On June 27, 2001 Jeff Bezos sat down for an interview with Charlie Rose. His comments over the course of 30 minutes provide much of what you need to understand the retail business of Amazon.com. We featured it originally in a post here. (And you can watch the full broadcast of the video here.)
To remind you of the context, the interview corresponds with the steepest part of the dot-com collapse. Amazon’s stock price had been in free-fall for 18 months, declining from $106 in December 1999 to $14 when he sat down with Charlie. And its drop wouldn’t end until shortly after 9/11 when it hit a $6 bottom. Bezos own net worth dropped by half a billion dollars (reference here).
And yet Jeff Bezos was doing all he could to hide his ebullience.
Bezos welcomed the end of the internet-telecom bubble of 1998-99 for the simple reason that Amazon had reached scale and achieved a level of capital self-sufficiency that meant the company no longer depended on the goodwill of Wall Street for cash to grow operations. It was sitting on plenty of it and could generate more from operations.
The same was not true for other web retailers in the process of scaling up. They needed more funding to sustain themselves and grow. They had received a steady flow of it from venture capital firms willing and able to invest large sums in unproven businesses, confident they would recoup by bringing their seedling companies public in short time. But with the bubble popping, that all went away. It took down pets.com, wine.com, toys.com and countless other companies with which Amazon competed and (more interestingly) in which Amazon had made investments.
Bezos had this to say about it with Charlie Rose:
So all these companies could get funded. And that’s what created one of the imperatives for moving so quickly. Because there were so many start-up companies getting $60 million or more in venture capital. And those companies with that much capital, if that financing environment had continued for any extended period of time…many of those companies might have been able to build the scale to be successful.
Losing its investments in online competitors hurt Amazon, but only in the most superficial and temporary sense. Amazon invested in these businesses as a hedge. Bezos was already working toward the lofty goal of being the ubiquitous force in online retail…the only place people would shop. That meant he would expand Amazon into every conceivable product category, offering universal selection. Of course he couldn’t get there immediately. He had to prioritize where the company invested its money and time. So he adopted the land rush mentality, investing in a broad swath of developing web retailers in early stages of growth.
If the competitors could reach any sort of scale – with their software, merchandising expertise, and distribution capabilities – they could begin expanding into adjacencies. It didn’t matter what product niche they specialized in to launch themselves, they could use the infrastructure to expand. They could threaten Amazon’s objective to be ubiquitous. So Bezos bought the competition or invested in them, holding his enemies closer than his friends.
One of the things we were very convinced of, and indeed was definitely true in the earlier days, is that there was a land rush phase to the internet. And so, when we saw product categories that we thought were important to our future at some point, but they weren’t the ones we were going to do first…Pets.com, wine.com, etc….there were a bunch of things that we were invested in that didn’t work out. We knew we weren’t going to do those things anytime soon, but we wanted placeholders in those industries so that later, perhaps, we could fold these industries back into Amazon.com. So that was driven by…a land rush mentality…It’s hard to put a precise date on it, but I believe that for the first four years of our existence, that land rush mentality was correct. And the only reason we exist today is because we…behaved that way.
Then the crash came. The talking heads wanted to focus on Amazon’s foolish investments in all these dot-com bombs, the value of which evaporated in a slew of bankruptcies. No doubt it hurt Bezos, but he had confidence in the bigger picture of what was happening. Why weep over these investments gone bad? They were hedges. The bigger bet was paying off. Your competition was gone, you didn’t need Wall Street for more money, and you had scale.
Bezos was ebullient because he recognized, despite the stock price going down in flames, that he had just won the most significant battle in Amazon history. He was the last man standing.
And so we can understand the confidence behind his statements in the closing minutes of the interview with Rose (emphasis is mine):
In the early days, that’s when the company’s destiny is really not in its own control. At this point in time, with the brand name that we have…we have so many assets now, now it really is under our control. We don’t worry about externalities now. What we worry about now is that we don’t do our job. And I’ll tell you one of the things in this period that I kind of like is that it’s a lot easier in the year 2001 for Amazon.com as a company to be humble, working our butts off, than it was in 1999 when the world believed we couldn’t lose.
And this conclusion:
Charlie Rose: [Paraphrased] There are two schools of thought. One is that Amazon will become the most spectacular retailer of all time. The other is that Amazon may become the most spectacular failure of the internet era. What’s the odds of the first being true versus the second?
Jeff Bezos: Let’s put it this way: we get to decide, nobody outside the company can decide that.
Jeff Bezos was history’s happiest man for losing $500 million in personal fortune in 2001. He had long ago separated the concepts of the value the stock market places on his business versus the value contained within the actual operating business…the intrinsic value. Bezos knew how temporary that loss would be and the great path it set for Amazon’s future.