The most distilled description of the tech-industry elite at this year’s PC Forum is this: “chastened but definitely not bowed.” With a focus on infrastructure and with stock prices in the single digits, the tone was more sober and serious than last year, but the audience no less ambitious. More than one person remarked that the hallways were once again filled with industry stars and peers who had failed to show up to the last few PC Forums because they were “either too rich or too busy to come.”
As usual, Esther Dyson held court on stage, curled up in an overstuffed armchair and posing her trademark obscure questions, and as a result, the conversation was all over the place. What sounded like dry topics in the program — governance, protocols and policy, commodity infrastructure — mostly were. But a rousing, witty dialog on P2P raised the bar, and Jeff Bezos demonstrated once again why he’s a survivor and a real leader in a good-humored closing chat.
It should be no surprise that Bezos delivered the best performance of the conference with his guardedly optimistic presentation about Amazon.com and its survival strategies. To begin, Bezos bounded on stage and threw up his first slide: “Why Am I Optimistic?” He let out his goofy guffaw, and the tone was set. Second slide: Why Is This Man Still Laughing? You have to wonder what portion of Amazon’s success can be attributed to the pure charisma of this guy: He smiles. He laughs. He responds to total strangers by looking them in the eye and talking to them as if they were peers in the boardroom. And he has a compelling answer (with metrics) for the toughest (and dumbest) questions.
Okay, I’ll sign up for the Official Bezos Fan Club later. Bezos started off the conversation with his favorite slide and factoid: The IPO price of Amazon, split adjusted, was $1.50. Today’s price is $11.64 — that’s a very respectable gain. “The problem,” Bezos says with a laugh, “is that we got here by way of a $100 stock price.” He shakes off the pounding that Amazon is suffering by recognizing that stock-market trouble doesn’t mean there’s something inherently wrong with his company.
Speaking of inherent value, Bezos put up his favorite slide, borrowed from Israeli entrepreneur Yossi Vardi, titled “The Economics of Dreams,” which basically depicts two curves. One represents the precipitous ups and downs of “stock-market value,” while the other depicts the gentle upward slope of “inherent value of the company.”
Bezos then answered the audience’s question: Why does the second line continue to rise? Bezos answered, “Because we trade real estate for technology — and while real estate gets more and more expensive, technology gets cheaper fast. That’s the fundamental trade-off of e-commerce: real estate for technology. If we kept constant the amount of money we spend per customer per year for five years, we’d have 60 times the bandwidth we do now. That’s explosive and would totally change the customer experience.”
Feeding the “inherent value line” is continuous improvement of customer experience. When questioned about the validity of that trade-off, Bezos added a finer point: “We’re not using Moore’s Law to improve our cost structure. It’s true that our distribution center doesn’t follow Moore’s Law — we’re just using Moore’s Law to improve the customer experience. It’s not enough that the technology gets cheaper; it’s that cheap technology allows innovation.”
Taking the optimism thing even further, Bezos declared that he believes it’s still “day one” of the Internet revolution. And he said, “If we can’t build an important, lasting company with the wind we have at our back, then shame on us.”
The number of books that Amazon sells and delivers today greatly surpasses what Bezos had predicted in the original business plan. Business lore says that Amazon was bowled over by initial demand back in 1995 and 1996. Bezos says that demand, not the capital markets, spurred Amazon’s decision to invest so heavily in the company early on.
“It was the right business decision to invest heavily at that point, not some fad. The original business plan was about growing by cash flow, which is what most business plans should stipulate. But it would have been the wrong business decision not to go after so much funding.” The fact is, Bezos says, e-commerce is a scale business: It has a high fixed cost and low variable costs. “One major thing that people didn’t understand about why it’s so hard to be a successful e-commerce company is just how high that initial fixed cost is — and how low the variable costs are.”
One thing that tempers Bezos’s joy, he says, is the disappearance of the e-commerce companies that didn’t achieve the scale to succeed. “We’re getting lonely,” he says. “We miss our online brethren, because they bring customers online. The first-order message of all that marketing was to shop online. The second-order message was about where to shop.”
When asked about his biggest achievement and his biggest mistake, Bezos responded: “The way we’ve built intrinsic value is by having a culture that focuses on customer experience. We were very lucky early on to be so woefully unprepared for the volume of business we got. Every single person in the company had to drop everything to work on customer service — packing boxes, answering phones, refilling the postage meter. And the fact is that culture tends to take root early and stick. We’ve had a culture of customer obsession ever since.”
As far as a biggest mistake, Bezos says that one of Amazon’s “recent whoppers” was going “against the belief in scale by investing so heavily in so many small- and medium-sized Internet companies. I really thought Pets.com and Living.com were going to succeed,” he says. “I liked the model and the management teams, but when the capital markets dropped, the runway to ramp up was removed.”