My Chat with Jeff Bezos in Spring 1997
It was spring 1997 and I had been picking technology stocks for an asset management firm in London with GBP 12 billion under management for about 8 months. Many public company CEOs (and typically joined by their CFOs) came to tout the quality of their company and give us investors a roadmap of management’s strategy so the investors would buy (or if already holding, continue to remain) in the company’s stock. Occasionally, and ever increasingly up to 1999 when I left the industry, there would be initial public offering (IPO) roadshows. One CEO that came to that IPO roadshow, with the usual investment bankers (i-bankers) in tow, was Jeff Bezos, CEO of a young company called Amazon.
Typically, the i-bankers and their underwriters put out a booklet called the prospectus, which details the company’s business, their financials, biographies of the management and the management views on how they will be running the company. Based on the prospectus, we decided which company’s roadshow and meetings we would take. As my colleagues and I read Amazon’s prospectus, I was intrigued and wanted to see the company’s management — some of my fund management colleagues were more circumspective. On average, I took about a dozen company management meetings per week and occasionally took an IPO roadshow meeting. And I was responsible for all technology stock picking — Amazon was considered a technology stock so I wanted to see the management. There were a number of pushbacks and one colleagues argued, “How is this book-selling website different from other book-selling websites? Even my uncle could create a website and start selling books.”
It was an era when websites were starting to be created, primarily as brochureware. A few websites started selling goods from their website, which was the very, very early start of e-commerce. Nevertheless, the barrier to entry for any business looking to do e-commerce seemed low. Therefore, I registered my fund management colleague’s pushback and offered to bring my answers from the CEO, Jeff Bezos.
About 30 London investors listened to Jeff Bezos speak about Amazon over a lunch meeting — and I signed up for one of 3 or so one-on-one meetings for about 30 minutes with Bezos. The initial presentation was unremarkable in that all investor presentations speak of past financials, some projections of future revenues, risks, etc. Like any pitch, it is an exhortation to the investment community to buy the company’s stock at IPO, which typically is priced by the underwriters and i-bankers and floated on a public market in upcoming few days or weeks. In the main presentation, the only memorable aspect was Bezos explaining why he named the company Amazon — he said the company was going to be vast, like the river Amazon. He also said he can be the largest bookseller in the world since he does not need to hold any inventory of books — no physical bookstore could replicate a virtual bookstore like his because the physical real estate for holding such large collection of books would be cost prohibitive and hard for shoppers to browse.
The one-on-one meeting was incredibly remarkable and prescient.
Amazon: A Technology Company
Bezos and I started our one-on-one meeting in a small, windowless conference room of the London sell-side banker, that had organized the roadshow presentation. Bezos looked very young — perhaps tad bit older than me, but much younger than most CEOs I met during those times. Also he was not very tall — at least shorter than most CEOs I saw. But what stood out was his ambition and chutzpah, even among CEOs that are typically quite bullish when they are meeting with investors. And many of what we discussed seemed eerily prescient.
My first question was about the low barrier to entry for a website selling books — Bezos shot back, “We are not just a website selling books, we are a technology company.”
“How so?,” I asked.
“We have invested heavily in the technology backend. Majority of our employees are engineers. We are confident enough in our technology and intellectual property that we will license them even to our competitors like Target, etc.,” explained Bezos.
I delved deeper and he mentioned some modules that they were working on called the “Electronic Cart/Basket” and “Recommendation Engine” which later became e-commerce vernacular, but I was hearing it for the first time in early 1997 from Bezos.
World Domination
Bezos said because now that the technology backend was built, there is no need to sell just books. Books just happened to be the best-fitting product for his e-commerce site. He indicated that he would quickly move to other product categories, because he could — all he needed was an electronic category, not a physical store or even a warehouse that represented all the products he sold. Twenty years on, Amazon is known as an online vendor that sells anything — some folks may not even remember that they started by just selling books.
Making Big Bets
Another prognostication that Bezos made was that Amazon would make big bets not related to their current business. Most investors do not like to hear that because it suggests that the management will not be focused on the main mission of the business — it might lead to waste of investor capital. Bezos did not back down — he said, “We will make big bets unrelated to selling of books or online commerce, in general. Some bets won’t work, but some will be phenomenal successes.”
Although I stopped being a public market investor in 1999 and went back to operating companies, primarily startups and small companies, Bezos’ grand visions kept coming up again and again. In particular in 2005 when I started a company called Aerva (www.aerva.com), we were renting servers from hosting companies and needed to carefully watch when the next server needed to be rented — typically around 80% of capacity of an existing server. However, as a startup, being frugal with cash, I did not enjoy paying for a whole server even when its utilization, initially would be minimal. Then in 2006, when Amazon launched Amazon Web Services and my Technology Director told me how we only needed to pay for the storage and CPU power that we used — not the whole server — the switch to AWS was a “no brainer.” Initially, we were only paying pennies to AWS each week instead of hundreds of dollars to hosting companies. For every incremental customer, Aerva paid incrementally in storage and CPU charges. Over time, however, as our customer base grew, I saw the monthly bill paid to AWS grow consistently — this was the same company that was selling books online less than 10 years prior, but its CEO confidently said Amazon would launch into areas not related to book-selling — some initiatives would fail (e.g. Fire Phone), but some would be amazing successes. And I was witnessing this “unrelated bet” and its success. Over time AWS added increasingly more features from database, DNS, etc. making our other vendors that provided these technology solutions/features instantly difficult to justify. Amazon was certainly becoming a behemoth of a technology company with its ever expanding AWS offering — and it just happened to also be dominating in e-commerce.
Other unrelated businesses that worked well (and I personally consumed a lot of them) were Kindle, Amazon Prime, Amazon Video and more recently Echo and Alexa.
After more than 20 years Bezos is still at the helm of Amazon, the public stock of which (AMZN) has grown more than 500 times — a $100 bet on the company at its IPO would have been worth more than $55,000 today. Our fund management company did make a small bet in AMZN of a few million dollars (significantly less than other technology stocks we purchased in those days) — I hope they were bold enough to hold the stock for the long term — and hopefully as still holders today!
