeff, this is what also echoes of sam ball. Did you read about this? How he goes down and takes a course in bookselling down?

important. Yes, that was awesome. I'd like the national booksellers or book retailers association.

right? totally. Uh, so smart. I assume that how we started to build relationships in the industry get Baker and Taylor or in inger to take him seriously. So great. Yeah, it's worth pointing .

out at this point. So you know we sort of glaze over like our right sh'll get tired and he starts programing. There's very interesting set of technology choices that are made here.

And shell turns out to be the perfect tire. Jeff got very lucky. I don't think he is on what exists today if IT weren't for shell. And I think that sort of a widely acknowledge thing among the early team, including jeff.

But there's not really like a spec, jeff, I think, coded up the first H T M L Y page himself, that sort of White one with the a with the amazon river run through IT that predates tes the logo. But when he starts describing IT to shells, shells prety much like, okay, cool, like I know what to build. It's going to be a store and there's not like a lot of these yet, but like it's website where you can buy a stuff online.

great. And he just sort of starts coating. And there's a couple interesting things here, one of which is the technology choice of databases.

And do you know what database they would eventually sort of choose to standardized on? Because shell is not a database guy. Before this.

i'm tempted to say oracle.

definitely oracle. die.

interesting.

IT was a bake off between two, and shell basically was like OK cool. What database is often are, are going to prove. And the choices were size base and oracle. And size base did not return shells call. And so he chose oracle.

Oh my god, talk about freezing for shadow here. Like if you are an enterprise technology company, you ignore startup s at your own peril.

absolutely. I love that story.

Ah that's amazing.

There's a couple other interesting things here. And anybody who's been A P M or an engineer working on like an engineer pm team or a business guy tech guy team know this feeling. And remember the internet at this point. This is very, very pathetic, like it's just not the internet as you think about IT today in terms of speed or graphics or interface or trust or anything, especially trust on credit cards, like people were not yet comfortable entering create cards on the internet. In fact, more people were comfortable entering credit cards via email even though there was no more secure.

They actually had more people emAiling them their credit card information and they had a way in which you could do stuff like entered just five digits of your credit card and then call us and then we would get the rest of IT from you and matched up with the five you had entered on your order. But jeff tells shell, hey, people are gonna wanna access this store via two different methods. One of them is the web, which is, of course, up in coming.

The other of which is email, which people seem to trust a lot. So build two storefronts, one the successful or via email, and one the successful via web. And shell kind of just ignores the e mail thing.

He's like, i'm in this technology law. I don't think it's going to be an email. This store and is a good thing that he started with web. And by the time they had sort of gotten that stood up, IT was clear that jeff had sort of lost interest in the email by store. But IT was almost like a posture st type approach, whether you like what if you could browse by from your email that how crappy the web was, is IT wasn't clear that, that was a Better forming factor than email.

That's book. I get the sense that, that's very typical of early jeff management style. We had to go to do this and then, you know, some of them, like, you actually got to do something you like, well, ignore this for a little while. Yes, we're going to do the right thing here.

yeah. IT also became clear in listening to a lot of these interviews with early engineers that they use the word front end, engineer and back and engineer differently then we do today, today when we say front end and back. And that means from and being like client side, java script t typically stuff that executes in your browser, which of course, did not really work or exist then.

And backend meant server side, but was clear at amazon in the early days, was front end, meant consumer facing and back, and meant warehouse facing. Technical IT was basically all server side. In fact, there weren't even cookies yet.

And so shell had to basically invent this way for users to maintain favorite items or a shopping cart without leaving a cookie. And so how do you do that without cookie or sessions? He invented this really insane engine, is basically a rendering engine called oby dose, which anybody knows their self, american geography.

It's a tributary to the amazon, right?

Yeah and for people who remember browsing amazon in the early days, you've got like amazon that com slash exact slash ob dos slash something, something, something.

Oh, I definitely didn't do this. This is an .

awesome IT was a part of the year else. And so what oios did was IT could a pend as to the u and pass them through so that the back end, as we know in today's baLance, so that the server could match up. Oh, this customer just added this other thing that they are car and so dynamically generate a new web page for them that includes that other thing in their cart or what would go on to be include you may also like or similar products or recommended personalized products.

Uh, so 库。

this was the very first thing that allowed amazon to be like a dynamic web application without the use of cookies. And IT was just passing these ideas through the URL. And IT was all this obed's sort of dynamic web serving engine that shell built.

I love IT. I love IT that's so cool.

Yeah.

so yeah, shell is like, you're so right. Like he was the right guy for the job. yeah.

This was a grizel sort of veteran of building software system. Ms, that could work on internet. There were not many people who could do that at that point time.

no. And in fact, in job postings, I think BIOS put things like experience with websites would be a bonus but not required because like there weren't web developers because they're weren't web applications. You would think about IT like, hey, I need someone who can write some c code and then figure out the glue to make IT so that that interfaces with the H T M L va gets generated. But that was all sort of like .

brand new at the time. Yeah, amazing. So shell and the early team of engineers is that they bring on working together.

They get a beta bill like pretty fast, really fast. IT was summer of ninety four when jeff ine. Macy leave dish, and then IT takes a few months till figure all the stuff out in the garage and value.

In April of nineteen, nineteen ninety five, they ship a beta version of the site. They send out a link to friends and family, like, try IT out. You can buy any book you want shells friend john win, right, makes the first purchase on April third, one thousand ninety five, a book called fluid concepts and creative analogies by Douglas hofstetter.

Doug house, that is awesome. He wrote girtle at her back. Oh, it's super anyway, it's all like about the nature of consciousness and like I Carry out for another day yeah but super cal and very apt geeky first purchase on amazon 点 com.

again illustrating who the types of people who are interested in amazon. And the movement at the time were, yep.

And then shortly after that, july sixteen th, nineteen ninety five, they launch the site to the public. I holda understand now what mark and jesson was saying when he was, like, a frequent missed IT. I think, I guess mark was part of starting this wave. So he was talking about the previous wave. But like me now, looking back, like we re can miss IT in?

I foo, you have formal? Yeah, this would .

never happen today. They launched IT, and people came, people loved IT, like, if we can work .

immediately yeah, yeah. And that went very quickly from like a thing that obscure nerds wanted to. This has a good enough user experience where regular people are using IT quickly and deriving real value.

It's not just like IT had growth rates of a bunch of bots interacting with each other and therefore, the volume of time bots, this is very real people who are one or two clicks out from the early adopters solving real problems that they had before. And it's just everybody told their friends. In fact, I think there's a stat. The entire first year after the public launch, they spent zero marketing dollars and IT was all word of mouth and in our media inquiries because what they were doing was so novel and so useful. The mass market consumer oh.

in bale media increase. Okay, so they launch IT in the first two weeks. They do twenty five thousand dollars in revenue. But is just people tell their friends can do that today, like twenty five thousand dollars in revenue, like in two weeks you will want something today. Nobody y's going to use IT and then they get an inbound media inquiry two weeks after they launch IT from David filo and Jerry yang saying, hey, we heard about the your site and then IT looks prety cool. Do you mind if we feature IT on our home page?

And just like, wait a minute, your home page, think a lot of people go to that and .

that was the brand new at that point, literally brand new ah yahoo duck com. David and jury, of course, had started their guide to the web when they were at stanford grad students the year before in one thousand nine hundred ninety four, and they had just incorporated, raise money from psychotic capital, turn IT into an actual business and created yahoo only in march of one thousand ninety five. Wow, it's all happening all at once. Got to assume that was the first play in my books featured on the front page with the letter a aod that um growth so they get the email and .

had they raised their seat round their million dollars no no.

So uh all that context you had on shell, all this makes so much more sense. Now I thought he was just being conservative, but he knows what he's doing. They get the email and they're all talking about what to do and shells like guys, I don't we're ready for this. I don't think we can handle what's about to happen here because he's only .

been at startups that didn't really work. Yes, he made stuff functional and he was thinking of a certain scale, but he wasn't thinking like million scale.

Of course, jeff being jeff is like, dm, the torpedo is like full speed to ahead. We're doing this. We're going to say yes to yahoo. So they do IT within the next two weeks.

So where is four weeks after launch here? They have sold books to people in all fifty states in the country and forty five countries around the world there. By the end of those two weeks, they're doing twenty thousand and .

sales a week on books. These things cost like twenty or thirty box each.

And people to read books, you know yeah, there's barns and noble, important people to read books. They made all their money on D, V, D. And cds.

Nobody reads books. We read you, me, in the acquire community like we read books. But a vast minority.

most americans read one book a year. I think that's like the mode of number of books prior per person totally.

So that first half year that the say is live to the public, they do half a million dollars in revenue in six months with the two hundred thousand dollars in friends and family funding.

The initial insight is like pretty perfect product market fit right out of the gate. I may as one of these situations, it's like an uber or a twitter where you have this idea and then you put IT up and then that's exactly the thing that people want.

I'm sure there will come on again like this, but in some way they perform. But I can't stress enough like this does not happen today.

right?

I'm feeling the phobot.

The question is, David, would you have recognized IT? right?

That's the thing. We all have to be .

intellectually honest with ourselves. So I like, would we be hanging out in these circles with these people and truly believing, like they did not in one hundred ninety six, that the internet was gonna a thing. In ninety three, the internet was to be a thing.

You sorted this a little bit, not intentionally with podcasting, I think, and acquired, yeah, a little bit. We got a similar type with, right, honestly.

not judging by what you and I were doing a few years later, I do actually think we would have had the personalities, characteristics and the interests if we were not Young children at this time, to be caught up in all this oh yeah. In some ways i'm feeling the massive formal of, like god, if I was just born five, ten years earlier.

养养 i mean， it's this is who we are and I imagine how many of our listeners are too.

Yeah, I imagine if you were listened to three hour podcast, then you are the type of person who wanted to buy an oba book from someone on the internet, or you had to call .

in your credit or number falling apart.

One thing they did you write in the infrastructure though, because, by the way, very quickly, they became oracle's largest ever instances by traffic. The oracle people were like, oh my god, we can help you, but no one else is seeing this. Many reads are right per second, so let us make a new version for you.

But one thing that was very clear is that shelling the team were building things at a very low level of abstraction. I think they were building everything in basically a click up from assembly. Most of the stuff was in, see, some of IT was in perl, but they're not really writing in high level languages or using sort of high level frameworks.

So even though the technology at the time sucked, I mean, there was no band with compute was really, really, really hard to come by. You had to be unbelieved efficient as you're starting to roll out things like, and I know we'll get to this reviews and the collaborate filtering stuff where I was like. You may also like people who bought this, also bought the algorithm mattered a lot, but the environments that you are writing them in the low level languages were really important. And they basically could take advantage of these early internet technologies before the band with computer is really ready for most people to develop applications for them.

Told you right? I guess I sort of meant technology to some, extend the tech in infrastructure. I meant more like the garage.

Here is the kicker of why this is never what have worked with denia. It's super car. You can do drop shipping, amazon's GTA handle the logistics themselves to make this work.

And the way they were doing that was not to take inventory at the time. They were ordering retail first from other bookstores and then reselling IT and just eating the margin as the proof of concept. But then they were moving to this world, or they were just order from the distributor as soon as they got in order. And I was taking, obviously forever attacks that to the customer.

The distributors had minimum order sizes. So they who are ordering big box is a stuff come into the area.

Do you know the hack? Let's say they ordered a popular book where pretty quickly you could get to eight at at ten. Let's say the minimum is was they'd wait to get two more. I think it's ten yeah and that they could place in order with the distributor.

The hack was if it's sort of ve in the obscure books and they know we're never gona get to ten, they would take that one book and they would order nine of a book that they knew was not in stock. The system would let them make the order since ten books could be shipped out. And then, of course, they would get the rejection of, hey, this books at a stock. So that was their hack to make us of the distributors would actually send them the one copy of the one book that they .

wanted the sales levels were talking about. There is a lot of boxes come on and go out of the garage. yes.

So quickly they get a warehouse in soto in the kind of industrial neighbourhood's by the kingdom. At that point time, they start staffing IT up with ten workers. Famously, they tell the staff in agency to quote, send us your freak.

which made IT through the print in an article. And of course, that was the sort of click bid thing that everyone angered on.

This was the air of gunge and seattle. All these guns b musicians are like working in amazon warehouses after their gigs. different.

yeah. Famously, nick love joy from the shah. He comes up with the idea of packing tables. This becomes like amazon lower get first there literally just we assembling, you know, in doing something just like on their hands and the use on the floor like you really get some tables to do this up about the floor .

yeah and on the sense of freaks thing, there is great interview with jean sly that brian makola did, where she's the one who gave the quote in that an interview about sending your freak. And he said that because the temp agency was like sending them all these people that were basically professionals, they would expect to use modern tools. And a amazon, the low levels software thing wasn't just for their infrastructure.

They expect to their customer service people like use unix terminals and write command. So that would someone right right in there like where my order, like everything's on command line. And so jay, using that to try to articulate to the ten agency, here's the profile of person that we need because all these people are kind of a useless to us if they expect a bunch of very good tools .

to do their job. Uh, didn't know that text that's with cool here. These are quint stories. But this is the beginning of the competitive advantage and the mode that amazon starts to build.

And we're gona talk about ebay in a minute here, but it's just like the walmart story and fighting against car and other people like amazon now is building a native logistics, supply chain and distribution for e commerce that they're going to own and Operate that nobody else, literally nobody else in the world is doing this. Not walmart, not kmart, not barns and noble. They all have their own incredible logistics systems, but they're tuned for. I've got this books superstore of eighty thousand titles, and i've got thousands of them across the country. Amazon's building distribution for I have millions of customers across the world.

and basically no two orders are the same. So I always need to put a unique brand new combination of books into a box every single time. There is a totally different combinatorial problem to solve.

Then the walmart thing of, hey, we need to make sure that a truck goes from this distribution center to this store once a day with about this stuff. And maybe there could be a little variance. It's completely new.

And so amazon needed to fail completely, invent something new tailor to their use case, and then suddenly be the industry leader for the way you do that thing on the internet. And packing tables is such a great first of, oh, our warehouses will need these, but other distribution centers in the warmer land and that old school world don't. And that would just happen ten thousand times again. Compound and compound .

and compound. Well, yeah, there are big differences between the walmart supply chain and the burns and noble supply chain. And amazon and ebay sure as hell in building packing tables. yes. So they need some more money to capitalize all this. So if jeff goes out to raise that for sea rounds that we did the whole epo de, with time alberg about back in early acquired days, time is just the best.

Tom is the best. I relist n to that episode. And I was thinking, like, always be terrible, because this was like very early and acquired. It's so not and it's very listenable and most of that is because thas an unbelievable guest. He's kind and he also is so earnest st but lived the whole thing. I mean, he was um an early checking amazon in that one million dollar on five million dollar post money round and stayed the course with jeff all the way through the late twenty tens as a board member .

yeah largest serving board member and name's on history other than jeff. So cool so there is that one million dollar round from a bunch of kind of local business folks in seattle, of which tom is one and one of the most involved in the company.

They can our bunch of local business folks here.

So in one hundred ninety sex, remember, they did half a million in revenue for the half year of nineteen ninety five. After they alive, they do fifteen point seven million in revenue in one thousand and ninety six. They have a tiger by the tail. Here you would have to be accelerating so much to go from whatever the run rate was in december of ninety five.

So they about fifty next in their first year, but they fifty next off a base of five hundred thousand. It's not like alf of nothing.

yeah. They didn't go from like five, one hundred or something like .

that when i'm looking at SaaS company's like oh my god, you quite dropped that's like nearly unheard of good companies triple and .

then you look at and it's like you went from twenty .

K R R to one hundred K R right and this is yeah wow five hundred k in six months to fifteen point seven the following year OK that's ninety.

ninety six, nineteen ninety six. So as this rise is happening, obviously, more and more people start paying attention. And we go this to the little epo de. But tom tells the story on our episode with him. I just quote from time here.

So I come home one day after work at like six P M or something and my wife says, do you know some guy name john door and I said, well, actually I do and he said, well, he calls every fifteen minutes and keep saying he needs to talk to you now and then says, IT was one of john's great strength, which is his persistence tells you something about how to sell yourself and show your interest. And of course, that is the legendary john door of the climate. Perkins, it's been many years.

and so there's lots of names of key folks at zoia and at benchmark and an entry and hoods that and we think of is like how these incredible venture capitalist, john door, was pretty widely known to be the greatest all time at this point in history.

He was like all of today's all stars and venture capital within the industry and among founders. If you aggregate all of those all stars into one single person, that would have been on door at that point time. So this shows you how much cloud john had, a, the hustle, the persistence. Even though he was a legendary hn, he's calling time give every fifteen minutes, calling time's wife to get a lead on the deal. Amazon ends up choosing liner to lead their series a eight million dollars at a sixty million dollar post money evaluation.

And I think they were competing in general atlantic.

many firms, including general atlantic, which was the first runner up. Now there was some structure to the deal. So IT wasn't like a clean, the kind of term he was clean.

I don't remember exactly what the structure was, but tom refers to this on our episode. They were a new york firm, you know, general, but they were offering like double evaluation close to double. I think izon and jeff went with john and kiner because they were john in kiner.

There is a fun little sidebar of john wins the deal, and this is kind of his playback at the time. great. You know, i'm going to be involved, but I ve got this great associate.

I'm going to put, i'm going to put on your board, and it's gonna. great. V, C, still do this today. Jeff wasn't too happy about this.

Goes to talk to time I do about this and and they bring something they come up with idea jeff calls jn back and is like, i'm really sorry, I really wanted to work with cinner perkins then. But I guess we're going to be going with general. You're not going to join my board. That was really the appeal for me.

you know and john, like I don't have the band with I want to many other boards right now. He's got what netscape.

let's get compact, some microsystems into IT. This is before google. We will definitely talk about google in a minute, but he's all busy not in sis that but this was such a hot deal.

And jeff was so persuasive, the john made time and I think he's probably glad that he made to join the board. yeah. So they raise this money from kleiner. Jeff does two things.

And this was seven million.

eight million.

eight million. So so far in the lifetime of the companies raise in nine million dollars.

a little more than nine, because there was the friends and family money, the bazas family as a whole, nine, two, that was actually more like nine, four, because the bazaar family as a whole, not just jeff parents, jackie might, but also his siblings, put a little more money in before the car around. That was what we were looting to at the begin of the show of gash man, Michael, jackie. They must have done some good investing.

which is funny, is like that basis of siblings having some of the greatest investment returns of all time. IT proves venture capitals access, access, access.

Oh, I not wait to talk about how jf faces and macae zy got wealth of IT just a little bit longer. Got to wait a little longer, right? So jeff, to two things after he raises around from kiner, I didn't write down the quote. Somebody who is involved in the company at that point said something like jeff viewed the stamp of implementation from clinton down doors like a shot, a steroid into himself in the company.

IT certainly embolden his vision. He sort of use this as like someone wave in the flag of like, go, go, go. Like you should feel free to have a much, much more ambitious plan. Now.

jeff, I don't think is the kind of person who ever felt like he needed permission, but to the extent he did feel like he needed permission, or that the right thing to do was to get big fast, which is one thing that he does, that he makes that the .

model literally became the model. Which printed on t shirts at the company holiday party. Yeah.

get big fast. Yeah, decline around. And john joining the board was absolutely that for him. So he also makes a critical higher, which is the first official professional CFO into the company, joy coffee, to come on at this time.

who gino had zero interest. This is another person who unbelievable, accomplished, really brilliant, curious. But SHE look in california, she's not going to move this at, is only marginally interested.

But jeff and SHE meet, and she's completely turned around. She's like, all my god, I have to work with this guy. And oh my god, is the best this model of all time.

And i'm sure john had something to do with this. My understanding from the history is I, like one of john's real superpowers, was recruiting IT, was winning deals, obviously. Ly, but helping companies for rude to, yeah, joy stories is amazing.

SHE dropped at a high school and then ended up becoming A C. P. A. SHE took A C, P, A exam in california.

And god, I think, like the second highest score in history, the history of the exam ended up going on to both harvard business school and harvard law school. Dropped at a high school. Her life was going in one direction. And there's so many people like that involved. The name was on that are, yeah, just like these incredible stories of perseverance.

there is a lot of folks know we're talking about join the past times because SHE sadly passed away in twenty thirteen at a bicycle accident, a car hit her. So absolutely tragic, brilliant, kind person who the world lost too early. Just to keep going, enjoy a little bit.

We're going to talk about the m is on letter, which many of you have read that original one thousand and ninety seven letter to shareholders, which SHE wrote with jeff. And of course, as we talk about amazon, really the playbook of how they got big will talk a lot about them reinvesting every single dollar of profit they had to play IT back in to grow the business. That is, of course, attributable to jeff, but is in large part of joy coffee invention too. I mean, he was really sort of co architect of that strategy.

SHE spent a lot of time with bread as he was reading the everything store. SHE wrote him in this email right before SHE had the accident and tragically passed away. And brand publishes the whole thing at the end of the book.

And I just quote from IT here, joyce telling grad, I think about the early days and the level of clarity, vision, potential and values that the jeff brought. And then I look at amazon today, this is in twenty thirteen, and reflect on some conversations i've had with him in the intervening years. IT is easy to draw a straight line from the vision he had back then to the amazon of today.

There are a few little babes in detours in places. But really, I don't know any other company that has created such a jug or note that is so consistent with the original ideas of the founder. It's almost like he fired an arrow and then followed that arc. I think jeff is one of the most capable and effective founders ever. And I think the amazon juger nut is still in its early stages.

What he would have been write about in twenty thirteen oh my god.

where I get to twenty thirteen in the episode but that was a crazy y thing to say in twenty thirteen amazon was one hundred and twenty billion dollar market have company when he said that, not many people would have said that I was just .

this incredible rosh ck test. There is a way to look at IT, where IT is. He shot an arrow and then follow the street. There is another way to look at IT, which is they tried way more things that did not work than ones that did. But we're unbelievable at learning from the mistakes and quickly following them.

The only thing that amazon launched that had perfect product market fit right away was amazon com, was amazon 点 com， was the original idea and then everything else was a brute force algorithm for finding your way through. Amazed where it's just like try this pathway of crap. No, back up, back up, back up, back up, refine, turn amazon brute force their way to success a lot and just finding out where all the doors were by trying all of them job that is a .

great way to put IT IT is worth .

highlighting this period of time, this ninety four and ninety seven, this prego public time. Even though they had the improved, as you put a David of kiner perkins, and even though they were located in seattle near often, even though they had this product market of fit and unbelievable fifteen next year over year growth in revenue dollars, not like usage revenue and customer attention was increasing like every single metric of the businesses like, oh my god, I got I got the internet is going crazy and a bookstore actually doesn't look like an interesting thing on the internet to most engineers. So they actually had a recruiting problem where talented engineers who were like, oh my god, this is a really interesting next generation technology that I want to build on are much more interested in working at other companies who are building web applications, things like search engines, even things like you mentioned ebay, that will get to hear in the second, yeah. That's a much, in many ways, a much harder computational problem of building a good experience and back in system for facilitating a real .

time auction marketplace .

and countdowns and the online book store thing seems kind of boring, and so it's remarkably hard for them to recruit there.

A govea great element quotes in the everything store, the mid acrosst forma cy of google is so there like so like bridging backhanded compliments to amazon and jeff. But one of them is talking about A W S. Like, uh, the book guys figured out computer science, of course, like we were telling this, f, we get new computer science to back off.

When he was finding that narrowed from day one, he wanted to be a technology company. Everyone was like you're retailer or and even one click down your a book retailer is like we are a technology company and he sort of will them being a technology company into existence. And I don't know anybody now was like the retailer or are there any specific category of retailer or they are like, yeah, there are a dominant technology firm.

You now he probably wishes people will like, go don't know about izon, you know. Okay, back to the story. So joy joins right at the end of ninety x after the liner round.

And jeff, definitely because he wanted to do IT and you know, consistent with get big fast, maybe he was also sort of like this test for his new hypotension, al CFO, and going to see what he's really made of. It's like where in your public? No, no.

You know tom talked about this two in our interview with him. Part of IT was the capital of markets were opened. The remedie growth was insane.

Like the dog mania is just starting to heat up. Strength leads to strength. All of that. Jeff also thought that this would be a great marketing event for the company. And like, he was totally right.

You know, the amount of covered they got in mainstream media they went from, even though john dore join the board, average person didn't give a crap about john door, venture capital or startups. IT was not like today. Joan was a legend in silicon valley, but that was a very small place. Amazon need to do appeal to millions of people, all types, all over the country in the world.

Yes, IT turned out they did get something right in this notion of like long tail books. There is very few people who want one particular book in the long tail, but most people want something in the long tail. And so their product market fit sort of originally came from. We can get you special order books quickly and easily, and your user experience and buying the body basically the same as buying a Harry potter book and a seller.

This gets sort of a lude to in the everything store and a function of amazon. That com that was appealing to mainstream amErica was buying stuff that you wouldn't necessarily want to walk into a store and order yourself in person from your .

neighbors like every new technology.

like every new technology to leave at that.

yes. And the other thing to point out about the identifying books is there's this seminal wall street journal piece about the company and ninety ninety six that drives a lot of traffic. It's like the yahoo event on steroids.

And they have this really interesting state, which is in one thousand nine hundred ninety five, the web attracted more than one hundred thousand retailers, which I would not have guess that happened unto like shop of, but apparently that happened in one thousand and five, with some spending more than a million dollars each on ee popping sites. Yet worldwide retail sales on the web amounted to just three hundred and twenty four million last year, which ever is out to slightly more than three thousand in sales per Taylor. So amazon nailed a category and an Operational model where they were able to be like the one dominant e commerce site.

And they know this predates pets dot com, this predates e Cosmos dot com, ebay. They were almost the earliest they were of the first wave, and just nailed IT on a bunch of vectors where there is a great quote from gene slade. There were no grown ups that could help us every time they would bring in a vender for, like customer service, a software or databases of or anything. The implementation reps will just look at all the numbers and be a what our software actually can help you. And so they had to build a lot of this stuff in house because they were basically the only successful big retailer or of the scale using the internet.

Um well, like we learned on the walmart episode, if the infrastructure of the care for what you need to do to make your beer doesn't exist, if you want to make your beer taste, you to d your own restructure .

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Okay, so joy joins at the end of one thousand nine ninety six. Jeff, like winning, go public now. So spring of one thousand nine hundred ninety seven, they failed to go public with lead underwriters.

Not common sex, not more understanding do to bank and some might say it's uber bankers Frank quota and bill early. Yes, seeing the IPO so cool. And we asked tom on the amazon IPO episode that we did. Why did jeff and amazon choose doch a bank over the gold played, you know, never get fired for choosing golden sex or Morgan stanly and time. The answer was, well, if you knew quarter on and girl, you would know that the answer is quatro and early.

Yeah, of course, Frank quattrone has gone on to do unch very impressive deals that catalyst and bilk erly became future bilgi ili. So yes, but this is in his banking career .

now when they failed to go public. But before they actually do go public, just like jeff was envision ing, this attracts a lot of attention, and that's mostly a good thing.

He's contact on the marketing exercise. This is a big way to legitimize them to consumers. R, S, that enables many more people to feel comfortable typing credit internet .

like everything like that. And also this other thing ultimately is a good thing too, not at the time. IT attracts the attention of the radio brothers, who are the founders and C, E, O and chairman separately, C, E, O and chairman of Barnes and noble and I. They know about amazon, what ever of amazon internet like, you know, we don't need to worry about that. All of a sudden there's a little company in seattle is failed to .

go public and is claiming to the .

earth's largest bookstore. Yeah, they like other sound, right? us. I just think of like borders like and born the noble is grape, but borders was the big thing.

But now we know from the walmart episode, borders was out of the game, came mary had acquired them. And yeah, the founders had moved on. Li bord moved on to start web van, to start web then. So great, so great.

Is that crazy .

by the noble? Was the jug are not now the radio of brothers. When azo files for an IPO, they fly up to seattle and they schedule a dinner with jeff.

And jeff brings along. Tom is tom in addition to being wonderful human, great advice, mentor to both of us. He was a lawyer earlier in his car.

He was like a very high profile corporate layers. He has got the rates of skills bring to this dinner. yes. So the radio brothers, their father was a new york city cab driver and a semi professional boxer who twice defeated rocky garzon.

O, then the kind of lead of the two of the M, I think the brother, he technical, did go to N, Y, U. But like, let's to say, they went to the university of hard knox. Their way of doing business is very different.

Also, we ve got to talk about this. I I don't think you have any idea, do you know? Just like we talk to my last episode about the whole crazy, you know, borders came out, va came out, of course.

box.

incredible history. Do you know what the is your brothers spent out of? Burns and noble? I'm not talking about the neck or Barnes and noble.

L that cut, you're never going to guess this. No IT actually makes sense. Game, stop.

No way. I'm dead serious. So so IT was actually software at seta. I got ta look .

at the stock Price of both of these.

Game stop is the merger of software at sea. Would spend out of Barnes and noble and bages software member baba es back in the .

day sounds vegal familiar. They were like .

a video game and computer software retailer. yeah. Game stop. Breaking game stop.

Oh my god. Okay, what do you think burnt and novel education ink is from a market cap perspective today .

of maybe five hundred million.

one hundred and forty three million.

Okay, what's going stop today?

Ten point three billion.

yeah.

Built purely from an intrinsic value model that I have here in front of dance.

Baby.

I assume burns a noble education. Ink is burns in, know, the big .

company.

I don't think you end up crAiling this far without some kind of recapitalizing or something happening.

Well, speaking of burns, a noble creature, this dinner didn't help. So these two like, you know tough new york guys that are like where you come out because of nerd out and see at all, like go is no episode time. His personality is not bluster, you know, brush new yorker know like i'm sure the radio came to this dinner and they were just like, we're going to freak and crush these geeks. Oh, boy, did they not so they go home after .

the dinner and the dinner out of soft. We wanna buy you. Or was the dinner or soft we're going .

to run at a business. IT was both. yeah. IT was, hey, we've heard about you.

You know what? Burns the noble right? And you know, we've been thinking about doing the we're gonna do IT. We could buy you and you could be our internet thing or we could crush you. I think that's how the dinner when.

and by the way, the one thousand and eighty six small street journal piece that did wake the world up to this was titled wall street with fines, niche selling books on the internet. Uh, I always think back on the wall street was for jeff as well.

And actually what the ratio brothers are saying is what everybody think. So when everyone does go public is not a great I P. O.

They Price on may fifteen and one thousand ninety seven, there is fifty four million dollars at a four hundred and thirty eight million dollar market cap. And then they trade down. On day one.

he was like seventeen dollars a share that they went public at. And then I think they trade down and they want, they would eventually trade all the way down to, like, five box of share in the dog compass.

Well, IT would rock IT back up. I went through the way in the fall. Yes, but the head of forest research, you know, the big research from they write a note about amazon in the industry .

called the amazon t toast.

the amazon toast. And it's not because of ebay. It's not cause of blaw ball blaw. It's not cause of the docs crash IT because they think burns and novels gonna kill them a boy.

So what are the ready your brothers doing? They go back home to new york and they do two, two things. One, they launch a new project, new, you know, initiated within the company with the code name book editor. In case there is any confusion.

in case there is .

any confusion about what the intent of this is and that they're going to kill him, was on with the new Barnes and nobel 点 com。 The other thing they do is sue amazon and they conveniently for them. And inconveniently for amazon, announced the lawsuit three days before the IPO Prices brutal. Hence the amazon that toast memo and they sued them for band, what you said of amazon claiming to have earth's largest selection of books. And I think the suit is like when you don't have a story, you can go select the books.

So the attic and annoying.

So like I said, the I P O happens. It's not great stock trades up off. But couple weeks later, amazon does their first quarterly financials.

Oring is public company. They report q to one thousand nine hundred and ninety seven earnings of twenty eight million dollars. Remember, they only did fifteen point seven year before twenty million that quarter.

unbelievable.

So h wall street reverses course. The stock takes off for the full year of one thousand nine ninety seven. They do just a hair under one hundred and fifty million dollars in revenue tenets the year before.

Oh my god, ten lexing on that kind of base, especially right when you're going public. I mean, this is the stuff that makes investors go nuts. You can see how this very quickly becomes a darling stock.

Now when I said that burns in nobel was going to launch book predator and be amazon, I was like, OK, what do I mean? OK? This starts a pattern IT would be hubris of jeff joy and Kenny and everybody and hell and amazon to just say, okay, and do anything about IT.

But this is azo, and they know this is a problem. They know they can beat them, but they have to go beat them, and they know what the path is. Jeff made in amErica is like his bible. Yes, he knows the walmart story.

By the way, listeners, we weren't onna do the walmart story. We actually were going to do this as the first episode of the season, and we got into researching amazon and realized how much jeff respected and borrowed from the walmart strategy in really gog gest. We get out that very first.

But there are a couple moments coming up where he interacts with walmart and he brings along his copy, his like scroll and notes and marked up and dog yard copy of made in amErica to like, show these people who are going to talk about the like. No, like I sam is my hero. I'm not to some gee, I understand what we're doing here.

Yeah and so jeff, because of this, because he's read made in america, he knows that he can be barns and nobel. But the way to do IT is through distribution by building native distribution logistics supply chain for e commerce, not for physical stores. And IT is different enough that just like warmer could build native distribution for their network of walmart super centres.

And that was very different than the came are coming out of cristi distribution in that they were piggy backing off of just like we can do the same thing here, but we have to do IT. And I know we need to do IT, but I can't really do IT, but I know some people who can. So in early ninety seven, he enjoys together.

I think a court bread was very much to join effort of both of them proudly. John door was involved too. They start traveling to benton bill on recruiting trips.

canvas.

poach into canvas and poach. And they they zero in on a target. Rick doz l, the number one draft pic, rick dolls. And I think they've been calling .

him before the IPO, but he didn't end up until after.

Yes, he was like a year long recruitment process to get rick to join. And at one point, he actually commits to joining and then backs out. And he was really conflicted about this.

He am super plugged in the betton vel community.

There is an important part of walmart. Not only was he deeply emda in the benzo community, so rick was technically the number two person in I T. A warmer. And as we talked about last episode, you know, evenly might hear that sentence in the number two person in who's that no. Walmer was an amazing technology company and especially distribution supply chain logistics the the best in .

the world at this point. They had been the largest computerized logistics and distribution company in the world and Operated their own private satellite network to communicate among the other stores and had been doing that for a dozen years. A very impressive back and technology.

They were the first big corporation in amErica to adopt technology and say, that is going to be like the heart of what we do. And rick was blue tenant human IT at all. He was the hands on guy doing IT.

So jeff and joy and john in the board this year, like if we can get this guy, he's the key. So they go through this year long recruitment process. Like I said, at one point, they convinced rick to join and then he calls him back and his like, now i'm not going to do IT.

He calls them back because lee Scott, walmart C E O, the third C E O walmart in history, takes rick aside when he hears this needs like rack. You've got a future here. You could be a future CEO of walmer.

You're making a big mistake. He says you're making big mistake and b, he says, which he's totally right on. He's like, look, we've studied these amazon guys.

Walmart is no barns and noble. They know what's going on like we know how they're doing distribution over there. There gonna hit a brick wall when they get to any kinds scale, which clearly they are onna get to this year.

It's gonna fall apart over there. You know that you know how this works. You would be committing career suicide if you go .

take this job, which that was the risk. I mean, IT paid off in a huge, huge way, largely because rick was very successful at doing what needed to be done. But that is for sure, the risk that have make .

up the jump eventually on jeff toy and everybody, they convinced rect to make the jump. And so right before the ibo in early ninety seven, he joins. And jeff knows they going to win at this point. So brad rights in the everything store bases had predicted that Barnes and noble would have trouble seriously competing online. And in the end he was right.

The radios were reluctant to lose money on a relatively small part of their business and didn't want to put their most resourceful employees behind an effort that would size and sales away from the more profitable stores. On top of that, their company's distribution Operation was well entrenched and geared towards serving physical stores by sending out large shipments of books to a certain number of locations. The shift from that to mAiling small orders to individual customers was long, painful and full of customer services for amazon.

That was just daily business. There we go. So rick, he alone joining is like huge. He also air lifts about a dozen executives out to come join him. So when he finally does officially accept the offer, walmart, like you did us.

And so he gets escorted out of his office by security, the whole thing, which in reinspect was a mistake by a walmart. Because that just makes everybody more curious inside walmer. Like paying red.

He could have been C. E, O at this place, and he just went to go by head of I, T. At this company and sea I. To go find out what they are. Do you like, I wana follow a rick.

And at this point, amazon is well underway from transforming of a culture of miss fits and geeks who want to be able to ship read books online to like N, B. A city. This is where they're getting experienced executives.

They're really turning on the recruiting engine from top business schools and walmart and walmart. There are two different ways to look at amazon. And I think on the show, we focus a lot on the sort of business side of IT where there is an unbelievable cash flow dynamic that will talk about.

There's the whole get the investors you ask for. There's the constant reinvesting in growth. But up to this point, you know, when you listen to these interviews, will show cain or reading all the stories on greg lindon's blog, who is an early engineer, or all the interviews glen flashman has given.

IT really is about adapting technologies that were not really ready yet, being the first and biggest and being with miss fits on the internet. There was a big exciting of the sort of ninety four and ninety seven crowd in ninety eight and ninety nine as dolls, zell and his people and all the M. B, A sort of come in to say, okay, it's working and it's not just about this quest for .

odd books actually would put dozen in the walmer crew. I think there are three key categories of people that were necessary for amazon to succeed. There were the technologist shell in the early days and the freak and geeks, but then that evolved into a world class technology organization over time. There were the M B, S.

That we're gona talk about in a minute the andy Jasons, the Jason killers, the Harrison Millers, the jeff blackburn and then there were the walmart people, the rickles jeff, well, he didn't come from walmart, but he's very much to cut from that cloth the back and retail logistics distribution people and you really need a world class, all three of those to make this work yeah. So on the distribution and supply front, more than a dozen walmart executive was to come over to amazon in late nineteen ninety eight. Walmart sues amazon.

For trying to steal trade secrets. The case settle with no damages. But there was damage IT happened that DNA came right out of walmart and right into amazon.

yep. And to be fairly, we said is a different thing than the walmart supply to they're building. Is the amazon supply in which .

they didn't realize enough of that. First, there was all sorts of false starts in amazon getting good at distribution because even though they knew Better, they sort of we're copying the walmart playbook and they were doing the classic game on thing. They were brook forcing their way through the maze, learning from mistakes, backing up, turning left and going the other direction. But they needed to go bump into that world to do IT.

yep. So when dl comes over and all the walmart folks, they had the warehouse since the atall, and they say, like you want to warehouse you a distribution center, the distribution center, that's the deal first centers. Like you want something more, sophy, ted.

So they go in one thousand nine hundred ninety eight, from the one warehouse and seattle to six distribution centers, the sea warehouse becomes one deliver. nava. Georgia, too, in kentucky, noticed that going to all these states that are, like, close to big population states, but in the s but then I actually wilky later who said, no, we don't want distribution centers.

We want fulfilment centers. And so that's what name is on this. And there is a fundamental difference. We're not distributing a una goods to stores. We are fulfilling and customer .

orders to end customers every single one uniquely. And we need to optimize them too, make every single order happen for the very first time it's ever happened, total, in a sort of unpredictable way, predictable and mass, but not on an individual .

level for years. In years, nobody realized this. But what amazon building up on the side of the business is an enormous, if not the largest part of their mode.

Today, amazon has one hundred and eighty five fulfilment centers around the world. They have ninety six airplanes of their own airline. They have a maritime company.

They have two hundred thousand delivery vans. They've one, one hundred thousand electric delivery vans on order. I mean.

the company employees one point six million people, most of which .

do this. yes. And here's the mode from the viewpoint of the customer. All that is free. Jeff obviously wasn't envisioning that specifically. But like this is why either gona be burned and nobel, and this is why going to be debate. And this is eventually why they are going to be warmer and e commerce.

Yeah, i'll tell us about ebay if you were to pitch me on both of these businesses and put on my venture capital is hat. And he told me that I can take this really asset heavy inventory business with an unbelievable amount of capex that needs to be built up with all these filming centers with the amazon. Or I could run the high gross margin asset light business of ebay ninety nine times out of one hundred. I want to invest in ebay and dominated ebay. So how that play out.

So the competition with ebay, the point is a noble thing. Yeah, that was the first battle. The name is on wins.

But I was obvious they're going to win that. Ebay like this is a real fight. So at first, they're different.

Ebay is auction. It's beny babies. It's pez. Which, by the way, that whole legend of P, R started ebay so his wife could collect as dispenses. That was A P R person made that up. Humans, the story.

That's not what have an auction web, not ebay.

So as all this is happening, you mention the M B S, jeff and amazon start hiring andy, Jessie, James, caller, Victoria, picket a Miller. Just like all these people who are coming in all these M B S, they're test with adding a new category, tamatha music and cities. That's what Jessie does, kylie as DVD, Victoria as box software, her similar as toys, which pain as electronics.

Jeff blackburn, leds, bd and starts buying all these other internet companies pretty quickly in zon. On ebay, they're competing much more head, head then people originally thought so. Ebay started as auction web in one thousand nine ninety five by paro media, didn't turn into like a real venture by company and change its name to ebay until one thousand nine hundred ninety seven after amazon was already public. And of course, famously benchmark invest six point seven million in ebay in the fall of one thousand and ninety seven.

producing one of the greatest venture investments of all time.

So that was fall of ninety seven. I think they own like twenty five percent or something of the assumption will go tell that whole history soon. But ebay goes public in september of one thousand and ninety eight at a two billion dollar market cap.

I mean, ebay was the winner at this point in time. Everyone just looked at IT was like, oh, that's the best dot com business. And also, I think about that series a and ninety seven raising seven million dollars, two billion dollar market cap IPO in ninety eight.

Yes, come on. I .

remember thinking, saying that was when snap went public after what was at four years years. Yes.

this was an all time .

insane moment with ebay going public. And many had at all time high .

of the legends stories of administrative assistance at benchmark retire .

the little piece of the Carry of the one investment in, yeah.

the market cap didn't stop at two billion. Ebay went by the next year in one thousand and twenty five billion dollar market cap. That's a big company .

by today's standards and we have trillion dollar our companies .

now and it's effectively four years from oken web, but it's two years from ebay. That's impressive yeah as all this is happening in the summer of nineteen ninety eight, rape before the ebay IPO. But as a zon on ebay, more like we know, many work to go on in the same direction here. Make women and peer fly up to see.

Make women of disney strat planning fame.

Disney high margin media company. Keep all this in mind that the DNA of of meg, they fly up to seattle to me with bazas and blackbird member amazon onto the public company. At this point, ebay, still this little startup that has raised the series a from benchmark, they are hot.

But no, they still start up. Jeff and jeff take them on a tour of the seattle fulfillment center peers like you, such a look. Engineers like all this is super cool.

Then they sit down to me. The two jeff s make a cana. Maybe I quite like the Barnes and noble dinner, but they make a sort of a bulk reference of, well, maybe ire.

You supposedly, according to brad, they sort of float like a six hundred million dollar number if such a thing were two happen so Megan peer, get back to silk valley and supose ly, according the bread pears like, wow, that was really cool, man. That filming center. They're building something very different cities.

Maybe we should think about that. And mag supposedly says, I think this is from an interview with peer in the book. Mag says, Peter, this is not a direct quote.

I'm here. Warehouses are not cool. We never want to Operate warehouses. IT is cool. Hi margin internet businesses that cool, you don't want to be mucking around with warehouses.

Well, this is the very, very, very starkest illustration of what's the best business model over the next few years and what's the best business to be in long term. Well, the best business to be in long term period is delighting your customers more than they ever imagined. And the best business to be uncertainly for the next few years, maybe even the next decade, if you're ebay, is a high margin true internet business.

But the zs is thinking in decades and he's thinking, how are we possibly going to a be the best place to buy something on the internet a decade from now, unless it's extremely reliable shipping times, very short shipping times, we have IT in stock. They're buying IT from a vender that they trust that is secure. All these things sort require us to either be the merchant or at least be the ones who fulfill IT and keep that in a distribution center of a film center.

So they're both right on different time frames. And my favorite BIOS quote is, and this, I think, comes from the very first interview that I referenced earlier. I may have watched every interview basis is given in prep for this, but that one has all the highlights in like three to four minutes and know he still got.

Here is a long term. There is never any misalignment between customer interest and shareholder interest. So and that such a dramatic statement because I think a lot of people would argue with that. And he's thinking on an infinite time .

frame what happens after this meeting with Megan peer, I think really illustrates just how special jeff and amazon as a company are because he makes a mental and emotional leap that I don't know many people get made. He both believes everything you just said, redman, in america. And building out this advantage, it's going to be my mode. I'm gonna lay customers. This is the way and .

desperately wants to beat ebay at auctions.

Well, desperately wants to be ebay, but he's like, and ebay is also right. And this starts a journey. But amazon today is that amazing.

Back and distribution language, say you can get stuff from amazon faster and Better and cheaper than just about anywhere else on the internet and certain ly in aggregate of everything you can buy. Amazon is head shoulders above anybody else. And you can buy from other people who are not amazon 点 com on amazon。 And that is all thanks to that meeting.

Yeah I mean, this is, again, amazon having to run into a wall back up, tried again. So obviously, they don't buy ebay.

Obviously, they naturally to have to do the next thing, which is even though amazon is focused on the customer, they're also focused on their competition course are jeff has all these quotes about how customers the maybe late later, we believe that our customers are very loyal up until the moment that there is a Better way for them to solve their problems than buying for us. And so that's off the top my head. It's not exactly, but it's close.

And I think his realization is okay. If ebay is gradually fast and there's a way to get something rare or cheaper or something, we can have to be in business doing that too. So this is amazon's first very expensive failed experiment with amazon auction.

So after the meeting, jeff pace, as turns to jeff blackburn, is like options could be the future where in to start a secret project to clone e bay within here is on it's obviously the book predator with the barns and novel. Except they're actually .

competent and and it's not like we're going like learn from ebay and apply to our business, go for a different segment than ebay or like two ox differently, we're going to go directly at ebay doing exactly what .

they are doing. yes. Now makes sense why this will be secret. It's also secret because Scott cook, the founder of into IT. Is on the board of both companies.

So amazon starts working on amazon auction, literally exact clone of ebay. Now ebay did not have paypal at this point time. So paying on ebay was this huge source of friction and a huge man trade maza ha zon find out.

But course you make pair. They know this is a problem. They're talking to startups about acquiring starts.

They couldn't, you know some of payments. Ebay, now this is summer nineteen and ninety eight. There's no paypal yet. Infinity, the first time they didn't even get started until end ninety like early ninety nine. wow. Ebay is talking to a start of called except dot com and he wants to acquire them to handle payments on ebay basis, swept in and amazon steals the deal and acquires accept that com mostly so that ebay doesn't get IT and they just .

want public amazons get all this cash from that so they're feeling themselves and feeling like they can do stuff like this.

Yeah you may can do this yet know everyone comes got highly valued liquid stock, this cash, if that gone, otherwise I don't know about paypal. Like is finally no paypal? There might not be .

a paypal mafia. Yeah.

great point. And so I can really, really like totally turns on the night point at this moment in time. Okay, some march and ninety nine amazon launches azz auction, closed ebay computer ebay and shocker you having heard of amazon auction, it's a flop. So here's an interesting .

comment on is a greg ladon write on his blog and this early engineer who worked done the auction, a bunch other stuff. So when the site launched, IT was technically superior to e base, faster, Better search and several new useful features. The inventory was reasonable, but not large. This is one of those things where the fly wheel was just already in motion when you have the newark effect of more buyers attracting more sellers and more sellers attracting more buyers like ebay had, and they were a couple years ahead, IT was just already in full swing. And even if you have a more technically .

superior interface and the advantage of traffic on on .

com T A C T and zo t really. So you go to a product detail page on amazon. They had invented this pretty amazing thing that really pissed off all the booksellers, which was when you look at a product detail page, you could buy new and used. They're like a the same book. So we'll put in both right there.

And of course, that pieces off the book publishers because they are like what our whole thing is that you want to go buy the new book and you can't buy a used one right next to the new one, that the use books on other distribution channel and amazon's like, we don't care. Customer can choose which they want from one singular unified product detail page, which flash way forward to third party sellers. At the same thing today, you're competing as a third party seller to be the one that gets the traffic from the product detail page when people click the buy button. So they weren't doing that with amazon options yet.

He was a separate tab.

separate options that amazon dot com IT was not getting izon traffic yeah .

did never network effect. Another reason people like ebay, man, they just totally shrug off amazon as a competition beautiful business model.

So their market cap continue to go nuts.

Now jeff so required accept that com to keep IT out of the hands of ebay. But they go started quiring like a lot of companies, a lot of startups in this era. Partially, I think, to keep them from ebay and other people, partially because I don't know, everybody was drunk back then.

And they are investing in a unch of them as kind of hedges. They looked at the stock com and they thought we're gonna get into ship and down food for a while. In fact, I think they had tried to ship some cat letter at the same shipping rates as everything else. And I was super expensive. That's an example that is refer to very often by early amazon employees as sort of a failed .

distribution, totally mispricing thing. Yeah.

they are some money. I M, I think they owe like forty percent at point.

So the crazy st of all of these acquisitions, just from the story, is a company called jungly.

yes, which was references on the walmart episode.

Indeed, we're not going talk about what jungly actually did. He was a comparison shopping started by three stanford computer science P. H.

S. In a business guy from nets cape. What IT was doesn't matter that business guy from nescafe, his name was ROM SHE. Um let me sound familiar to some folks.

but probably not to most people.

So he was on requires this company for like, good, one hundred and fifty hundred and something like that there in palo alto. But I was sound like you can work there anymore. We can have a tax nexus in alive.

Nia, remember, this is still in those days. You can move up to seattle. So the jungle team, like I just gave a fun of money, okay, will move to do. They hate the acquisition, doesn't work out, it's ill, concede from the get go, within a few months, they all quit. Then move back to people.

which, by the way, then they would go on to ultimately start the thing that would be acquired by walmart, which became walmer labs, which became, yes, probably the second biggest reason that walmart is a very real competitor, e commerce. Now to jep and mark.

So they're back in palo alto, ROM, the business guy from nescafe, I assume, through his cofounder, the stanford C S. P, H D. He gets hooked up with two other stanford computer science P H S.

Two guys name, Larry page, S, R, gay, brin jungly got acquire. They made this money, you know? And so gay, like, oh, we want to raise the money for this thing that we're doing.

Also, how crazy is that? There were nearly three hours into the story of amazon. Amazon is already public. yes. And we're talking about Larry and sunday at stanford before google founded.

So roms like, sir, you guys been promising this whole backward page rank thing I get, got potential. great. He invest the first two hundred fifty thousand dollars in google, and he joins the board.

good. Now, couple months go by. About six months, to be exact. Jeff and ron can stay in touch. And even though they left him as their friendly, just hear about google calls of around, he's like, hey, I want to meet these guys roms like, sure, come on down the silicon rao house, you all at my house.

And was jeff interested in search yet amazon got a assessed with search in that sort of a nine era of two thousand four. Did they have any?

I think this leads to that. okay. So jeff and vacancy fly down the silk valley. They all go over the ram's house. They have a big, you know, nice breakfast lot of backslaps ghin ROM. Larry surgit, jeff muncy, after the breakfast lyans r leave, G F takes romi me like, hey, I want put some money in these guys too and roms like, dude, the seed closed six months ago and like inner to koa like they're circling about doing a series a like just like .

I don't care and just like i'm jeff bezos yes.

that means nothing to me. I want in and I want in on the same terms as you. So rob goes to back warm, and he convinced his Larry and survey to take another two hundred and fifty thousand dollars of jeff and machen's personal money at the seed Price.

which was, I couldn't .

gure out what I was, but the series a, that would happen shortly there. After a google famous split between john or kiner and mike, mario ia was at one hundred million dollar post money evaluation, which was in for the point time.

And mike Morris came in and told doug leoni as dog, told that on our interview with him, even after making this investment, he's looking at google and goes, we've never paid so much .

for so little. Yes, go for that. So dug.

amazing. What a hipe. okay. So that's stone at one hundred. So we can say, like, I mean, to guess somewhere twenty million.

ten may be lower.

M got like a ten or twenty x from the series .

A I think so I don't .

know RAM and jeff, we should say machen's.

I think he is probably safe to say that jeff and macananty along at least one percent of google personally, probably even after delusion from the series raise to.

that's right, google went public just on that series a. They did google one of the most immediately cash generated businesses of all time. My god.

well, they, you know, walk in the woods before they found the paid search business model. And like my god, so jeff has never comment he's been asked. He's never commented on whether or not he and mackenzies sold.

They are google shares, but they wouldn't even had a chance to sell before the IPO. So and a minimum held to the IPO like one plus percent of google probably held longer than that. Like I don't know that's how jeffrey macAnthony got wealthy.

So in two thousand and four, google IPO for twenty three billion dollar market cap, you so there are shares would have been worth two hundred and thirty million dollars ad IPO, which was eighteen years ago. And since then, over the last eighteen years, google has sixty five x from there.

That was me laughing there. But listers, you should just imagine jeff bezos laughing there. Yes, oh, me.

And so yes, even if face us wasn't selling any M S on chairs for a while, he had plenty of capital to work with for doing things like investing in .

crazy call clock and rocket companies .

and venture fun benchmark psl, which also, I don't .

think IT was the ebay fan he couldn't have in the ebay fn. But yet the basis becomes a large personal investor in the mark in the future course. The back is.

think about IT this way too. What if jeff still owns a percent of google, whether google cloud winds or whether AWS winds.

especially now just just a board member of amazon that cook is a board member of amazon and ebay.

What is like seventeen percent of amazon today.

something like that.

something like that. So he's only seventeen, six more incentivise for amazon to win the google win. We're making up numbers here.

So we're speculating quite a bit on what Price you got in and everything. And he got access because there was on bought a company, and then they all left. But he maintained the relationship. I mean, these things, life is long.

amazing. I feel like there's a lesson there. And the lesson is investing google.

I think, yeah, this all I can take a way to back.

I was an, despite this unbelievable bountiful wind offer, jeff and vacancy. Personally, things are pretty bad at amazon at this point in time. The dot com euphorbia starting to win. Some cracks are starting to show barons. In spring of one thousand eight ninety nine publishes the famous amazon that bomb article.

Amazon that bomb. There were some analysts who are still very, very excited about amazon at this time. Morgan standing analyst with the name that some people will definitely know from her client parkin's days.

And now bond today's y. Meeker at the time, just that Morgan stanly as an analyst rote right around IPO time that amazon is the leading retailer merchandise or on the internet. SHE said the valuation gives us heartburn of gargantuan proportion, but SHE did conclude we do not want to miss this one and he was right.

A lot of her career at this point would come from sort of trading on the professional capital that came from being extremely right about amazon totally. But that doesn't change. The dot com bubbles starting to show cracks. And then eventually .

pop SHE would be out in the cold here by herself because the he was and up on peace comes out. Amazon reports, I think, either q two or q 3 earnings in one thousand eight ninety nine。 And I mean, it's the same story. We, like lots of revenue, grow hugely unprofitable. We we didn't say joy. And then her successful, worked super hard for three years, totally burned out her successor, Warren James, and took over A C, F, O from delta lines, where he came from joy first and then, and then warn to they orchestrate raising about two billion dollars in convertible debt on the debt markets, which totally saves amazon .

skin and was way more than they raised in the IPO. Way more. They only raised fifty five million.

Yes, sometimes is people are like, oh, amazon. What a great example of capital. late.

There is ten million dollars in venture and fifty five in their IPO, and there is no the two billion dollars. And they used IT, and they used IT. Amazon would have been amazon, that toast had IT not been for that.

So summer, in one thousand nine hundred ninety nine, the stock starts falling. The board gets pretty worried about the company, about jeff, and is hard to remember this. But yeah, this happened.

The board asks jeff to bring in A C, O, O. The compliment. So painful. Read this and like, go back that this happened. And they bring in bill camp, the coach, the legendary bill camel.

who we should say his legendary, is that woman speaks highly of him. He was brought in to twitter and then worked as a suton nefer ious agent on behalf of the board to ask the C. E.

O. You gotta wonder what was going on here too. No.

it's not just two. Or like bill, I think probably genuinely was amazing and the testimony of so many people to him, even people like Scott could cookie came in and replace so he wasn't just twitter, apple with Steve gibbs, google with you know, x men into IT with skype. It's amazing that the .

thing that he got reputation for was being a coach when in fact, the thing that he really did repeatedly that was .

convinced that the founders to move a side and bring in the adult supervision yes, there's a fact pattern here. First, doesn't mean that he was an amazing and like didn't help these companies. But yeah, amazon board brings him into him zon and simultaneously asked jeff to go find A C.

O O. Supposedly, actually a leading candidate for the job was Jamie diamond. If you can believe that is not crazy.

What could .

have been they settle on joe gi, who had been an executive at black and decor, and he had actually signed to go taking executive role at pepi, running the freedom lay division. What other C O O transition to C. E O of tech company came from? Pepi, john scully. Yy, john, silly. So there's a skuli situation going on here IT amazon in nineteen ninety nine.

So BIOS does take this seriously. He rewards he has everyone report to black and decor guy to joe and you know he says my only direction ort is now joe. And at the same time, he's also like you, like your CEO. You're not C E O. And joe sort of under the impression probably from talking to bill cambell, we don't know for sure, and probably from talking other board members, I think i'm supposed to do CEO type stuff .

and like I think i'm supposed to like, be the CEO over a while and then move into this role.

And, you know, do IT my way. We're going to do IT the way that we did IT at black and decker and from the world where I came from. And amazon rejects this. So joe starts running amazon sort of he starts sort of trying to get people to start moving to his way of doing things in his style of leadership. By the way, while he's commenting back to the east coast every single weekend rather than being on the ground in .

seattle on that wasn't the worst offence.

the amazon executives just reject this like a bad org and transplant.

Everything you need to know about the culture class here is that joe was one of those old school executives who, the way he did email when he had his secretary printed out and read IT to him, and then he would tell her what to respond. Yeah, actually that sounds pretty awesome. I would love, I would love.

Did you get?

Yes, I would do that all day league, or actually for as little time as possible, as in often as possible, as rarely as possible. But yeah, that's not going to work running zon.

So jose, out you .

he does, though, make one absolutely incredible blasting contribution to amazon, which is he was a key part of recruiting jeff wilky and if everybody was, too. But that absolves a lot of sense.

And for listeners unfamiliar with jeff wilky, what did jeff go on to deal with the company?

Jeff basically inherited and then expanded redos els role. And then eventually, when basis started to step back and Jesse became C E O. A, W, S and b is for C E O of the whole company. Jessie counterpart and C, E O of amazon was jeff alki.

So he's got a little bit of a legacy. Amazon joe does, as he parts ways you .

and he would go back to the world he came from, he became C, O, the holding company that makes hover and dirt devil vacuum. And I think did very well there.

So Price sold a lot of my ms. On over the years.

probably sold a lot of the ms. Yes, yes, indeed.

right? So amazon's was though are real. They now have a big debt service to pay based on this big comfortable bond offering. And nineteen ninety nine, they're still growing at what is honestly insan Epace. It's not the amount that they were going, going before.

I think they're about tripling revenue, which to be clear in ninety nine is like six hundred million to one point eight billion, unbelievably impressive. But their stock Price the previous year from ninety eight to ninety nine had ten. And so expectations are through the moon for this company.

It's not just solid fundamentals that we're valuing IT. The way people are valuing amazon is sure there's no net incomer get profitability coming out today, but they're growing so fast. They appeared to have category leadership.

And if the internet really going to be the thing that we think at all is I just want to own a peace. And this is, of course, how bubble happen. Then bubbles, of course, pop.

My, my god, we won't know anything about this in the recent history, would we?

No, not at all. So by two thousand, one, it's becoming clear that they got to pull back. And so in two thousand and one, they lay off three hundred people. And this is almost like emails have been so dominant for so long today that is hard to even think about the fact that I don't know how close to death they were, but they almost, well, they weren't dominant. And that feels weird saying today, remembering a time where IT wasn't always succeeding.

I think they were pretty close to death. So after the whole gi incident, what's called an incident, and jeff cano reaffirms, hey, I do want to be C. E.

O here. I put my hands back on the wheel. He changes the model of the company from get big fast to quote, get our house in order. I think they also A T shirts made of of that.

That reminds me a lot of what did facebook change from IT was move fast and break things that was like move fast with a stable infrastructure.

something like that, that was so funny. Not quite the same. Not quite the same. No, I don't know how related IT was to the whole coach. Cambia gally singer IT probably was modest about the competitive dynamic.

But certainly after that, I don't know which side initiated IT, but one side of the other or both came to got cook. And we're like, dude, you can be on both of these boards anymore and telling ly, Scott chooses ebay and there is the actually quote to bread in the everything store. He says, up until that point I had seen jeff only at one speed, the gogo speed of grow at all costs.

I had not seen him drive toward profitability and efficiency. Most exact, particularly first time C, E, O, who get good at one thing can only dance what they know, how to dance. Frankly, I didn't think you could do IT and a everything about that is telling but like the whole world thinks the same thing too.

They don't think amazon can do this. Yeah, jeff, though I think he always believe he could do this so he announcers, uh, internal company goal. That announced to the whole company, part of the get our house in order montreal, that they will be profitable by the fourth quarter of two thousand one.

So they start looking at any possible way to increase carefully. And necessity being the mother of invention here, they start really, really okay. What do we have? What can we do? We've got a pretty good e commerce website. A lot of people want to have e commerce websites. What if we start going to other companies who want to have good e commerce websites, and we often to sell them our website, like our infrastructure.

almost like being shop a fy.

Yeah, this is like shop of I, not A W S.

And they do IT in a ludicrous high touch manner. Yeah, it's sound like where d is gona open up our platform. This whole obsession with interfaces and platforms and A P S that exists with amazon today really happened yet. no. So they're like, who can we basically do weird one off partnerships with to create some sort of cobra website for them using our technology and all of our people to sell the stuff that they have relationships with .

manufacturer on and customers and h and that we can then just get paid like a software v four. yes. So they do this with toys are us, and then they do with borders. I remember .

the borders branded amazon IT was really weird.

I remember this, I would get borders gift cards, and you could put them into the border safe. But because he was also the same back in this amazon, you couldn't use that on amazon. I on't totally remember the and IT works, the other word.

direction to the clarity of vision on amazon seems so clear in hindsight. But there is these weird things that happened along the way. We were like, oh, no, they were just like in a corner and did something pretty antha themal to what the drum beat of the culture and the strategy was like. How is this strategic with everything that basis has been writing in his letters?

IT wasn't, but they needed the money. yeah. So they do IT with target. They literally ran on targets website for years, which obviously they announced that deal on september eleven, two thousand, one.

So of rough, they even go pitch the idea of warmer to do the same. Walmart walmer. Is they like, yeah, thanks guys.

But no nice try. Here's the super fund part. So amazon is going around pitching all these other retailers. Let us take over for you, you know, run your website.

You may knows they know amazon in the states, but they probably heard about gale, cambell and all this stuff in the fall of two thousand. Make gretchen and jeff Jordan fly up to seattle and they pitch BIOS on the opposite idea. Ebay takes over the failed amazon actions and all of third party selling and become z shops, which i'll talk about now on amazon.

Just like ebay, we know how to do this. You keep rather amazon 点 com the retail and will do their party selling for you with the ebay technology。 IT was like, wow, oh my gosh, you know that the Michael Jordan me of like I took that .

personal yes.

I think from the last I think jeff took that personal.

Yes, agree. yes.

I think he took that very personal. So he calls a meeting. Remember, they're a try league, survive, get profitability, generate cash flow. They're doing this crazy stuff with target and toys are us.

I mean, at this point, theyve got over two billion of debt on the baLance sheet. I think IT actually increased from two thousand and two thousand one and two thousand one, two at two thousand two. So they're like really just making the interest payments here and trying to reduce the dead load and produce some that income profitability, which still hasn't happened.

still not happened.

No, no, which IT was intentional for the longest time. But now that they need to do IT, they need to grow the muscle to do IT. yes.

So jeff calls me ency meeting of at this point. That was the S. T. The senior leadership. IT was the j team, the jeff team. And then when golia took over and everybody reported a joe, then IT became the S T, M, the senior to .

which had stayed.

the a team which had stayed that seems more appropriate than the f team. But anyway, he calls the weekend emergency s teen meeting at his house to discuss third party selling on the amazon. Now I said z shops, so options, I can remember if that there was still alive or not, they had tried saying, okay, well, maybe actions don't make sense on amazon, but we still want to allow other people to sell on amazon.

What if we just do fixed Price, you know, like a regular retail type listing? So they started this thing called z shops. But again, I was a separate tab website wasn't like right on the product page of him was on that they weren't .

leveraging the strategic gsa that they had, which was traffic and customer loyalty.

And what they realizes in one way to look at the real key thing, and I think this is very two today, the different ates amazon positively versus ebay and pretty much everywhere else selling on the internet is they have an authoritative product catalogue. You know, if you're running product page for amazon 点 com， you know what that thing is that you're gonna.

I mean, they invented anybody who's ever used against the A P I like they have essence A S I N. That's a unix on identifying number four, a product that they have an authority of catalogue on everything they sell.

And anybody who ever thought something on ebay, you don't really know what you're right.

It's almost like A S on starting as a bookstore had the benefit of I S B N numbers. It's like they decided we're going to create a propriete I S B N system for the world.

Yes, yes.

for all products.

So they come up with this crazy idea in this meeting. And there are some back story that leads to a, which is they on the product pages. They had links to the shop fly stings.

And that was the only thing that kind of drove actual converting traffic. They like what if we put listenings from third party sellers oh yes, on our own product faces? That's what ebay wants to do.

That's why ebay is interest in talking to us. What if we just do that and completely revamp how we think about third party selling on a but honestly, everything about the product page, and we call IT amazon marketplace. And so they launched this in a matter of months in november of two thousand.

They launch marketplace first with books minus like nuts. Yeah people are pissed at amazon, but you're a category manager. Amazon your competition you know grad right about this just went from like being outside the walls of amazon 点 com。 You just let out your competition inside your walls in the castle on your product page .

and I don't know exactly how IT works. I think it's more sophisticated than this. But basically like a some third party seller is verifiably selling the same exact product and they're doing IT for a cheaper Price.

Then the byte tn doesn't come from amazon. The bybee ton, the competing vendors in third party sellers product. And so U. S. Category manager, if you got a number next to your name, that doesn't recruit your number.

nope. That goes to a totally different team with amazon. But china, just like him. Zon originally IT. Turns out customer is really like competition, paying lower Prices, being able to buy more stuff, getting more selection. They launched IT in november and the even though we launched in the middle key four in two thousand.

one which was a no no until this point, you basically don't launch anything going into the Christmas season. You're literally not allowed to push code up until this point. And I was on history around that time.

IT accounts for fifteen percent of all customer orders on name is zonda marketplace. While today marketplaces over fifty percent over half of everything this sold was on com is not the I remember .

the annual letter in twenty eighteen went eclipse dead, and jeff proudly proclaim, ed, that the third party sellers are kicking our butt. We are very excited about that.

What a jeff thing to say.

this is when founder leadership becomes really important, they have an immediate organisational design problem where a whole bunch of people are incentives and competed against their freedom. And what you've just done is you've created a brand new business strategy that tells people that the greater good is more important than their system. And in order to rearrange everyone without creating massive ve infighting and turn to march in this new strategic direction, it's pretty hard to do that. As an on founder.

I'm so in all of BIOS doing this because he almost just got out set out of his company. He's on the the companies on the and this .

could have blown up the company too. I mean, this a different business model.

All of the emotional incentive that I would imagine for somebody in this amount pressure is like to the board, shareholders, everything just be like, okay, I got to come back. I got to see can rock the boat. We're got to costa a lobby and he's like, no, we're gonna meet this radical shift in this dire moment.

You're totally rate. Not only is this something only under can do, it's only is something that a very special founder would have the confidence to do. Amazingly, IT works, jeff s crazy goal of the company is going to hit t profitability.

Q four of two thousand, one that he just like packed out of the air when he kind of came back after the garden incident. They do IT marketplaces, a big component of this, the website, a deals with target and toys aras are a big component to this. In q four of two thousand one, they do one point one billion of revenue, fifty nine million of Operational income, thirty five million of performer adjusted net income, excluding stock base comp and non cash expenses.

But they do five million dollars of honest to god you can touch IT taste and take IT home, put IT in your bank account gap. That income for the fourth quarter of two thousand one. And this is huge. They announce results. The stock jumps twenty five percent one day, which no other internet to ask are jumping up in that moment in time.

right? I mean, people are looking at their wounds after two thousand for three years, four years.

IT was an an amazing achievement.

Amazon had seen big jumps before, like the Harry blodget thing during the dot comer, where IT was trading below one hundred and suddenly jumped ed to like two fifty or something. All that wants just done hendl dst thing, I think, going to go to four hundred. They weren't a stranger to massive fluctuations in their stock Price. But you're right, this is one bright spot in a multiyear dark period for tech.

This is post september eleven. This is a like today, you know, in the stock regular yeah, a year ago, yeah, stocks jumped twenty five percent a day. Like, you know, great. Everybody is this is like everybody else going down and we went up.

Yep, and this is kind of the start of where you start to see, oh, izon might become bigger than ebay. Ebay basically doesn't have a thriving comeback in the post dot com bubble burst.

No IT would be a long journey. But amazon stock Price tripled in two thousand seven, while ebay fell by over fifty percent. And during that year, for the first time since like ebay IPO m zon finally passes ebay in market cap. today. E base market cap IT is large, but we've .

done a nice job. It's twenty seven billion dollars even after the big draw down that we've experienced. It's a little bit weird to look at that number because IT comes got the divestiture of papal and IT had the acquisition and the divestiture or of skype. So there is some one key. Ss, their post twenty fifteen has been pretty good.

you, but still, I mean, think we can declare amazon the winner here in longer.

And yes, I can tell the last time I bought something on ebay. And god, i'm afraid to look at my amazon tonal.

Okay, few more stories we gotta tell about this kind of era of amazon. Before we talk about the another era of amazon on the next episode, talk to about google. As the years go by, after the dock correction portal sort of .

go away and the Brown is motion on the internet becomes kind of efficient, because internet freak huge and growing really fast. Turns out searches is really important. And so amazon look at a google there like, god, they've got an unbelievable business.

It's kind of a monopoly. The gross margins are incredible. Finding things on the internet seems really important. We should get into that to yep.

it's both an opportunity and a problem for us. We want to be the place where people stuff to buy on the internet. Honestly, I mean, I think this is drawing too brought of a brush, but I think google will kill you bright.

You know, google the issue with the amazon a while the zon GLE .

and def course do is very direct connection to google. He saw this problem certainly before ebay, before lots and lots of people. He has a quote on google from, like the pretty early days of amazon and dealing with this. And he says the focus on amazon three google like a mountain, you can climb the mountain, but you can't move IT use them but don't make them smarter as in like don't make them smarter about searching our product catalog. So for the first time, knowing like what a strategic priority search is becoming on the internet and does two pazon breaks down and starts a secret subsidiary in california in out they do a whole bunch of legal gym asics. So like oh.

it's a separate of city area.

It's not IT doesn't generate any revenue to final Prices. Hope stuff happened and they so great we've got Operations were charging .

tex everywhere. I think it's a misunderstanding of them. As on to say there, they don't want to pay sales tax because they are being cheap. They ve you IT as a competitive advantage where shoppers will shop with them because the items can be five to ten percent less because there's no sales tax on them again because it's technically putting the onus on the consumer and they're like, well, corporate income taxes as a whole separate thing.

And this is about attracting customers.

We have our own methods of paying the small amount of that possible. But yes, this is purely about beating competitors to get the customer spend .

one hundred percent. After I graduated from college and I was living on my own for the first time with my own salary and expenses you like off on my head when there was like i'm going to buy everything on amazon because I don't pay sales tax up. Fortunately, now i'm in a place that doesn't matter to me. Now, kind of ai, if saving five to ten percent on your girl series, on your other league that matters, is a lot to a lot of people.

totally.

So basis on, they see google. They start a subsidiary, auto, like we can like trying and not make google smarter and play defense. Here we ve got to play offence too.

We ve got to improve our own search capabilities. So they started hiring search P D S. Leaders at the subsidiary. Um how about that? They call a nine short for algorithms, a plus nine letters algo them see you.

And like you said at first day, like, oh, we should start our own separate search engine and compete with google. Well, turns out there there's a network effect in search as well, yes, which is the more data you have on, the more searches happening, the Better searches you return. So that's a fuzz. But there is actually one corner of the internet where amazon has Better data on searches than google. And that is searches that happened on I .

was on that come yeah because as much as google can index all of amazon product detail pages, they don't have the data on what people are actually searching for on amazon, the day and data, the intent data and they .

don't see conversion. Plus there's the review system, which we have talked about was completely te genius, huge to amazon success.

Did you know shell wrote that over a weekend and ninety six, the original review system.

I know amazing.

One of the first things on amazon com.

But of course, those signals from the review system, the star ratings, the sentiment of the reviews themselves, that becomes a really important factor in waiting search. You know, today, like my god, search on ams. Like why would you search for products anywhere else? They got amazon on choice.

You've got the rankings, you ve got the filtering. It's way Better. Yeah, this is the beginning of all that.

And like we're saying, I think it's also the beginning of the end for ebay because as google gets Better, deep linking from google into ebay becomes the best way to search the chaotic marketplace of ebay. And he plays paying the google tacks on all that no. And google is the strategic intermedia. Amazon is terrified of the same thing happening to them.

And meanwhile, over in google labs, and I loved when google was a smaller company, I think I was a labs tab, and you could click on a these weird little experiments they were doing that wasn't like google x google moonshot stuff. IT was like .

useful stuff .

where google images came out of, and like gmail and the .

sort of things maps.

yeah yeah. And rodd them was called frugal. IT was F R O O G L E. And I think IT was like product search. And I think that was kind of what google shopping became. Dude.

frugal. I may be speaking at alterna m without researching the full history, but I used to use that all the time again as a broke post college student. And not brauman is investment beaker billing.

I was making sixty k year living in manhattan. Money mattered, and I believe frugal was insanely popular. And I think kind of north didn't shut IT down there and I trust concerns is my understanding like I think IT actually was like there is a lot of demand .

for that product. Uh, I mean, is comparison shopping I think is ultimately what what I was.

So the other thing and this is what just getting amazon so good and where you been a huge portion of the next episode talking about, it's not just that they make search on amazon Better and play defense against google, they do that. They also play offence. And you first was like, so we're going to make our own search engine and that was bad idea. Well, what is the business model of search? Is advertising.

advertising.

And what do they realize we can build an advertising business research on amazon. Just absolutely brilliant.

Any web platform of sufficient scale can layer on for free a second business of advertising because they just have the traffic and they can put stuff from the people. They can prioritize IT ever they see fit. And I think amazon's add business haven't done the research yet for next episode, but I think it's similar around forty billion dollars in revenue.

Now he is thirty billion dollar revenue run rate of incredibly high. I mean, they don't break out the margins.

But like it's so add, it's basically one hundred of percent margin business. Yes, you already have those customers or no customer acquisition cost. You don't have to pay anyone out any amount of that revenue for any reason. You know, take a facebook at is the best gross margin business in history.

The other incredibly important thing that comes out of A I and search and improving search on the M P. Undercoat website is that really is one of the catalyst that pushes the company to transition from a monoliths often are architecture to micros independent microwaves. And that is amazing for amazon playing defense, and that is also amazing for providing web services to other developers out there. Yes, might be able to imagine that.

Are you leaving us there, David?

I would leave you there. I would leave you there. But this is a very special episode, a very special comfort. We've got a kota. And are we .

into hardware as that?

We were going here? I don't know. We've probably done IT more than once, but in my mind, the canonical acquired episode kota is the playstation on the Sunny epo de.

oh yeah, where you thought, wow, look at all those seventy years of history. IT feels like we're done. And then actually they create their most successful business unit.

Yes, regardless of how good we you and I did didn't do on IT, like just the story of so any is one of the most incredible of vult. yes. And then you you know you and then of the police station and then .

one engineer in a corner who barely has expressed shorten consent from management, go build something.

Well, it's that story is A W S for amazon. The story we're gona tell is not as impactful from a business standpoint, but the story is just as good. And that's the story of the kindle.

And i'm actually quite curious what the business impact is. I think they don't break IT out, but i'm curious if you did any analysis at all. What does kindle allow them to do that there was might have lost market leadership onerous like that.

Well, I didn't do any financial analysis, but as we talk about in the story, similar to the defense against google research, IT was defense inst. Apple and the ipad, iphone, the ipad. And today, I love kindle.

My kindle is one of my favourite things. In the whole world is amazing. But I think proudly, the way most people consume most content on kindle is haps on other devices.

So the kindle story, this is one of those. They were like five people in. The internet and so I can value.

oh, I could not believe the people's names behind the original kindle inception. Are you late on us .

when I found this and I texted you as just like, oh, my god, okay, do you know I know you know, because I we talked about IT, but listeners, I bet, very few of you know who inspired the idea for japan, amazon, to pursue the kind of.

and let's give a little bit hints. So when we say inspired, they started an independent company doing kindle like things, eraser things.

but folding one of the first eraser, yes, the first successful eraser.

But long before we take off, IT was not with ink. IT was with a predecessor technology. IT was LCD.

which was a big problem.

So with L, C, D, how else might you know them? There are the founders of something that their name is not associated with, but someone else's name is .

massively associated with. Well, they take the money that they made from this company and roll IT into another little company that they would then start after this in two thousand, three called tesla motors. That's right.

Mark never hard. And mark turpenay inspired, jeff OS named, is on to build the kit. So here's the story. So in one thousand nine ninety seven, Martin and mark, we're working in selling and valley. Napster was happening. The music industry was getting digitized and device rated and need about all the F, M, P three, M, P three players. So he was total of people and lots of people, the two of them included.

We're like it's only a matter of time until other media categories go through the same thing and videos is going to take a while because band with the file sizes of video is a lot and broadband isn't a thing yet for most people. But books are really obvious, right? Smaller file sizes than M, P three, very easily digitized.

This should be a thing. Now what's holding back the industry like unlike mp trees where like it's pretty good experience downloading them from np, still playing them on your computer, M P three players are becoming a thing there's no equivalent of an M P three player for. But you don't want to read a book on your computer.

You read a book on a book. So they develop, they you know around, they'll talk too much of technology in the, we can make equivalent of an M P three player for a book, an editor. So they start a company they call a new world media, and they make the rocket book, they make a prototype. But the hardware they need to bring to market, they need capital, they need the largest of, just like their future hardware, started up tesla, the largest of a wealthy person who might want to see this happen.

So did they .

call they fly up to see at only meat with jeff is this is in the bubble here and the business is really interested.

And I think amazon's public at this point, yes.

I zones public. I just come public. Jeff, totally get IT. He's like our business is selling books where an internet company, I see what's happening with napster.

This is happened at some point in some way.

This is for sure happening at some point in some way. This is the first time i've seen this. This is the first real, like i'm very interested.

So they negotiate for three weeks, and they they want amazon to become you, to sell books. You need like books to sell e box. You need relationships of publishers. They want him on to become the store or a store. This is the taking point, a store for the rocket book, and bazas also wants to deal with, but he's like, look, if what we're going to do, what we want exclusivity, I don't want you go on to do in the same deal with burns and noble or anybody else.

right? Why would we fund the development of this, right, and all the custom requisition for you if we're not gonna be the exclusive writer.

So like any good entrepreneurs, they hear this. So like, right, well, Martin and mark, they fly in york and they talk to the radio brothers. They are like, hey, we're talking to death.

I love that these guys.

you're back in the story. No, they're back in the story. And course, burn to noble wants to crush, play great will do the deal with you.

We don't need exclusivity, but will invest in the company, will bring bertley men, the german media company, in as well. You'll get your publisher relationships, you'll get your store. We will do this and we know jeff want to do the deal eventually.

Cisco invest as well. In one thousand nine hundred and nine, the device launches to the public. And like it's too early, but like Opera makes up one of our ten favorite things for the year, like it's is a hit. So ultimately, jm started TV guide pretty quickly after acquires the company for almost two hundred million dollars. So Martin and mark, they get prety .

wealthy in this country, flash with some cash. You know.

that literally leads to test life, frequent, crazy, also legist wild. They like if amazon and visus had acquired, accept a com, like probably no paypal, which means elan doesn't have the money.

which means interesting.

like the tangled web here is amazing. amazing. So jeff and ever had they kind of remain friends through all this and like just like you know, no hard feelings, like there's only other stuff going on the amazon and as the years progress, they kind of stay in touch.

And jeff is always asking marton like, hey, when do you think the technology, you know, we're thinking about this, when do you think you might be ready? Then in two thousand, three, apple, and save jobs. Well, in two thousand, one they want itunes.

Apple, amazing. People love IT OK. But it's apple tiny market share. You have to have a mac to use, italians to use the ipod. Great for students, but not changing the world here.

Yes, not the apple we know of today.

And the two thousand and three is so fun going back and remembering this. They launch itunes for windows. That was such a huge moment for apple. And Steve jobs knew IT like he totally freak, knew IT. So these us.

And a couple other folks go down to meet with jobs after itunes for windows launches because they're like we sell a lot of cds on amazon. Jobs is like, yeah, you sell a lot of cds on amazon. Good look with that. And by the way, like we're not just thinking about cds, said, you know music here. So um there's now a new threat to not just any business with the amazon but like the original core books, is immediately what they are talking about.

which is still like a huge part of their sales at this point or at least media books, cds, dvds. That's a huge part of him as on business totally.

So there's no emergency in amazon to deal with this. So jeff calls marn back up, but they're already started. Tesla, at this point is like, yeah, we ve got to do this now.

And like, okay, well, the L C D screen that we used on the rocket book at a whole bunch of problems with IT. I talk to these guys at the M. I, T media lab about this technology they were developing called think and IT wasn't quite ready, but you might want to go like check them out and see if it's ready now. And in particular.

the LCD uses too much. Battery is bright, so was not good for night reading necessarily. You can really read the sun.

What do you want to do with the book? You want take you to the beach. You want to read IT outside.

You want to do that in bed. All these things that L, C, D screens, especially at the time, are not good for you. So this is such a priority.

This was after a nine. So they already had the one subset, um hello alto. They set up a second subsidiary in paleo called label and twenty six with the secret mission of make an ipod like eraser device.

And I mean, IT took a .

while years.

I mean two, four years, and then they slip the released date by a full year. I was supposed to be out for one holiday season, didn't come out the next. But when IT came out, I was earth shattering ing.

Not only is IT shocking that amazon is doing hardware because that is not a thing that we've ever done before, and that's not what we expect out of them. And there's only a few big successful companies that make consumer computing, Harry, where that sort of thing. But IT really was the introduction of ink as a viable technology. People really hadn't seen IT before in consumer devices.

I mean, eric, to go back and look at photos of will look to some the sources of that original kindle that launch took till two thousand and seven.

He had a keyboard on IT yeah.

I had the keyboard. IT had a wong's school wheel because bazas was like, i've got a school wheel on my blackberry and I want a school will oh yeah.

Like he was constantly fighting with the design firm that they had hired to produce IT and putting him as beliefs about how I should be even though they are the designers and they would come back and they would say they would have input on the business model. And he's like not only you're you you're going to take my design advice and you're definitely not giving me just business model advice.

And that's the thing. The device nailed a couple things, eating technology, actually wireless, which was a basic thing like because wifi still wasn't quite everywhere.

Whispers sink, I think.

was the name of the whispers sink up or whisper net. They were obviously things wrong with IT, like the keyboard, the scroll wheel, but the device was good enough to have a book lake experience. And then on the business side, you can buy any book ever made anywhere, anytime for ten dollars. And now is just unbelievable, completely changed .

the industry cash. There's too much to get into on this episode, but that would be the seed of massive amounts of unrest and lawsuits in the entire book publishing industry involving amazon, all the big publishers, allegations of fusion. This was the thing that violence shook the book industry like amazon kind of did by launching and by aggregating so much of the power. But then the thing that really up ended and and truly disrupt that the industry was this, were launching of consumers at ten dollars.

which is funny. IT wasn't piracy. IT wasn't like the music industry, right? IT was ten dollars for an e book.

yeah. So that, I mean, the kindle self, incredible story. But then that leads to fire tablets.

Echoes the lady who lives in your echo fire. T V prime video ring ero like all this stuff and freaking out table. Oh my god. Right after the kindle launch, they buy auto, amazon by auto, for three hundred million dollars.

Today, auto has a forty plus percent market share of audio books, which is a five billion dollar industry growing twenty five percent every year. I tweet about this. This is going to one of my, like most likes tweet ever. I cannot believe IT like on table would be a ten billion dollar company on its own more, I don't know.

crazy. Yeah, you're right. In some ways, the on its own thing is the coffee out there because so much of their demand comes from being on the product detail page of a book when you go to check out and be having the trust and everything that comes guaranteed from using my amazon account for IT.

All right. So that's odd ball. So we ve got kindle. We've got auto ball. There's a lot more to talk about here before we get into A W S.

But I think like I really wanna gg in the prime, but let's save that for playbook because I feel like that can be a good place to hit. So what's going on there? great. We want to think our long time friend of the show, venter, the leading trust management platform, venta, of course, automates your security reviews and compliance efforts. So frameworks like soc two, I saw twenty seven o one GDP r and hyper complaints in motoring vent to takes care of these otherwise incredibly time and resort training efforts for your organza and makes them fast and simple.

Yeah, fanta is the perfect example of the quote that we talk about all the time here and acquired jeff basis, this idea that the company should only focus on what actually makes your beer taste Better. I E spend your time and resources only on what's actually gonna, move the needle for your product and your customers and outsource everything else that does IT. Every company needs compliance and trust with their vendors and customers. IT plays a major role in enabling revenue because customers and partners demand IT. But yet IT add zero flavor to your actual product that IT .

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Slash acquired. Well, let's talk about power. So of course, this is us referencing the hamilton helmer books, seven powers. And the core idea is really investigating what IT is that enables a business to achieve persistent differential returns or basically be more profitable than their closest competitor and do so sustainably.

And the seven options, the seven powers, the hamilton, identifies our counter positioning scale economies, switching costs, network economies, process power, branding and cornered resource. And David, as I was preparing for this episode, again, I mentioned this earlier, but I tried to watch literally every jeff BIOS talk, especially from the early days. And there's an amazing one that he gives at stanford, A G S B, literally, the week that amazon prime first launched.

So cool.

And he's sort of talking about IT as this brand new things like at seventy nine dollars a year. And he's observing this really fascinating thing about the business where he wants to transform customer experience from a variable cost into a fix cost. And he sort of describing, what if you could shift all of that to a really, really big fix costs, basically to get Operating leverage on IT.

And one example that he talks about is that they have this great feature. And every boy's experiences, I am sure, when you go to buy something on, I am on, there's no banner that tells you you are, you bought this. If you are, you bought IT. And while that may seem like a condiment's short term revenue, his view is IT built trust with the customer for the long term because you say, oh, thanks on maybe already have this in my house or maybe there is a chance you wanted to buy the same thing and just get that delightful customer experience, that reassurance that this is indeed the exact same action or amazon identifier of a specific product that you are looking for. Well, he points out well that this would cost us the exact seme amount to build this thing that provides customer confidence, whether we had a million customers or seven million customers.

And what he's describing is the most perfect, vivid example of scale economies where once they get all these customers and once they acquire them all to prime, so they are all loyal, subscribe guarantee ed to shop haer customers, then you can amOrtize every new investment and every new feature across a massive customer base. So how could anyone build as good of an experience as you can because they have to fund D. I.

With revenue from fewer customers. Are not saying that amazon only has this as one of the powers that enables them to achieve persistent differential return versus competitors. But IT was like jeff was writing that part of the book as he was sort of giving the speech.

And you just alarm bell off. Well, maybe now actually is the very place to talk a little bit about prime and this dynamic. Yes, so true. Now as you say, amazon, necessarily the company that this is true for, you could say some of things of walmart, especially now they one more plus you could vary certainly say the same thing of another.

One of our favorite companies that we have not covered on acquired that we have to now after these first two episodes of the season, that would be costco. Oh yes, the adl hometown heroes. So you mention prime, we skipped over this in history and facts, but I think let's talk about IT a little bit here. great. Jim sinegal and jeff re, but their tight, well, at least they were.

And at least jeff credits a particular lunch with jim from teaching him a lot of lessons. In particular, the I think you're referencing, which is customer loyalty is the thing that matters. And in particular because as we all know, jeff is absolutely laser focused on not gross margin percentage but the absolute dollar amount of margin dollars over a full customer lifetime that you can sort of get.

which is, uh, such a lesson from costco. And IT was not a unch IT was very famously a coffee in the starbucks of the bell view. Barnes and noble with jeff will go to great length at any point time to talk about how he was doing business meetings in the early, I was on days literally, in his competitors coffee shops.

Not that he's, you know, competitor folk. austerity? Think no, definitely no. But yes, no. So this coffee where they meet for the first time, jim from costco, is just like a, i've never met him, but he must just be such a match.

His old school is, got the cell Price DNA work for sol press, you know, new sam, well, his whole thing he talks about this later is like the reporter. Asm, I don't think he was bad, and I think I was somebody else. You gave a lot of key information to jeff SOS, who, you know, you became friends with.

Then certainly one of your biggest competitors, and you know, Jimmy finds just like this is retail, like you shop your competitors. Sam did this. I did this.

We all did this. All shamelessly steal good ideas from each other. This is how IT works.

And jim famously has said that some of his highest performing costa s are across the parking law from sam's clubs. Religious competition?

yes. So actually, the purpose of the meeting was that jeff wanted to pitch jim on, uh, this was like early days when they are expanding the categories on the amazon, and there was a bunch of products that they couldn't get yet that any relationships with suppliers. So jeff wanted to pitch jim on costco selling on amazon for like the products that amazon didn't Carry IT that isn't go too far.

But yeah, jim gives him like this master class on the costco model. And IT sounds insane if you're not familiar with IT from the outside, but then makes total sense if you realize you're focused on gross margin dollars over the live of a customer, not percentage. So the costco model is they make essentially and more complicated than this, but essentially they zero percent Operating margin on their retail Operations. They cell at such a low prize.

I think I looked into this when we were working on the wall martis. So it's something like five to seven percent gross margin business.

I think it's a little higher than that. But IT is basically said that such that like when you take out the cost of running both the back and logistics and the warehouses themselves, they are making no profits on the actual retail business. And all of the profits of the company come from the memberships, the annual memberships.

So the merchandise just needs to provide you enough value to then renew your .

membership for the next year, right? And the beauty is IT perfectly plays on customer psychology.

Or nearly, you'd like, why would anybody pay money for the right to shop at somebody is walking to a bomb? You to pay any money to shop there? Worry once you've done that and you've made that sunk cost, if you then believe you that you are gna get the lowest places, absolutely anywhere in as a result of having that membership, you get this insane combination of like the sun costs effect plus the enduring effect, and you become crazy loyal.

You like, I have paid the money for this membership. I need to get the return on the membership. And I feel like i'm part of this club.

I have this guarantee that i'm going to get this benefit that nobody else who are members gets. I'm not gonna all of my shopping at costco. Oh yeah, it's prety amazing.

You get these .

loyal customers that stay with you for a long time, spend tones of money, not that you're making profit on that money, but that then helps drive ve the scale to kit Prices even lower. IT also means you don't have to advertise. Costco is basically know traditional advertising because it's all word of mouth because the customers are so insanely loyal about their memberships.

Yeah now what f chose to do here was a little bit different because I don't think he's running a break even retail business and just making money on prime. I think he sort of realized one of the effects you are talking about, which is once you've ve major deposit your seventy nine dollars a year to prime, you're gonna keep shopping on amazon. He almost flipped is like I wanted use the same psychology. But I I don't need to run up yeah, I don't need to make zero dollars running the business and make everything on prime. And part of the reason he had this perspective that he could make money in both ways was because the way that prime came about was actually the legacy of a couple of other shipping programs they had tried.

Super saver. Yp.

yeah, exactly. If you spent enough, then you get free shipping. Or if you are willing to wait for your goods for a while and get him batched up, you can get free shipping. And this idea was really somebody inside the company.

sort of pitching, who is an engineering name, charlie ward, I believe, submitted IT has an idea.

And he's thinking about, we're getting Better and Better at fulfillment. What would we need to charge customers in order to guarantee today shipping on everything they ordered? Basically, no matter what, really lean into that convenience part of the retail holy trinity of Price, convenience and selection. And so IT was this really interesting, dull collision path of, okay, how much do we have to charge people in order to give today shipping? And then this jeff realization from jim and a costco, wait a minute, if we charge people anything that will actually be more loyal, which is the ultimate thing that we care about yeah totally and .

again demonstrates s jeff and everybody that is on thinking through like what is the nature of their business? What is the nature of b commerce in physical commerce? Those dimensions of the holy trinity, or at least maybe the aspects of what matter of the retail home eternity, are different.

Convenience is different in physical is a little less shop acasta versus walmart? Yeah maybe you ve got a like reach of higher on the warehouse shelves. It's not really that different. Where's shopping online? Getting your stuff in two days or next day or same day, that's a big difference than getting your stuff two weeks from now like that's a really important difference.

Yeah, totally. Now all that said, even though we're saying, hey, you know amazon is not fully saying we just want to make a bunch of money on prime, I think they do make over twenty billion dollars in revenue per year on just primes of scription. Wow, i'm pretty sure they lose money on just prime.

If i'm thinking about my own habit for the amount of stuff that are from amazon, if I actually had to pay shipping, would I be paying more than one hundred twenty dollars shipping? absolutely. And what about all that stuff that I watch on prime video? absolutely. So there's definitely an element to IT where you're like, wow, it's worth over twenty billion to them in revenue, but i'd be fascinated to see the internal aims accounting on how they choose to justify the cost that twenty billion.

you know, whether they are making any like actual profits out of that are not debated. But this is where just take so tightly into the amazon flywheel, which is another key peace we didn't discuss in history, in fact, becomes from they do a management outside in two thousand, one with jim Collins, author of good degree, where he writes about the fly will is actually before a good degree came out.

right? Didn't they get a little .

preview of IT, a little preview. But because of prime and this kind of guarantee to all these people who sign up for prime that you're going to a get two day shipping, that kind of upfront funds, amazon's investment in Better distribution and logistics, everything we talked about on the whole episode.

And then like the more capital that they get to fund that and the more customers they get that are using that more leverage they get in, the Better they can perform and optimize. Ly, nobody else has their own airline with ninety six planes. I like walmart doesn't have their own airline with ninety six planes.

So they have more predictability, they have more loyalty. So they our customer lifetime, so they have more absolute margin dollars from purchases coming in. But the thing we haven't talked about, which is another just amazing insight, is the cash flow dynamic of this. Amazon charges me one hundred and twenty nine dollars at the beginning of the year before I make any purchases on their web, and they get to do stuff with that cash. IT is an incredible form of float on top of many other forms of float that they have going on in their business just .

to complete the fly wheel. Amazon, through having all of this leverage that we just talked about in their Operation, this Operating leverage and float knowledge on derful things they can work on, charging even lower Prices, providing even more vender selection and even Better convenience, like all three on the whole entrances, they give Better at that, that attracts more customers.

More customers then attract more sellers and suppliers on the platform. And then dad allows amazon to get more Operating leverage. And then the cycle distributes ce itself over and over and over, then drives itself around many, many, many times here. I think now I could be wrong on this. I believe amazon's inventory turns per year or something like sixteen or something like insanely high, probably not as high as like a costco, but for the complexity of amazon's Operations and the breath of items that are sold in the store to that kind of and that's .

just the first party. I mean, fifty seven percent of amazon and sales right now are from third party sellers where amazon's just collecting margin dollars and holding no inventory.

So yes, scale economies, they got that one.

absolutely.

I don't think that the only one that they have.

no.

I think they definitely have brand. No doun in my mind that they have brand like the definition of brand power is you would buy a commodity at a higher Price from brand with power over a brand that doesn't have power.

I absolutely do this one hundred .

percent and amazon exploits this. This is part of the legacy of search and all the allegorist ms in the company. Very smart pricing and dynamic pricing on the website. But yeah, i'm sure I could buy stuff cheaper most things. But you don't look, then i'd get the money as but I don't even look because i'd have to wait two weeks so i'd have to go find IT or I like I wouldn't have the smooth customer experience like, of course, i'm just going to on and IT used to be.

So for a while, I remember my development over the course of being an amazon customer here. So think like two thousand and eight to twelve time frame when I was in college, I would comparison shop, for sure, amazon versus everything else. And I would do that.

I would do that. And amazon would win so consistently because they do the walmart thing where they would go out and scrape every other side and create a bott and make sure that they could be the lowest Price anywhere of any reputable retailer. And so enough times that happened where I got condition to just stop looking because they were low as Price anywhere.

Then I think about five more years went by. And whenever I would comparison shop, if I really spent ten or fifteen minutes, I can always find somewhere selling IT cheaper. But something was worse. To your point, I didn't recognize the brand name of of the seller. And so is a branding power there that's very clearly being demonstrated or the shipping or I wouldn't be confident that I could return IT? Or there's just all these little things about amazon where then I became this interesting explicit choice where I now know I probably could find this somewhere else cheaper and I still don't comparison shop. That is an incredible, incredible brand power of the we've built.

There is a third top of I don't comparison shop anymore because it's not worth my time to do that.

right? Because I know that i'm going to find something potentially marginally cheaper and still not .

pull the trigger again, this is a difference versus like when we were broke post college students. But yes, you know what are you going to save on stuff? You to save ten bugs like you spend half an hour to save ten bucks for a lot of people, that makes a lot of sense.

but like and then have potential headache. One of every ten things that I buy in that way from a merchant that IT is not amazon, I will have some headache with. And so therefore, if you probability adjust the amount of dollars that i'm saving in terms of potential time cost later in headache, i'd just not worth .

IT totally. Especially I got baby now, like I got time for that like hell. No, amazon.

So that scale economies, that branding never effect .

for sure at this point, know originally amazon in, but because they adapted stall because jeff took a personal with the party cellars, you're talking with their pretty cellars.

Yes, with marketplace, absolutely more customers drives. They have being more attractive for the cellars to come on, which attracts more customers. There is that network economies.

Interestingly, there are no supply to supply side or demand to the band side netware economies. Yeah, I might get right. The fact that you're a name on customer and amazing me is on customer.

I don't care. I don't benefit from that at all. And it's interesting theyve never really lead into that at all.

Yeah, interesting. I mean, maybe well, in the sky, I econic, I was going to say maybe a little bit on the cellar side because you know more scale for amazon lets them do fulfilment by amazon and a bit that scale economies. That's not the work effects, but definitely that two sided network facts.

And you see that power with, you just run a couple of google searches. And like lots of amazon sellers are unhappy with amazon, too much leverage is competition. But they go to their first party brains.

They don't leave. Well, why don't they leave? Because you need that amazon sale juice. Where else you're going to sell that much online?

Yep, yep. absolutely.

Do you think they have any others?

Maybe some light weight process power process powers are always so hard to actually put your finger on on that I hesitate to name in here.

Switching costs? Not really. I mean, I can buy this stuff on warmer.

We're not about A W S. here. We're talking about. He was on retail. There is counter .

positioning in the era that we're talking about, barns and noble and subsequently walmart, because those folks would have to invest so much and did while walmart at least to completely reinvent the way that they do distribution and all their distribution centers to be fulfilment centers and actually go directly to consumers by not letting people shop in big stores and not having to have infrastructure for that amazon position against everyone whose cost structure was set up.

To do that, we talk to the end of the walmer episode about how walmart is currently closing down sams clubs and turning them into online walmer dcom fulfilment centers. That tells you everything you need to know right there.

Yep, yes, absolutely.

And certainly counter position versus burns in the bomb in the brad stone quote we read earlier in the episode of Barnes and noble wasn't going to go on in on this because. Their distribution network was not tuned for e commerce. They would have to redo IT.

And then to do that, they would have had to, like majority prioritized within the company, put all their best executives on to change. The edo IT would be less profitable for them. They would lose money in the short run versus the hugely profitable stores like IT. Just all the incentives not to do IT.

yep. Yeah.

absolutely today, I don't know that you can say they still have counter positioning.

Now that was just to take off face thing. Yeah, I have been just fought at the mouth to do playback on this ones. Let's get into IT. All right. Well, I want to open with a quote from the very first one thousand nine hundred ninety seven letter to shareholders, which I always think it's fascinating. This is such a ubiquity letter at this point that if you google in incognito mode, one thousand ninety seven letter, this letter from jeff bezos comes up.

Also, we going to do a shout out to our friend and long time acquired community member, create an on who absolutely made a park as feed reading the shareholder letters.

You're taking the words right out of my mouth. Thank you. free. I listen to him while I was doing some work in the Young yesterday. So the quote is and there's many great quotes in here that uh really highlight the idea that you get the shareholders that you ask for when forced to choose between optimizing the appearance of our gap accounting and maximizing the present value of future cash flows will take the cash flows.

I thought this lined by joy coffee and jeff is so incredibly impression that he really is focused on the absolute dollars of free cash flow metric. And I think there's this misconception that people have about amazon that there's sort of trading off growth for margin percentage. And I don't think that's ever actually what was happening. People often look at startups today and they're like profitability or growth. I think the way that jeff thought about IT was, well, we care about free cash flow in the long run.

In run, that is the .

way that every business is measured. And so the key words who are maximizing the present value of future cash flows, which necessary building a brand around your stock, which I think elan is sort of the king of today, because when you're talking about the present value of future cash flows, since future cash flows s are unknown.

You do have to kind of build religion around your company today if your goal is to really get investors on board with your long, long, long term vision. And amazon sort of got thrown in with all these other dot com companies. When you to read that parents article, amazon dot bomb and a lot of those companies cosme doc com, you for no shipping, you can order a pack of dum B2Be del ivered to you r hou se and wou ld arr ive at an hou r.

You're like, clearly, they're losing money on this. And i'm not necessarily a loyal to describe her to this. Well, amazon always was gross margin profitable. There was a solid and economics, but they would choose to super aggressively reinvest in something.

And as we were preparing for the episode, among the number of people we paint addition to a brad stone and some of the other folks that we were chatting with, they were early, early amazon or sort of around the company. We reached out to front of the show, Michael mobs on to see if he had any materials from this time. And he had more than a fighting sense that he would have strong opinions of our mas on at this time.

Our episode with my goal, I think, is what like the seventh the most? Listen to a quiet episode of all time.

Yes, it's very widely listen to yeah.

which is amazing.

He's your favorite and investors, favorite and investor. He's the ultimate finance professor.

If you haven't listened to.

go listen to IT. So he made this presentation at amazon in ninety ninety nine, really advocating for exactly the strategy that they are running, just starting to sort of articulated and put IT into a framework form. And we have the deck here.

So one really fascinating observation he makes is that it's really about the waited average cost of capital, the W A C, C or wac. And you don't need to be a finance professor like Michael to understand this. So here's how this sort of works.

Suppose you want to invest in building a new distribution centers. You can either expand the reach of shipping goods and, say, a new country, or decrease the ship time for existing customers. This is basis this sort of inside of how do I turn customer experience into a fixed cost? Well, let's say you have no cash in your bank account.

Well, you have to raise capital. So whether you can sell part of your company with an equity financing like their IPO to get IT or you can raise debt and pay some percent of interest at ten percent a year, which they did, which they did that too, to the tune of what? Close to two billion dollars, two billion.

So that capital has a cost to IT. And the investments that you make in this distribution center need to out run your cost to obtain that capital for IT to be profitable. But let's say you have a pile of cash in your bank account that you got as profits from selling goods.

That cash is effectively free for you to use. So if you have a competitor who's financing the growth with debt and you can do IT purely with those profit dollars, well, you can beat them in a long term, even Better. And we will put the slide up on the video format here for if you have all the dollars from selling goods, not just the margin dollars, and you don't have to pay your suppliers for like a month after the customer bought .

IT from you or two months or three .

months or four months, yes, you can invest heavily into this new distribution center with many, many more dollars, not just the margin dollars. And as long as you're confident that, that growth will continue and you'll have even more cash on hand at the date that you need to pay the supplier for the thing that you sold months ago that you know of them for well, networks really well.

yes. Oh, boy. So when you're saying it's almost like another large Operation we may or me out of talked about for ten hours on acquired where they like, you know right, insurance premiums and reinsurance premiums and write the policies and they get those premiums from those policies in and then they don't have to pay the money out until a disaster actually happens and they get to use all the money in between. You're saying is leg float?

yes. And amazon today is a one point five trillion dollar company that has not raised any material capital sense that debt offering that they paid off in two thousand four five fish, they are financing the business entirely with float until, of course, we'll get to take A W S. And and now they can actually find into a lot more with just straight up Operating income actually that we should say.

I think strictly speaking, that is not a true statement. They have been issuing dead. But I think that is not for financing the business. I think it's like a treasury capital management.

okay. All right, all right, all right, right. fine.

It's not like the debt they issued in the early days.

Yes, very much not. But as you can see in putting this slide up, Michael, sort of chick calls amazon dot com, cash flow dot com as if it's really pioneering this new model where in the old school businesses something good. Enter your inventory.

You'd pay the supplier three months after energy your inventory. And then he has to sit on your shelf for a while. And then finally, a customer buys your book and the payment end up being received.

And so there sort of a few months between when you have to pay your supplier and when you get paid, whether what amazon is, is completely flipping on on the head. The book can in your inventory, the customer buys the book. You then receive their payment pretty soon after that or immediately after that, just after some credit card days, and then you can have a month or two before you need to pay your supplier. So the internet business model and any commerce totally PS on its head because of the completely different way that the distribution works and .

the inventory works. Yep, even further adds depth of understanding to this point of the larger scale of amazon's Operations in the five will the more capital dollars that there, you know, casper dollars that they are able to get out of IT to continue to fund, building out the larger scale of their Operations.

It's a killer insight that cost of capital and having a negative cash conversion cycle are directly related, yes, or I suppose inversely related.

Yeah you just think I can talking about IT, you like, yeah, capital has a cost, but here they're sort of getting paid to use the capital, right? IT is a negative cost. amazing.

Well, and that's where prime is really this on steroids. Yes, i'm paying him is on one hundred and twenty nine dollars in the begin of the year and asking for zero in return. And in fact, i'm giving them by loyalty in addition to paying them and they're gna do interesting stuff with my cash in the meantime, is really genius.

What else yet?

Well, another one is from another early based interview that I was watching, where he had to do a lot of fighting of stock analysts in the early days who were, say, yeah, let's stick on a pig. You're just a retailer and I understand how your cost structure really any different. Sure, you sell out on the internet, but you're just a reason than retailer. Why is this interesting business.

right? What's the a line that people always say whenever well, street becomes disillusioned? Amazon, they say it's a charity being run for the benefit of the american consumer.

Yes, a lot of people are laughing all the way to the bank on the other side of that bet. So he makes this great point, which is okay. Let's say we are just a retailer with a retail business model. Well, there's a few things that are pretty different. And a gigantic cost in the retAiling business is your rent. And if you are in a retail space and is funny when he's saying this is much less expensive than that is now in a prime place in the city, he sites IT could be like seven dollars of foot for a great retail space.

You killed me here where .

talking about .

something with this, a real state .

where as if you're running warehouse somewhere, really makes sense for us to have a distribution center.

It's like thirty sense of fun. Such.

such a valuable point. Stories have to store all of their inventory or a lot of their inventory in very expensive real estate. Eas on totally does not.

Man, that is such a good point. That's such a good point. And i'd actually .

never heard this argument before doing .

this research. That's a fanatic point. Even walmart where walmart stores are not in mult hundred dollar a square foot prime prime funny choice award promo urban real estate is still a higher cost of real state then where amazon fufu mance and is are .

yeah absolutely. So it's one of these things were like, I was interesting reading all the bare cases on amazon. There's plenty of little quips for you IT would be fun to tweet them out and be like this person was so freaking wrong.

But a lot of the criticisms were reasonable. This particular one isn't reasonable. The one that, that we just sort of push back on what the costar is, food. There's another one that wasn't really reasonable, which was this is a money losing business, just like all the other dot comes because they actually were profitable. If they weren't continue to reinvestment growth, which would give them this unbelievably durable moat around consumer problem.

The one that is always an interesting thought experiment to me is people what sort of ask what what do you own when you own a share of amazon? Because much like a lot of stocks over the last couple years, the Price in ninety eight and ninety nine was completely disconnected from the reality of the inter lying fundamentals. And so you had a business that was growing massively, that was generating no gap income and was doing things like reinvesting the float one hundred percent of the revenue dollars they were getting in.

So they needed to keep growing in order to ever pay their suppliers back. Like if the music ever stops and they didn't keep growing, this isn't just magical free money with no cost. The cost is if the party ends, you're screw.

It's musical.

yes. And so the reason why amazon wasn't totally screwed is because they were right in their bet that this was a gigantic market that they could basically grow into forever. And sure, they had a couple of tough years and had to race some deck capital to get through IT. But the nazi ers were right. If IT wasn't a crazy high growth business for three decades, IT just happened that jeff was right about that.

Are you saying he was right about IT being day one for the internet? I am saying that .

if IT wasn't day one for the internet, IT would have been a ponzi scheme. Let me put a fire point on that. IT would have been like me going and opening up a credit card to pay off other credit cards that I own dead on. That is the type of thing we are talking about with the flow situation.

This is a little bit of a sidebar here, bit through the proud two months at this point since we decided we were going to do. Yes, this episode that we've been researching. I just kind of head in the back of my mind.

I'm like I wouldn't even thought about this a couple years ago. Bit magic compounding acquired. Here we are. If by some miral at some point we get to interview jeff, I think that's the biggest question I want to ask him. Is IT still they like you?

Stay back, 嘿。

forget amazon. Just talk about the internet, what you thought you might want to do or the board, you know, coach camel thought you might want to do in one thousand nine hundred ninety nine, two thousand of, like, step back, pursue your other interests. You decided no weight. It's still day one here. Is IT still the one now like that .

is a phenomenal, phenomenal question. okay. But to your point on that, is IT still the one for the internet, which I love? This question particular here is a quote from the ninety nine letter to shareholders. And the thing to note here, he's justifying why they're investing so much money in technology to reduce cost, like just keeps reinvesting, playing money back. And he ends with we still believe that some fifteen percent of retail commerce may ultimately move online.

Ha, who may ultimately guess what e commerce .

penetration is right now.

fifteen percent.

fifteen percent. IT went from like twelve percent to like seventeen percent during coffee. And this is following a little bit right now, is hovering a right around fifteen percent. So if what he says is we believe that IT may move online to the tune of fifteen percent, maybe it's no longer day one for the internet. It's a good question, certainly not day one for e commerce.

I personally am definite not ready to say stay too, but i'm just very curious, like what is jeff genuinely think?

Well, and these things are subject to definition too. How many days is IT out of? Is this an innings situation as this three, sixty five days is that god created the earth and seven days situations? Or, you know, it's out of seven.

What's the denominator? Yeah, thing that I keep thinking about us like how can I possibly spend more money online? I am not sure more of my spend or my time could move on the internet.

And internet penetration is gotto be like the ninety plus percent in amErica and like getting up there for the rest of the world, too. So if you just look at like we're running out of hours in a day and we're running at a households spend to spend on things you could buy over the internet. So I think really like .

this is a question like hugging back to what we talked about towards the beginning of the episode. You and I have, fortunately, in our lifetimes when we are kids, but in our professional careers, we have never experience thing like one thousand, ninety two and ninety three, ninety four and ninety five, where traffic on the internet was growing two hundred and thirty thousand percent a year like we've never experience that.

We're still we're benefiting from the aftershocks of that still. Yeah, I think that's the question. Like where are we in the after of that? Or is they're going to be another event like that in our lifetime? I mean, I think everything in our time that we've thought of as that is mobile, cloud, web three, we are all like it'll still just the internet. These are event going .

back to this credit card game response, Peter to paypal. I don't like this mental model of borrowing against something in the future, like paying your suppliers in order to do interesting things with the dollars today. I've been giving that a little bit more thoughts since .

I sort of threw IT out.

I think the reason why IT all worked out is that the internet ultimately provided a ton of consumer value on an ongoing basis, even when the bubble first, if you look at traffic during two thousand and two thousand and one, two thousand and two people kept adopting the internet, these text docks.

Equity investors sort of ran away from backing them because people got so ahead their skies, investing on clicks and not even revenue by clicks and eyeballs, let alone gross margin dollars, and hopefully eventually free cash flow. But the fact the matter is, even though investors got scared, IT provided an incredible amount of consumer value. And so the fact that people kept doing IT meant that amazon kept growing their customer base, the customer loyalty and the number of transactions. And so there was a there, there you and they could survive the bubble because ultimately, more consumers kept getting more values so the party could keep going over at cash flow dot com.

Yes, IT is just i'm taking back on my personal experience living during that time. You know i'm curious for you, you like, did you have any awareness of the tech bubble and or the tech bubble?

But I remember september eleven, but I don't remember that I came after a bubble bursting, right?

But you probably remember your experience of the internet and the growing in your life, right?

For sure, it's sort of grew with me growing up. So I remember like, oh, now i'm old enough to have a computer in my room and oh, now i'm old enough IT to be on our apple talk network and enough for IT to be connected to the actual internet. I can use things like aim. I always thought those things were like, if I really think back and I like rights of passage for someone growing up and I don't think I realized at the time these are becoming things exactly at th Epace t.

hat I a m g oing u p. Yes, totally. You know it's so funny when you're Younger. Like now there's like no difference in I feel like I think because I went like four years, five years older than you for I think yeah for I think yeah, I was probably like just a little bit ahead. Like I was aware of stuff going on with stocks related detect companies. But like I knew that was happening, but I didn't think about IT in relation to what I was doing. But like, yeah, leg, I just think back of lake, the percentage of my time and mental energy directed at and on the internet just grew and grew and grew expanding ally during that time.

right? Turns out having the entire world of information at your fingertips is unbelievably valuable. yes. And like, I just permeated everything. You, okay, I have more.

You go. I've got to, I want to say so I save me room for two. I will.

So here's the thing we really didn't talk about, but is very important, understand about amazon. They were lucky, lucky private. They never broke A W S.

Out as a segment when IT was. They basically had to. They have always kept everything in the sort of just like gigantic amalgamate tion of the fewer numbers weekend report the Better. And so in the last one, they never said anything about any sort of cohorts or cost to acquire customer lifetime value and amazon customer. No one in the outside world, no ten case, no as one nothing has ever said anything about that information. And jeff just beliefs he's famous bezos charts where he's like, you know announcing this cool thing for election is like this was the best year ever and just see an unlabelled access that's like, oh, it's Opera and to the writer that has serve them really well, they're able to do a lot of maneuvering versus competitors with their suppliers, with third party sellers by just never really disclosing any key information.

The same story with advertising. The s of a certain point, they are gonna to break out advertising. You know it's thirty forty billion dollar run rate business at this point.

Yeah but for a long time, nobody really knew. I understood what was happening. Incident was on with that.

yeah. You know, there is other one for listeners who are watching on video. You can see that it's now dark out for David and I, and we took a break to go have dinner and then reconvene .

and class put baby to bed.

Yeah, I was thinking itself over dinner, man. Like, I don't offer doing a job with this epo de. It's not really a cohesive story.

And then I think kind of hit me that like that is the point amazon was doing so much stuff so fast concurrently and learning from IT. That is kind of a brute force path finding algorithm that has a bunch of concurrent stuff going on. I mean, it's unbelievably entrepreneur. IT is the most successful scale innovator. In the world that has ever existed, the two pigs, a teams thing, which i'm sure many people are familiar with.

which I think might have been a ricked though innovation.

H interesting, the fact that for decades, most of the best entrepreneurs and talent in seattle just stay at amazon and the non seattle for so many years was that, you know, think about amazon S S, A pretty big kind of bureaucratic company at this point, and people are leaving .

to start companies, oh, the best people stayed.

Look at Jessie. totally. The biggest impediment to the seattle start APEC system was the fact that amazon facilitated entrepreneurship over, over and over again for people at all stages in their career with all levels of ambition and is really, really impressive but doesn't really make for a clean story.

You and rather than sort of being myself upon for that mid episode here, I was like, I think that's actually the point. Let's do hardware. Let's do a subscription business.

Let's buy a bunch planes. I mean, they started the company in IPO within three years. So like everything that this company has ever done has been super fast and often concurrent.

Yeah, how did you phase that? I think you texted me. The surface area of this company is just immense.

is just ludicrous, is so large it's kind of impossible to cover. I actually made a list when I was sort of thinking about OK. This makes thing, the right analogy of things that failed.

And then they backed up and turn left and tried another thing instead. And sort of this heat seeking bruford already. Dm, it's incredible. When you look at auction z shops, we didn't even talk about the southern's partnership.

for they are.

oh my god, ying, to do a Better style thing with the s we didn't .

talk about the fire phone.

The fire phone, a nine search engine, which was just wildly underfunded relative to google search and block view, which was the lessor to what the google figured out, with huge investment to make street view investing tens, millions of dollars and startup s like a home grocer dot com and pets dot com. IT is just over and over and over gather these huge failures. And yet it's the most successful company of our time.

There are so many other companies were compared to elon musk. For example, you look at space x IT worked. Tesla IT worked.

Paypal IT worked. Boring company. We don't know yet, but like, seems like I could work. Neural ink juries out is really early, but it's not failure. He doesn't go start these things that are completely dead ends the way that amazon had did dozens and dozens and dozens of times. But IT is on a so damn good at learning.

So there's this great quote again in the ninety seven letter, which is we will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not. And we will have learned another valuable lesson in either case. And my big takeaway is if you're going to look at amazon as a straight line, IT was a philosophical straight line, IT was a strategy sickly line, but IT was a tactically randa m set of dots, that there was just a fact finding algorithms to figure out.

Then I love that. That is such a good point, but that was the strategy, jeff says IT in the shareholder letters all along.

Absolutely right. What you got.

okay. So my two that I want to highlight one is um the opposite of what jeff talks about all the time of or not competitor focus or customer focus by like ah of course there are customer focus. Yes, we clearly painted the picture that they care about customers. The customer experience focus, customer long term, customer loyalty is the most important thing.

Isn't IT great that there is these jeff isms that like you and I can short hand because we're pretty sure that our audience knows them at this point because every interview he's ever done, he says the same things.

Yes, uh, so funny. But jeff is also such a part of the lining age of great retail entrepreneurs, starting concurrently in before sam bottom. But sol prys, sam, 我 詹姆森 那个 jeff BIOS， you shop your competitors and you take their best ideas, and then you refine them and make them even Better.

That sam walton quote that I just loved from made in america, like, go shop. Our competitors come back. Don't tell me what are doing wrong.

tell me what they are doing right.

They're doing right. yeah. And amazon did the same thing. And like the ebay story.

doesn't brad stone have a way that he sort of frames when amazon is customer focus versus competitor focus? I think it's in a second book and EMS on unbound.

that might be an unbound.

I have thought this was a good way to approach IT. Whereas in a emerging market, their customer focus because they can afford to be, especially when they're the market leader, they're out ahead. But when they're in a competitive market like what grocery became, because when they refer to starting other grocery efforts, IT was a very sort of where the leaders in online grocery and is on fresh as a sort of crazy experiment.

And ultimately, they sort of fell behind. You have to be very competitor focused when you're in a cc rowed market where you're behind. And so I think they like to be in markets where they have the luxury of being purely customer focus, but they are always that's not always the case.

You and like in some sense, it's a luxury. In some sense, it's a luxury to have great competitors because they figured out good stuff.

you know yeah and bases didn't just steal from other retailers. The other thing about jeff is he comes from a finance background or as a lot of the classic retailers come from a merchant dizon background or an Operations background, well.

certainly internet entrepreneurs, very few came from a finance background.

I mean, there's a lot of john alone in here when you start to look at their tax strategy, the fact they're generating all this free cash flow but somehow never reporting a gap profit and they are never paying corporate income tax because they have no corporate income and yet somehow they are trillion and to have to our company. And they have started paying more taxes recently because they have started being profitable. Ba ba, ba ba, for a long time. They really were running out of the T, C, I, john playbook of why not to ever show your profitability.

No, we got to do that episode.

Sure for sure, OK.

That's my one of two, two of two, which was what pushed us over the edge to do this episode now, which is the period of time amazon got started a little on the early side before at the tech bubble, benefit all three of the tech bubble and then got hammed, arguably harder than any other surviving internet stock when the bubble burst in the crash.

And IT was during that kind of nuclear winter when amazon leading up to IT is not that they we're doing this all long, but the hard work was done from two thousand to two thousand and seven, where they built out everything they gave them, like the hugely wide modes that we've talked about on this whole episode. That was the time to build, and jeff was completely unafraid to do so. Got IT.

This makes me think so much about, like, right now, makes me think about F, T, X, right? Amazon, who granted most dead capital, but during the google years, they succeed in billions of dollars of capital. And yes, some of that was spent unwisely.

But then when the crash came, they invested through IT. They built through IT and distance themselves by miles from their competitors. Yeah, is just like a huge lesson.

Like obviously, you've got to be smart, you ve got to be right. You know you're got to have managed your company in a way that you have access to capital during those times. But that's the best time to build notes.

Yeah, yeah, absolutely. How shall we greet this one?

Yeah, grading. I think the best thing to do, we talked before the episode of belley. Maybe we great amazon retail here and then we create amazon web services on the next one. But like you said, this is like a tangle octopus of our company. You can you know, we only got up to two thousand and seven, two thousand eight in the history here.

right? I don't feel, based on everything we've discussed in this episode, qualified to assess amazon retail as IT is today. So I think we should scope IT to the time period.

We didn't talk about the apple. We didn't talk about the stock com. We didn't talk about .

whole foods pill pack. Mean.

you know that medical medical.

although echo to me falls under A W S.

but H W be found to get out yeah I mean, clearly it's both right. So I think we should grade amazon from founding until just before the financial crisis.

interesting. So if the company were to have ended in two thousand and seven, I think they were doing about a billion dollars a year of Operating income, their market cap. This is why it's very interesting to be grading on a time frame with the company that's thinking in a much longer or a time frame.

So if they are generating like a billion eh dollars of Operating income and and I think their market cap t at that point was something like thirty billion dollars. If you're a shareholder, they haven't really realized those future cash loves yet. So this sort of like peden's way to look at IT would be like, well, if the music stop there, that would have been pretty bad.

But of course, IT didn't. And of course, A W, U, S would still come. Their market cap would absolutely explode a lot with sort of chain and he've turned on the ability, especially with A W S, get very profitable in the future.

So that's probably the wrong way to look at IT. Like what if the company shut down? It's more about how do they execute to set themselves up for ultimately realizing all that value for shareholders.

Humans are such funny creatures. The hedonic adaptation is crazy. If you go back in time to two thousand and seven, what are you in market? Cap is what? Like thirty billion ish.

That was a big company fact that yeah I mean, I remember when I started adventure couple years later in twenty ten, you weren't playing for exits in the like tens of billions of dollars if you said like, oh, I got under ate you know this investment, do I think what are the odds that this is gonna worth thirty billion dollars? Like people would be like, really talking about like, like you like. 所以 now we need like， you know, this to be worth a couple hundred million dollars. That's a huge win. Yeah, we just had realized yet how big this stuff could get.

which is in part why people needed to be more ownership sensitive. Or certainly there were more obsessed with ownership then there are now I still actually believe pretty strongly in in otherness, especially as a lead investor. And why that's important in architecture, a fund model. But at the time, if what you're playing for is three, four hundred million dollar outcomes and like it's pretty important for your multi hundred million dollar fund to own like a quarter of that company. Yes.

yes, certainly tom was very happy with their m zon investment, ted, at that point time. So yeah, I mean, I think we have to give IT A A and .

especially .

as we talked about like this, like just incredible execution to that time.

I do have sort of this fund start from the IPO. If you had bought a hundred shares at the IPO, which I think did we say seventeen eighteen market .

cap of four thirty eight, yeah.

If you bought one hundred chairs for all IT eighteen hundred dollars of total investment today, you'd have two point six million dollars, and you would have made fifteen hundred x which is Bakers. So then the question becomes, so we grade thoms investment and amazon as of two thousand and seven.

I love great .

a great a well.

unless he sold in two thousand and seven, in which case.

yeah two thousand and seven IT was worth about the resolutions. Pretty low in the south somewhere between thirty and forty billion dollars. So let's say you're buying and at five million and that goes up to forty billion, you're pretty happy at the ten thousand x is crazy if you really start following the the ripples out yeah seattle s hold start a pickle system yeah I mean.

of course there is microsoft before two in so many great folks came out of microsoft to build companies and still like naked reckon but yeah every azz it's just .

a jug on yeah I don't even know how to apply that great other than a plus. I mean, the other thing is like surviving the dot com crash, basically no one did. Google did. But google was started like right at the tail end of IT. Every other retailer, I mean, in half of them were things that amazon was invested, but drug store dot com and pets dot com and all these completely one .

under and ebay having ebay survived. It's around, of course, but he didn't win.

you know yeah pretty unbelievable to make IT through that sort of three year absolute drought of the availability of capital and a complete showering. I mean, you could not IPO. So you know, if you weren't already out like game is on was there is basically no chance that you were going to until I think google finally IPO in two thousand four.

two thousand four ah and even then, well, that wasn't .

like IT opened the .

flood gates right we ago we'll do the whole thing on our next episode. I can know if I would have predict agreed for amazon web services. I would predict in a plus.

why even listen the episode given.

right? I think worth listen to the episode the way.

Haven't saying too chilly in the whole time I family looked IT up. Amazon was a one point nine hundred and dollar company, and today is a one trillion dollar company. I, S, S, crazy what has happened over the last two years.

but they just reported keep your earnings and the market liked IT pop .

fifteen percent.

Um I bet it's closer by the time. Oh, who knows if we can predict future? We wouldn't be fans of n zy. yes. But by the time this comes up, probably fair to say ballpark wanted to have .

trillion dish. Who knows? Yeah, yeah. We'll see. We'll see. Alright, great episode. Should do some quick car outs.

Let's do car bets. What you got.

So I have a car bet. And I can't remember if you recommended this to me privately or if I was a previous carve out of yours, and that's how I heard IT. But I just listen to the rick rubin episode of the next freeman podcast. And my god, is that a good interview? So good you think it's to get interview at the beginning and then like you get like ninety minutes in like this is a really good interview and I think that happens a lot on the x treatment podcast.

Ah yeah so good like this. Such a good interviewer, like his skill as an interviewer is just top.

There is a level of intimacy that he gets with people where it's uncommon to have a level of intimacy. And I don't think it's because he previously knows them. I think it's because everybody knows that's what you bring when you're on the next freedom show.

So if it's anywhere in your sort of all, I should listen to that some point soon. And especially if you're a music fan and especially if you're a heart felt music fan, like you're someone who really likes to feel and put yourself in the place of maybe the artist or something they were going through. There's just so much, I mean, in particular the way he goes into the the john y cash sort of find all album of you that he .

did and the hurt .

by trend resonant yeah.

the trend resonate, heard yeah oh man, the number and breath of lake musical history moments that rick was part .

of of just sit there producing for creating.

not even to the creating with the.

yeah uh, it's like forest come .

in real life what a legend .

yeah I was .

going to do just one but I I actually think it's trying decide what to do. I I think it's appropriate to do a pop eri, a sweet of different types of media here. Given that that's amazon's D N.

A. I probably Better consume most of this three name service. One way he performed books, I have been reading a few books by Ursula lig win, very famous american author, great.

Both side firework and fantasy work, both which I really enjoy. 嗯， sif, I I read her, I think probably best known saphie novel is called the left hand of darkness. ExcEllent book, highly recommend.

And they kind of in that same being of like felix was written in the sixties, maybe fifties or sixties, that could be wrong on that dad era of type of size. I and it's very not it's a character driven sipi. I so it's less about like crazy technology and more about as a setting to explore characters.

Grape, and then i'm just starting her earth sea fantasy series, which I had no idea. And now i'm like reading a turning on and some of the reviews on talk about this is probably part of the inspiration for Harry potter. So super, super cool to go get that little bit history.

Harry potter, by the way, broke a lot of amazon's algorithms. I was listening to couple interviews with early engineers who were saying, like the you may also like, or people who like this also like, basically everyone liked Harry potter and so they would have to either special case IT or tune some parameters to make IT. So IT just wasn't always recommending Harry potter with any other product because in the other product had a similar ari of by little Harry potter .

that's like the Justin b.

Preserver at twitter.

late nineties, early two thousand. Celi c cultural touchdowns for the world. yeah.

OK then music, I just today was really listening to my beautiful, dark, twisted fantasy. ica. Deek, yes. And then I reminded me, I tweet about this. I think that was your car about, yes, years ago, season two of dissect the disease d gest. Uh, I mean, the album is a master master work.

and I didn't realize what a masterpiece the album was until using the podcast then gained this. Just the appreciation you get for kus and artist and every single element musically and lyrically of every single song is just next level.

We talked about this. I feel we should do a colonie episode at some point. You will be the the follow up to the .

tail swift episode yeah the the july in the .

south yeah exactly. My last piece of media is a throw back to carve of mine from not that long ago to elderly. The video game I finally beat IT months later today.

If you're doing anything else and if you like, have a baby like you're talking in months to beat this thing. Unreal achievement of a game like so amazing I to say that I also treated about this. I was a little disappointed the end I think that felt like a lost steam.

But like I can totally forgive IT because this is like if every other game, you know with old games, you know, we're like running out, like, you know, hundred meter dash. And then like you got to the point where, like the achievement of making a triple a game was like granting in marathon, this from software and me is that you created IT. This is cleaning an ultra marathon.

The amount of work and content and dislike, incredibly, that went into this game is on a scale that I like no other game has ever matched. So worth playing, worth thinking. Months of your .

life if you have several months. Yeah, exactly. yeah.

Awesome listeners. thanks. You're going on the journey with us, man. I cannot wait to dive in the W S. research. I tried not to research two episodes that wants because it's too hard to hold of this in our heads concurrently. So i've been sort of resisting diving into the annual letters from o seven onward and really trying to understand the the landscape of cloud today. But this can be a great one.

This was such a journey. We're only half way there. There is more to come.

Yeah, absolutely. After you finish this episode, come discussed with all of us at acquired data m slash slack got a job board. We are looking for the next move in your career.

Go to acquire dm. Slash jobs. Big change in all the things that we're calling to action for.

And even if that's the right calling you toward action, upon how many weird propositions can I throw these closing calls to action? Merch, holy crap is finally here. Amazon inspired us.

Thanks, jeff bezos. Your contributions have been many, but you convince us to start a store on the internet is perhaps your Grace yet. So thank you for that. You go to acquired dot F M slash store and find some of the finest t shirts, hooded crew, next sweatshirts, one, what else is there, tanks and even one these available. And we'd love your feedback as we consider expanding the store as well.

And I don't think we have the infrastructure yet for third party sellers to come on and create their own acquired merge, but perhaps will explore that if we can get A A wide enough user base to realize those fixed costs of making a great user experience for you all across. I guess, stop. I gonna end this, check out the lp show, uh, you can find IT any podcast player and h without listeners. We will see you next time.

What's the next time? Easy you, easy you, easy you who we get true?