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CHAPTER 3

Fever Dreams

In early 1997, Jeff Bezos flew to Boston to give a presentation at the Harvard Business School. He spoke to a class taking a course called Managing the Marketspace, and afterward the graduate students pretended he wasn’t there while they dissected the online retailer’s prospects. At the end of the hour, they reached a consensus: Amazon was unlikely to survive the wave of established retailers moving online. “You seem like a really nice guy, so don’t take this the wrong way, but you really need to sell to Barnes and Noble and get out now,” one student bluntly informed Bezos.

Brian Birtwistle, a student in the class, recalls that Bezos was humble and circumspect. “You may be right,” Amazon’s founder told the students. “But I think you might be underestimating the degree to which established brick-and-mortar business, or any company that might be used to doing things a certain way, will find it hard to be nimble or to focus attention on a new channel. I guess we’ll see.”

After the class, only a few students went to talk to Bezos, far fewer than the crush that greeted most speakers. One of those students was Jason Kilar (who would spend the next nine years scaling the executive ranks at Amazon before taking over as chief executive of the video site Hulu). By the time Birtwistle got to him, Bezos had to leave for the airport, so the professor of the class suggested that Birtwistle give him a ride. “Great,” Bezos agreed. “I can save on cab fare.”

During the fifteen-minute drive, Bezos assumed Birtwistle was interested in a job and started to interview him. “Why do you want to work at Amazon.com?” he asked.

Birtwistle hadn’t prepared for an interview but he played along anyway. “I’m a student of history,” he said. “If I’m able to join a company like yours at this early stage, I’d feel like I get to participate in something historic.”

Bezos almost started yelling. “That is exactly how we think at Amazon.com! You watch. There will be a proliferation of companies in this space and most will die. There will be only a few enduring brands, and we will be one of them.”

After a few moments of silence, Bezos asked, “So, why are manhole covers round?”

“Jeff, if you want to get to the airport on time, you cannot ask me a question like that.”

Bezos let loose a gunfire burst of laughter, startling Birtwistle, who almost veered off the highway. “No, seriously,” Bezos said. “How would you solve that problem?”

“They’re round because it makes them easier to roll into place?”

“That is incorrect, but it is not a bad guess,” Bezos said.1

When Birtwistle graduated from Harvard, he joined Amazon, along with Kilar and Andy Jassy, who years later would run Amazon’s pioneering cloud business. They were among the first business-school graduates hired at Amazon, which had previously favored local, technical talent. They were also a handy resource for Bezos at a crucial juncture in the company’s history.

In early 1998, the doomed broomball pioneer and marketing executive Mark Breier brought Bezos findings from a survey that showed a significant majority of consumers did not use Amazon.com and were unlikely to start simply because they bought very few books. Bezos, Breier says, did not seem overly concerned with the depressing math behind America’s literary interests. He told Breier to organize the new Harvard Business School graduates into a “SWAT team” to research categories of products that had high SKUs (the number of potentially stockable items), were underrepresented in physical stores, and could easily be sent through the mail. This was a key part of Amazon’s early strategy: maximizing the Internet’s ability to provide a superior selection of products as compared to those available at traditional retail stores. “I brought him very bad news about our business, and for some reason, he got excited,” Breier says.

Bezos now felt expansion into new categories was urgent. In customers’ minds, the Amazon brand meant books only. He wanted it to be more malleable, like Richard Branson’s Virgin, which stood for everything from music to airlines to liquor. Bezos also needed Amazon to generate the kind of returns that would allow him to invest in technology and stay ahead of rivals. “By that time, Jeff had done the math on a legal pad and knew this had to happen. It was go really big or go home,” says Joel Spiegel, a vice president of engineering who had spent time at Microsoft and Apple.

Joy Covey believes that from the beginning, Bezos planned to expand beyond books, but he was looking for the right moment to do it. “He always had a large appetite,” she says. “It was just a question of staging the opportunities at the right time.”

So that spring, Jassy researched music, Kilar looked into the home-video market, a former Harvard classmate named Victoria Pickett examined shrink-wrapped software, and the list went on. At a management offsite at the Westin Hotel, the MBAs presented their findings. Amazon executives chose music as the first expansion target, and DVDs as the second. To the discomfort of early employees wedded to the zeal of creating a literary hub on the Web, the mission was now more comprehensive. The motto on the top of the website changed from Earth’s Largest Bookstore to Books, Music and More, and, soon after, to Earth’s Biggest Selection—the everything store.

Near the end of the daylong offsite, Bezos asked everyone to write down a prediction of the company’s revenues in five years. Eugene Wei, a strategic planning analyst who was there to take notes, recalls that Bezos’s guess was one of the highest in the group but suspects that no one came close to getting it right. They simply had no idea what was coming down the pike.

To open new categories and build more warehouses, Amazon needed more than a plan: it needed additional capital. So that May, the company raised $326 million in a junk-bond offering, and the following February, another $1.25 billion in what was at the time the largest convertible debt offering in history. With a 4.75 percent interest rate for the latter offering, it was exceedingly cheap capital for the time. To their surprise, Covey and Bezos did not have to head back onto the road to pitch the Amazon story to hidebound institutional shareholders. Investors who had been raised on a steady diet of dot-com hype over the preceding year lined up eagerly to buy the bonds.

Randy Tinsley, Amazon’s treasurer and corporate development chief, met finance colleague Tim Stone on a Saturday at an auto-repair shop in Issaquah to sign the promissory notes for the convertible-bond deal. Tinsley was having a car stereo installed in his jeep and he showed the papers to the bewildered attendant behind the desk. “You want to know what this is?” he bragged. “This is 1.25 billion dollars.”

The two-year frenzy that followed would come to be known as the dot-com bubble.

In the late 1990s, the Web evolved from the province of geeks to the stuff of front-page newspaper stories, day traders, and regular folks who were venturing for the first time into what was then popularly called cyberspace. The resulting mania for the widely predicted changes to business and society sparked an equity bubble that made rational observers question their own sanity. Yahoo was valued more highly than Disney; Amazon was worth more than storied Sears. In Silicon Valley, entrepreneurs and their backers got drunk on the overflowing optimism and abundant venture capital and threw a two-year-long party. Capital was cheap, opportunities seemed limitless, and pineapple-infused-vodka martinis were everywhere.

During that time, no one placed bigger, bolder bets on the Internet than Jeff Bezos. Bezos believed more than anyone that the Web would change the landscape for companies and customers, so he sprinted ahead without the least hesitation. “I think our company is undervalued” became another oft-repeated Jeffism. “The world just doesn’t understand what Amazon is going to be.” In those highly carbonated years, from 1998 to early 2000, Amazon raised a breathtaking $2.2 billion in three separate bond offerings. It spent much of that on acquisitions, but even just a few years later, it was difficult to show that any of those deals helped its primary business. It opened five new state-of-the-art distribution centers in the United States and later had to close two of them and lay off hundreds of workers amid the inevitable retrenchment.

During those misadventures, Bezos seemed unperturbed. If anything, the setbacks made him push the company even harder into new territory. He said to Rick Dalzell, the former Army Ranger who’d joined Amazon from Walmart, “Physically, I’m a chicken. Mentally, I’m bold.” Susan Benson remembers riding up the Columbia Building elevator one morning with Amazon’s founder. She had Rufus in tow, and Bezos quietly studied the corgi. “You are a very sweet dog, Rufus,” he said. Then he looked up at Benson. “But you know, he is not bold.”

Bezos used that word a lot: bold. In the company’s first letter to its public shareholders, written collaboratively by Bezos and Joy Covey and typed up by treasurer Russ Grandinetti in early 1998, the word bold was used repeatedly. “We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages,” they wrote. “Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.” The letter also stated that the company would make decisions based on long-term prospects of boosting free cash flow and growing market share rather than on short-term profitability, and one section in particular served as a guidepost for the unorthodox way the company planned to approach Wall Street.

We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.

Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise.

Inside Amazon, the shareholder letter became the equivalent of holy scripture. Bezos rereleases the letter each year with the company’s annual report, and the company has hewed remarkably close to the promises and philosophies laid out in it.

Amazon started its dot-com-era sprint with what it called its megadeals. It paid tens of millions of dollars in the late 1990s to be the exclusive bookseller on the popular sites of the day like AOL, Yahoo, MSN, and Excite. These sites were called portals, because they were the main entryways to the Web for the new and technically unsophisticated masses. The portals were accustomed to receiving equity stakes for these kinds of deals, but Bezos refused to give that—he was as stingy about handing out stock as he was about allowing employees to fly business-class. Instead, he paid cash and convinced each portal to throw in a freebie: links to Amazon books within search results. For example, if someone searched AOL.com for ski vacations, he would see a link to books about skiing on Amazon.

Bezos enforced strict frugality in Amazon’s daily operations; he made employees pay for parking and required all executives to fly coach. But he was surprisingly profligate in some ways. In early 1998, when he hired Randy Tinsley from Intel to become director of corporate development, one of the first things he said to him was “I am really looking forward to going shopping with you.” Their resulting splurge was epic. Amazon bought the movie database IMDB.com, the British Web bookstore BookPages, the German Web bookstore Telebuch, the online marketplace Exchange.com, the pioneering social-networking service PlanetAll, and a data-collection company called Alexa Internet—among many other purchases. The acquisitions brought in experienced executives, but Amazon was moving too quickly, and was too chaotic internally, to properly integrate the companies and their technology. Most of the executives left after a year or two, repulsed by the frenetic pace, the dreary Seattle weather, or both.

Amazon also veered disastrously into the venture-capital arena. In 1998 Bezos and venture capitalist John Doerr saw an opportunity for an online pharmacy and founded Drugstore.com, recruiting longtime Microsoft executive Peter Neupert to run it. Amazon owned a third of the company. The venture got off to a promising start, so for the next two years, Tinsley and Bezos invested tens of millions of Amazon’s cash in a variety of dot-com hopefuls, including Pets.com, Gear.com, Wineshopper.com, Greenlight.com, Homegrocer.com, and the urban delivery service Kozmo.com. In exchange for its cash, Amazon took a minority ownership position and a seat on the board for each, and the company believed it was well positioned for the future if those product categories succeeded on the Internet. The startups believed they had a powerful partner invested in their success. Almost all of them went down in flames, though, during the collapse of the dot-com bubble in 2000, and by then, Bezos had his own problems and possessed neither the temperament nor the time to try to save them. The company lost hundreds of millions on these investments. “Amazon had to be focused on its own business,” says Tinsley. “Our biggest mistake was thinking we had the bandwidth to work with all these companies.”

Inside Amazon, employees lived under Bezos’s frugal edicts while they watched in awe as he kept pushing more and more chips into the pot. Gene Pope was an early engineer at Apple who reunited at Amazon with his former colleague Joel Spiegel. After watching the wild expansion for a few months, Pope said to Spiegel, “What we are doing here is building a giant rocket ship, and we’re going to light the fuse. Then it’s either going to go to the moon or leave a giant smoking crater in the ground. Either way I want to be here when it happens.”

As the company grew, Bezos offered another sign that his ambitions were larger than anyone had suspected. He started hiring more Walmart executives. In early 1998, Amazon pursued one of Rick Dalzell’s former colleagues, a retired Walmart vice president of distribution named Jimmy Wright. At Walmart, the abrasive Wright had proven himself so exasperating that once during an argument in his office, Dalzell, the Army Ranger, had lifted Wright entirely off his feet, deposited him outside the office, and slammed the door shut. But Dalzell knew that if anyone could accomplish Bezos’s ambitious vision of a rapid build-out of distribution capacity, it was Jimmy Wright. “I’m not sure anyone else in America could have done it,” Dalzell says.

Bezos courted Wright for months and that summer got him to tour the Dawson Street warehouse. Bezos said he wanted a distribution system that was ten times larger than it currently was, and not just in the United States but in Amazon’s new markets in the United Kingdom and Germany. Wright asked Bezos what products they would be shipping. “He said, ‘I don’t know. Just design something that will handle anything,’ ” Wright recalls. “I’m going, You’re kidding me, right? And he said, ‘No, that is the mission.’ I had to have a solution to handle everything but an aircraft carrier.”

Wright had never experienced a challenge of that magnitude. At Walmart, distribution centers shipped containers of products predictably, once a day, to all the stores in the surrounding area. At Amazon, there were innumerable packages going to countless destinations. And there was no predictability, because Amazon sales were growing by 300 percent a year.

As Wright started planning, Amazon navigated a tumultuous 1998 holiday season. Around Thanksgiving, Joy Covey realized that the gap between the number of orders being placed on the website and the number of packages being shipped to customers was widening, and she raised an alarm. Amazon declared an all-hands-on-deck emergency, and, in a program dubbed Save Santa, every employee from the main office took a graveyard shift on Dawson Street or in a new facility in Delaware. They brought their friends and family, ate burritos and drank coffee from a food cart, and often slept in their cars before going to work the next day. Bezos held contests to see who could pick orders off the shelves fastest. After Christmas was over, he vowed that Amazon would never again have a shortage of physical capacity to meet customer demand.

Around that time, Wright showed Bezos the blueprints for a new warehouse in Fernley, Nevada, thirty miles east of Reno. The founder’s eyes lit up. “This is beautiful, Jimmy,” Bezos said.

Wright asked who he needed to show the plans to and what kind of return on investment he would have to demonstrate.

“Don’t worry about that,” Bezos said. “Just get it built.”

“Don’t I have to get approval to do this?” Wright asked.

“You just did,” Bezos said.

Over the next year, Wright went on a wild $300 million spending spree. He not only built the warehouse in Fernley but purchased and retrofitted existing warehouses, one near Atlanta, two in Kentucky, and one in Kansas. He turned them into real-life versions of an M. C. Escher drawing, automating them to the rafters, with blinking lights on aisles and shelves to guide human workers to the right products, and conveyor belts that ran into and out of massive machines, called Crisplants, that took products from the conveyors and scanned and sorted them into customer orders to be packaged and shipped. These facilities, Wright decreed, would be called not warehouses but distribution centers, as they were in Walmart’s internal lexicon.

Wright kept his home and private consulting office in Bentonville, and during his fifteen months at Amazon he shuttled back and forth to Seattle. He did something else in that time as well. In backyard barbecues and at the Bentonville community fitness center, he canvassed his former colleagues and pitched them on joining the online retailer. “Walmart did not even have Internet in the building back then,” says Kerry Morris, a product buyer who moved from Walmart to Amazon. “We weren’t online. We weren’t e-mailing. None of us even knew what he meant by online retail.”

Amazon knew Walmart would react poorly to Amazon’s poaching from its ranks. Morris says that her interview process was conducted stealthily. She stayed at a friend’s in Seattle rather than at a hotel and interviewed for the job at a Starbucks, not at Amazon’s office. Amazon, she says, paid for her expenses with cash. That year, more than a dozen Walmart employees moved to Amazon.

The Walmart transplants created plenty of uncomfortable friction. The Amazon employees were in their twenties and early thirties and full of Bezos-programmed bravado about doing everything differently. The folks from Bentonville were considerably older, in their forties and fifties, and had little patience for the brash youngsters. One notoriously caustic émigré from Walmart, Tom Sharpe, took over as vice president of merchandising and lasted a little more than a year. Birtwistle, the Harvard MBA, remembers a preliminary conversation with Sharpe that went like this.

Sharpe: “What’s your name again?”

Birtwistle: “It’s Brian Birtwistle.”

Sharpe: “Well, listen, Buttwistle, the grown-ups are here now. We are here to make this thing run like a real business.”

The Walmart transplants created another problem. As part of the Drugstore.com build-out, Bezos and Doerr recruited a Walmart engineer named Kal Raman, and he also began cherry-picking his former colleagues from Bentonville. That was the last straw. Walmart sued Amazon, Kleiner, and Drugstore.com in the Arkansas state court, alleging that they were trying to steal trade secrets. John Doerr joked that he could no longer safely travel to the state.

The case was a symbolic shot across the bow and was ultimately settled with no damages. But it brought the bubbling tensions between the reigning retail champion and the brash online upstart into the open. Some people were unhappy about this. Rick Dalzell’s wife, Kathryn, was upset that her new community was now at war with her old one. Dalzell happened to mention that to Bezos, and soon after, Bezos and MacKenzie stopped by Dalzell’s home with flowers and a copy of Sam Walton’s autobiography, Sam Walton: Made in America.

Bezos had imbibed Walton’s book thoroughly and wove the Walmart founder’s credo about frugality and a “bias for action” into the cultural fabric of Amazon. In the copy he brought to Kathryn Dalzell, he had underlined one particular passage in which Walton described borrowing the best ideas of his competitors. Bezos’s point was that every company in retail stands on the shoulders of the giants that came before it. The book clearly resonated with Amazon’s founder. On the last page, a section completed a few weeks before his death, Walton wrote:

Could a Wal-Mart-type story still occur in this day and age? My answer is of course it could happen again. Somewhere out there right now there’s someone—probably hundreds of thousands of someones—with good enough ideas to go all the way. It will be done again, over and over, providing that someone wants it badly enough to do what it takes to get there. It’s all a matter of attitude and the capacity to constantly study and question the management of the business.

Jeff Bezos embodied the qualities Sam Walton wrote about. He was constitutionally unwilling to watch Amazon succumb to any kind of institutional torpor, and he generated a nonstop flood of ideas on how to improve the experience of the website, make it more compelling for customers, and keep it one step ahead of rivals.

In early 1998, Bezos was closely involved with a department called Personalization and Community, which was geared toward helping customers discover books, music, and movies they might find interesting. That May, he surveyed what was then Amazon’s Hot 100 bestseller list and had an epiphany—why not rank everything on the site, not just the top sellers? “I thought, ‘Hey, why do we stop at a hundred? This is the Internet! Not some newspaper bestseller list. We can have a list that goes on and on,’ ” he told the Washington Post.2

The notion was not only to create a new kind of taxonomy of popularity but also to give authors, artists, and publishers a better idea of how they were doing—and to cater to some of their more neurotic impulses. “Bezos knew sales rank would be like a drug to authors,” says Greg Linden, an early Amazon engineer. “He insisted that it change whenever a new order came in.”

That was not a trivial challenge. Amazon’s overloaded servers were already stretched to the limit, and its Oracle database software was not designed to handle the increasing loads generated by the swelling audience of the Web. Engineers ended up fudging it, taking snapshots of sales data and pushing new rankings to the website every few minutes. The service, called Amazon Sales Rank, was introduced in June to the consternation of not only authors, who began compulsively checking their rankings at all hours of the day and night, but also their spouses and more than a few wary editors and publishers. “I understand how addictive it can be, but maybe they could spend their time more productively, like, maybe, writing a new book,” veteran editor John Sterling said.3

Around that same time, Amazon filed for a patent on what it called its 1-Click ordering process. The system stemmed from a lunch Bezos had with Shel Kaphan and interface engineer Peri Hartman back in 1997, during which he declared that he wanted to make it as easy as possible for customers to buy things on the site. Hartman, a computer science graduate from the University of Washington, devised a system that preloaded a customer’s credit card information and preferred shipping address and then offered the opportunity to execute a purchase with a single press of a button when he or she ordered a product.

By reducing the friction of online buying even marginally, Amazon could reap additional millions in revenue while simultaneously digging a protective moat around its business and hobbling its rivals. The company’s nineteen-page patent application for the system, entitled “Method and System for Placing a Purchase Order Via a Communications Network,” was approved in the fall of 1999. Amazon trademarked the name 1-Click, and a multiyear debate over the wisdom of legally protecting basic business tools began.

Critics charged that the idea behind 1-Click was rudimentary and that its approval by the U.S. patent office was a symptom of lazy bureaucracy and a broken patent process. Bezos didn’t altogether disagree—intellectually, he was an advocate for patent reform—but he was determined to exploit the status quo for any possible advantage. He sued Barnes & Noble for infringing on the patent in late 1999 and won a preliminary ruling that forced the bookseller to add an extra step to its checkout process. Amazon licensed the patent to Apple in 2000 for an undisclosed sum and tried to use it, ineffectively, to gain some leverage over a rising and worrisome rival that first showed up on Amazon’s radar in mid-1998: eBay.

Jeff Blackburn, the former Dartmouth football player who later would become Amazon’s chief of business development, saw eBay coming before almost anyone else at Amazon. The Silicon Valley startup, founded in 1995 as a site called AuctionWeb, made $5.7 million in 1997, $47.4 million in 1998, and $224.7 million in 1999. Blackburn realized that it was growing rapidly, and, even more unsettling—and unlike Amazon—it was profitable. The company had the perfect business model: it took a commission on each sale but had none of the costs of storing inventory and mailing packages. Sellers posted their own products on the site, auctioned them off to the highest bidder, and handled shipping to the customers themselves. The site had started with collectibles like Beanie Babies and baseball cards but it was well on its way to intercepting Bezos’s dream of unlimited selection and stealing the mantle of the everything store.

In the summer of 1998, Bezos invited eBay’s Iranian American founder, Pierre Omidyar, and its CEO, Meg Whitman, a former Disney executive, to Seattle; eBay had just filed to go public when the two executive teams, whose fates would be intertwined for a decade, met for the first time. Bezos gave the eBay team a tour of the Dawson Street distribution center. Omidyar recalls being impressed by the automation in the facility and startled by the piercings and tattoos of the workers. “I thought it was all very cool,” Omidyar says. Later Whitman told him, “Pierre, get over it. This is horrible. The last thing we’d ever want to do is manage warehouses like this.”

During the meeting, the executives discussed different ways of working together. Omidyar and Whitman suggested putting eBay links on Amazon when a customer searched for products it didn’t carry, such as Beanie Babies, and they offered to do the same on eBay for the books of popular authors like Tom Wolfe. Bezos suggested the possibility of Amazon investing in eBay. The eBay executives came away with an impression that Bezos was offering to buy eBay for around $600 million—roughly the market capitalization it was pursuing in its IPO, though later Jeff Blackburn didn’t recall that any formal proposals were made. In the end, though, it didn’t matter; the eBay execs believed that they were pioneering a new type of virtual commerce where supply and demand met to identify the perfect price for any product. They were also put off by Bezos’s startling laugh. The venture capitalists backing eBay asked around and heard that one did not work with Jeff Bezos; one worked for him.

Bezos had not immediately viewed eBay as a direct threat. But as eBay’s sales and profits grew, he worried that customers might see eBay as the natural starting point for an online shopping trip. Though Bezos often claimed that Amazon considered itself “a customer-focused company, not a competitor-focused company,”4 eBay anxiety spread. Employees exposed to a steady barrage of new economy hokum in newspapers and magazines worried not only that eBay had a better business but that fixed-price retailing itself might become a relic of the past.

Late that year, Bezos initiated a secret auctions project in a sequestered space on the second floor of the Columbia Building, dubbing the effort EBS, for Earth’s Biggest Selection (or alternatively, employees joked, for eBay by spring). Bezos did not tell other employees or his directors, particularly since Scott Cook, the founder of Intuit, was on both the Amazon and eBay boards. Joel Spiegel, who led the effort with Jeff Blackburn, had a mandate to replicate eBay in three months.

Bezos was confident he could beat eBay, particularly since well-capitalized Amazon could afford to charge a lower listing fee to sellers and offer free fraud insurance. Foreseeing the need to marry auctions with a seamless way for buyers and sellers to exchange money, he paid $175 million to acquire the six-month-old payment firm Accept.com, which had not yet introduced an actual service but was already in the process of finalizing a deal with eBay when Bezos swooped in.

Bezos went skiing in Aspen that winter with Cook and Doerr and finally told them what was coming. “He said, ‘We’re going to win, so you probably want to consider whether to stay on the eBay board,’ ” says Cook. “He thought it would be the only natural outcome.” Cook said he wanted to wait and see how things played out.

Amazon Auctions launched in March 1999, and though it got off to a slow start, Bezos quickly doubled down. He acquired a company to broadcast auctions live on the Web and signed a deal with the storied auction house Sotheby’s to focus on high-end products. But the effort went nowhere. Customers could reach Amazon Auctions only by clicking on a separate tab on the Amazon home page, and it looked like a dingy leftovers bin to people who were accustomed to using Amazon to shop in the traditional way, with predictable prices for each item.

The high-tech community was getting a lesson in the dynamics of network effects—products or services become increasingly valuable as more people use them. In online marketplaces, the network effect was pervasive; sellers stuck around for access to a critical mass of buyers, and vice versa. In the auctions category, eBay already had an insurmountable advantage. Amazon’s executives remember this significant failure as painful but strangely uplifting. “Those days in the nineties were the most intense, fun time I ever had at the company,” Blackburn says. “We had an insanely talented group of people trying to figure out how to launch a superior auctions site. In the end the network effect mattered. You could say we were naïve, but we built a great product.”

Bezos didn’t take the defeat personally. He later cast the mistake as the first step in a series of important experiments to bring third-party sellers onto Amazon. Auctions would evolve into something called zShops, a platform for sellers that allowed them to operate their own fixed-price stores on Amazon.com (zShops, incidentally, was almost called Jeff’s Club, à la Walmart’s Sam’s Club). Regardless, it went nowhere as well. For now, at least, the Web’s small sellers were wedded to eBay.

Perhaps the most avid user of Amazon’s auction site was Bezos himself, who began to collect various scientific and historical curiosities. Most memorably, he purchased the skeleton of an Ice Age cave bear, complete with an accompanying penis bone, for $40,000. After the company’s headquarters moved yet again over the summer, out of the deteriorating Columbia Building and into the Pacific Medical Center building, a 1930s-era art-deco hospital that sat on a hill overlooking the I-5 freeway, Bezos displayed the skeleton in the lobby. Next to it was a sign that read PLEASE DON’T FEED THE BEAR.

Bears—the stock-market kind, pessimists who believe security prices are due to fall—would play no part in what happened next. On December 15, 1998, Oppenheimer analyst Henry Blodget made what became one of the most infamous predictions of the decade, projecting that Amazon’s stock price—already riding the wave of dot-com hysteria into the $200s—would hit $400 per share over the next twelve months. The forecast became a self-fulfilling prophecy and signaled the onset of mass delusion. It sent Amazon stock $46 dollars higher that first day alone, and the stock hit the $400 mark just three weeks later (after two subsequent stock splits, it peaked at $107). Nudged along by the breathless reports and rhetoric emanating from Wall Street and the press, investors were beginning to lose their minds.

Bezos claimed he was impervious to the hype, but as the dot-com frenzy intensified, he used the unique climate to hasten Amazon’s growth. If there was to be a great Internet landgrab, he reasoned, Amazon should rush to carve out the biggest parcel of territory. “We don’t view ourselves as a bookstore or a music store,” he said that year. “We want to be the place for someone to find and discover anything they want to buy.”5

There were two ways to accomplish this: either slowly, category by category, or all at once. Bezos tried both paths, and some of his ideas were so outlandish that employees called them “fever dreams.”

One internal initiative from that time was dubbed the Alexandria Project or, informally, Noah’s Ark. The idea was to obtain two copies of every book ever printed and store them in the new distribution center in Lexington, Kentucky. That was expensive and inefficient; most books would just sit gathering dust and taking up space, but Bezos wanted customers to be able to find any title on Amazon and get it quickly. Book-buying teams eventually pushed back against the directive, stocking only the most popular books but negotiating deals with select distributors and publishers so they would ship less popular titles directly to any customers who ordered them.

An even more absurd Bezos fever dream was named Project Fargo, after the Coen brothers’ film. Bezos wanted to obtain one of every product ever manufactured and store it in a distribution center. “The overarching goal was to make Amazon the first place people looked to buy anything,” says Kim Rachmeler, a longtime Amazon executive. “If you had a rodeo costume in stock, what wouldn’t you have?”

Rachmeler says that Project Fargo “didn’t have a lot of support among the rank and file, to put it mildly. It kept getting pushed down the stack and Jeff kept reviving it. I vividly remember a large meeting where Jeff was trying to convince people that Fargo needed to be done. ‘This is the most critical project in Amazon’s history’ is pretty close to a direct quote.” Ultimately, the project faded amid other, more pressing priorities.

It is more evident in the way Amazon operates now that Bezos became absorbed with the challenge of delivering products immediately after customers placed their orders. John Doerr says that “for many years we were on a journey to figure out if we could get to same-day delivery.” The quest sparked a $60 million investment in Kozmo.com, which delivered everything, from snacks to video games, to a New York City customer’s doorstep. (It went bust in 2001.) Bezos even wondered aloud whether Amazon could hire college students on every block in Manhattan and get them to store popular products in their apartments and deliver them on bicycles. Employees were dumbstruck. “We were like, Aren’t we already worried about theft from our distribution center in Atlanta?” says Bruce Jones, an engineer who worked on DC software.

The fever dreams were perhaps best embodied by the 1998 acquisition of a Silicon Valley company called Junglee, founded by three graduates from Stanford’s computer science PhD program. Junglee was the first comparison-shopping site on the Web; it collected data from a variety of online retailers and allowed customers to easily compare prices on specific products. A few months after the Amazon IPO, Bezos snatched the startup out of the hands of Yahoo, which was also negotiating to acquire it, for $170 million in Amazon stock. His idea was to incorporate Junglee’s listings into the Amazon site and ensure that customers could search for and see information on any conceivable product, even if Amazon did not carry it.

Worried that it would have to start collecting sales tax if it had offices in California, Amazon management insisted that the Junglee employees move to Seattle, where for the next few months they turned their service into a feature on the Amazon site called Shop the Web. When a customer searched for a product on Amazon.com, the Junglee software generated a list of prices and blue links. But the customer would have to click on those links and go to another website to actually buy the items. Many Amazon executives hated the fact that customers were leaving their site to make purchases elsewhere. As a result, Shop the Web lasted on Amazon.com for just a few months and then died a quiet death. Ram Shriram, the chief operating officer of Junglee before he became a business-development executive at Amazon, calls it a “total tissue rejection. Part of the reason it didn’t succeed was that the team didn’t buy into it.”

By any measure, the acquisition of Junglee was a failure. All of Junglee’s founders and most of its employees left Amazon by the end of 1999 to return to the Bay Area. But the deal nevertheless produced an extraordinarily bounteous outcome—for Bezos. Unbeknownst to the founders of Junglee at the time, Ram Shriram was quietly advising two PhD students at Stanford—Larry Page and Sergey Brin—who were trying to reimagine search on the Internet. In February 1998, Shriram had become one of the first four investors who backed the hopeful little company, Google, with $250,000 each.

Six months after that investment, over the summer of 1998, Bezos and MacKenzie were in the Bay Area for a camping trip with friends, and Bezos told Shriram that he wanted to meet the Google guys. On a Saturday morning, Shriram picked up Bezos and his wife at a local hotel, the Inn at Saratoga, and drove them to his home. Page and Brin met them there for breakfast and demonstrated their modest search engine. Years later, Bezos told journalist Steven Levy that he was impressed by the Google guys’ “healthy stubbornness” as they explained why they would never put advertisements on their home page.6

Brin and Page left Shriram’s house after breakfast. Revealing once again his utter faith in passionate entrepreneurs’ power to harness the Internet, Bezos immediately told Shriram that he wanted to personally invest in Google. Shriram told him the financing round had closed months ago, but Bezos insisted and said he wanted the same deal terms as other early investors. Shriram said he would try to get it done. He later went back to the Google founders and argued that Bezos’s insight and budding celebrity could help the fledgling firm, and they agreed. Brin and Page flew to Seattle and spent an hour with Bezos at Amazon’s offices talking about technical issues like computer infrastructure. “Jeff was very helpful in some of those early meetings,” Larry Page says.

Thus did Jeff Bezos become one of the original investors in Google, his company’s future rival, and four years after starting Amazon, he minted an entirely separate fortune that today might be worth well over a billion dollars. (Bezos adamantly refuses to discuss whether he kept some or all of his Google holdings after its IPO in 2004.) “He’s so prescient. It’s like he can peer into the future,” says Shriram, who left Amazon in 2000 and remains a Google board member and who still marvels at that transaction years later. “He’s also extremely shrewd and self-aware and knows just how far he can push something.”

As Bezos’s fever dreams receded in the face of practical concerns inside the company, Amazon pursued a more methodical path to expanding selection. The expansion into selling music and DVDs in 1998 had gone well, with Amazon quickly surpassing the early leaders in each market, including a startup called CDNow.com in music and Reel.com in movies. At first Amazon couldn’t get music labels and movie studios to supply it directly. But as in the book business, there were intermediary distributors, like Baker and Taylor, that gave Amazon an initial boost and then allowed it to credibly make its case directly to the big media companies.

At the beginning of 1999, an emboldened Bezos selected toys and electronics as two of the company’s primary new targets. To lead the toys rollout, David Risher, the senior VP of retail, chose Harrison Miller, a recent graduate of Stanford’s MBA program whose only apparent qualification for the toy job came from his once teaching fifth grade in a New York City school. In other words, Miller knew nothing about toy retailing, but in a pattern that would recur over and over, Bezos didn’t care. He was looking for versatile managers—he called them “athletes”—who could move fast and get big things done.

Miller was given a single lieutenant, Brian Birtwistle, and just eight months to get a toy business up and running before the holiday crush. A few days after getting the assignment, he and Birtwistle flew to the annual toy fair in New York, passing analyst reports about the toy business back and forth across the airplane aisle. They walked the convention floor that week introducing themselves to wary toy companies that weren’t sure if Amazon and e-commerce in general represented an opportunity or a threat. The toy company execs demanded to know how much product the two wanted to buy. The young Amazon executives had no earthly idea.

Toys were fundamentally different than books, music, or movies. This time, there were no third-party distributors to provide any item and take back unsold inventory. The big toy makers carefully weighed how much product they would allocate to each retailer. And the retailers had to predict nearly a year in advance what the next holiday season’s most popular items would be, as a majority of their sales occurred within a six-week frenzy of parental indulgence. If the retailers’ forecasts were wrong, they were in deep trouble, because after the holidays, unsold toys were nonreturnable and about as desirable as rotten fruit. “Toys are so fad driven, it’s a little like betting on Oscar winners only by looking at movie trailers,” Miller says.

For the first time, Amazon had to prostrate itself to suppliers for the privilege of selling the suppliers’ products. In pursuit of Star Wars action figures and other toys from the classic trilogy, Miller, Bezos, and John Doerr went to dinner with Hasbro chief executive Alan Hassenfeld at the Fairmont Hotel in San Francisco and made a pilgrimage to Lucasfilm headquarters in Marin County, north of San Francisco. “It was our first serious encounter with having to beg and plead to stock an item,” says Miller. “The whole issue of being an approved supplier suddenly became a huge hill to climb.”

That summer, Harrison Miller and Bezos butted heads in front of the board of directors over the size of the bet on toys. Bezos wanted Miller to plow $120 million into stocking every possible toy, from Barbie dolls to rare German-made wooden trains to cheap plastic beach pails, so that kids and parents would never be disappointed when they searched for an item on Amazon. But a prescient Miller, sensing disaster ahead, pushed to lower his own buy.

“No! No! A hundred and twenty million!” Bezos yelled. “I want it all. If I have to, I will drive it to the landfill myself!”

“Jeff, you drive a Honda Accord,” Joy Covey pointed out. “That’s going to be a lot of trips.”

Bezos prevailed. And the company would make a sizable contribution to Toys for Tots after the holidays that year. “That first holiday season was the best of times and the worst of times,” Miller says. “The store was great for customers and we made our revenue goals, which were big, but other than that everything that could go wrong did. In the aftermath we were sitting on fifty million dollars of toy inventory. I had guys going down the back stairs with ‘Vinnie’ in New York, selling Digimons off to Mexico at twenty cents on the dollar. You just had to get rid of them, fast.”

The electronics effort faced even greater challenges. To launch that category, David Risher tapped a Dartmouth alum named Chris Payne who had previously worked on Amazon’s DVD store. Like Miller, Payne had to plead with suppliers—in this case, Asian consumer-electronics companies like Sony, Toshiba, and Samsung.

He quickly hit a wall. The Japanese electronics giants viewed Internet sellers like Amazon as sketchy discounters. They also had big-box stores like Best Buy and Circuit City whispering in their ears and asking them to take a pass on Amazon. There were middlemen distributors, like Ingram Electronics, but they offered a limited selection. Bezos deployed Doerr to talk to Howard Stringer at Sony America, but he got nowhere.

So Payne had to turn to the secondary distributors—jobbers that exist in an unsanctioned, though not illegal, gray market. Randy Miller, a retail finance director who came to Amazon from Eddie Bauer, equates it to buying from the trunk of someone’s car in a dark alley. “It was not a sustainable inventory model, but if you are desperate to have particular products on your site or in your store, you do what you need to do,” he says.

Buying through these murky middlemen got Payne and his fledgling electronics team part of the way toward stocking Amazon’s virtual shelves. But Bezos was unimpressed with the selection and grumpily compared it to shopping in a Russian supermarket during the years of Communist rule. It would take Amazon years to generate enough sales to sway the big Asian brands. For now, the electronics store was sparely furnished. Bezos had asked to see $100 million in electronics sales for the 1999 holiday season; Payne and his crew got about two-thirds of the way there.

Amazon officially announced the new toy and electronics stores that summer, and in September, the company held a press event at the Sheraton in midtown Manhattan to promote the new categories. Someone had the idea that the tables in the conference room at the Sheraton should have piles of merchandise representing all the new categories, to reinforce the idea of broad selection. Bezos loved it, but when he walked into the room the night before the event, he threw a tantrum: he didn’t think the piles were large enough. “Do you want to hand this business to our competitors?” he barked into his cell phone at his underlings. “This is pathetic!”

Harrison Miller, Chris Payne, and their colleagues fanned out that night across Manhattan to various stores, splurging on random products and stuffing them in the trunks of taxicabs. Miller spent a thousand dollars alone at a Toys “R” Us in Herald Square. Payne maxed out his personal credit card and had to call his wife in Seattle to tell her not to use the card for a few days. The piles of products were eventually large enough to satisfy Bezos, but the episode was an early warning. To satisfy customers and their own demanding boss during the upcoming holiday, Amazon executives were going to have to substitute artifice and improvisation for truly comprehensive selection.

In the midst of Amazon’s frenzied growth and the crush of the holiday selling season, Bezos kept coming back to the kind of culture he wanted to instill in his young but rapidly growing company. With door-desks and minimal subsidies for employee parking, he was constantly reinforcing the value of frugality. A coffee stand on the first floor of the Pac Med building handed out loyalty cards so a customer could get a free drink after his or her tenth purchase. Bezos, by now a multimillionaire, often made a deliberate show of getting his card punched or handing his free-drink credit to a colleague waiting in line next to him. Around that time, he also started traveling via a private plane, which he subleased from a local businessman. But whenever he flew with colleagues, he invariably declared, “The company isn’t paying for this, I am.”

Amazon’s purchase of Telebuch in Germany and BookPages in the UK in 1998 gave Bezos an opportunity to articulate the company’s core principles. Alison Algore, a D. E. Shaw transplant who worked in human resources, pondered Amazon’s values with Bezos as he prepared for an introductory conference call with the Telebuch founders. They agreed on five core values and wrote them down on a whiteboard in a conference room: customer obsession, frugality, bias for action, ownership, and high bar for talent. Later Amazon would add a sixth value, innovation.

Bezos began thinking about ways to inculcate those values in the company beyond hanging the lists on the walls of offices and distribution centers. To reinforce the notion of the high hiring bar, he drew inspiration from nearby Microsoft. As part of its famed recruiting process, Microsoft designated what it referred to as an as-appropriate senior interviewer, who talked to the candidate last and got to make the final judgment on the hire. Assigning an experienced executive to this role helped ensure that Microsoft maintained a consistent hiring standard. Bezos heard about the Microsoft program from Joel Spiegel and David Risher and then crafted Amazon’s own version, which he called bar raisers.

Bar raisers at Amazon—the program still exists today—are designated employees who have proven themselves to be intuitive recruiters of talent. Dalzell and Bezos handpicked the original leaders of the program, one of whom was Shaw veteran Jeff Holden. At least one anointed bar raiser would participate in every interview process and would have the power to veto a candidate who did not meet the goal of raising the company’s overall hiring bar. Even the hiring manager was unable to override a bar raiser’s veto. “Many companies as they grow begin to compromise their standards in order to fill their resource needs,” says Dalzell. “We wanted to make sure that did not happen at Amazon.”

Looking for a way to reinforce Walton’s notion of a bias for action, Bezos instituted the Just Do It award—an acknowledgment of an employee who did something notable on his own initiative, typically outside his primary job responsibilities. Even if the action turned out to be an egregious mistake, an employee could still earn the prize as long as he or she had taken risks and shown resourcefulness in the process. Considering his emphasis on frugality, Bezos reasoned that the award could not be something of high monetary value. So he bought a pair of size 15 Nike sneakers from former Northwestern University basketball player Dan Kreft, who worked at Amazon as an engineer. Those ratty shoes, and the successors that Kreft periodically supplied, became the prize.

While employees embraced Amazon’s newly articulated values, many resisted the breakneck pace of the work. As Amazon’s growth accelerated, Bezos drove employees even harder, calling meetings over the weekends, starting an executive book club that gathered on Saturday mornings, and often repeating his quote about working smart, hard, and long. As a result, the company was not friendly toward families, and some executives left when they wanted to have children. “Jeff didn’t believe in work-life balance,” says Kim Rachmeler. “He believed in work-life harmony. I guess the idea is you might be able to do everything all at once.”

Evidence of this friction usually emerged during the question-and-answer sessions at the company’s regular all-hands meetings, held for many years at Seattle’s oldest playhouse, the Moore Theater. Employees would stand up and pose direct questions to the executive team, and often they inquired about the enormous workload and frenetic pace. During one memorable meeting, a female employee pointedly asked Bezos when Amazon was going to establish a better work-life balance. He didn’t take that well. “The reason we are here is to get stuff done, that is the top priority,” he answered bluntly. “That is the DNA of Amazon. If you can’t excel and put everything into it, this might not be the place for you.”

In Amazon’s accounting group, the bean counters were working around the clock, and getting nervous. They tried to rationalize the numbers and forecast the future, but none of it added up to anything other than massive losses as far as they could see. They fretted about opening seven costly distribution centers and even about having gotten so deeply immersed in the muck of distribution in the first place. Bezos insisted the company needed to master anything that touched the hallowed customer experience, and he resisted any efforts to project profitability. “If you are planning for more than twenty minutes ahead in this kind of environment, you are wasting your time,” he said in meetings.

For two years Wall Street had forgiven Amazon’s extravagant spending. On the routine conference calls after its quarterly earnings reports came out, analysts were usually so upbeat and congratulatory that Amazon executives had to prevent themselves from sounding overly arrogant. On the tops of their earnings scripts, they wrote in giant letters Humble, humble, humble. A few times they also added Remember, Meg is listening, a reference to the eBay CEO and a reminder to remain guarded with company information.

In the spring of 1999, Wall Street’s euphoria seemed to diminish. The financial weekly Barron’s published a seminal article entitled “Amazon.bomb” that declared, “Investors are beginning to realize that this storybook stock has problems.”7 The article overreached, suggesting Walmart and Barnes & Noble would crush the upstart. But it did momentarily moderate the market’s exuberance. The next month, Amazon released a typical quarterly earnings report, with significant sales growth and deep losses. This time the reaction was more muted and Amazon stock actually fell slightly. Ominously, there were none of the usual ingratiating offers of congratulations from analysts on the conference call.

Kelyn Brannon, Amazon’s chief accounting officer at the time, says that she and Joy Covey pulled Bezos into a meeting to show him a form of financial analysis called common-sizing the income statement; it expressed each part of the balance sheet as a percentage of value to sales. The calculations showed that at its current rate, Amazon wouldn’t become profitable for decades. “It was an aha moment,” Brannon says. Bezos agreed to lift his foot from the accelerator and begin to move the company toward profitability. To mark the occasion, he took a photo of the group with his ever-present point-and-shoot digital camera and later taped the picture to the door of his office.

But the deluge of spending and the widening losses had fueled fear among Amazon’s management team—a fear that Bezos, still a young and volatile thirty-five-year-old CEO, needed additional help. And after hearing persistent grumbling from the ranks that Bezos didn’t listen to his subordinates, the Amazon board initiated one of the biggest misadventures of the company’s first decade. The board members asked Bezos to search for a chief operating officer.

Bezos eventually warmed to the idea. He believed the company should stockpile as many experienced managers as possible, and he was beginning to contemplate spending more of his time in the pursuit of his other personal passions. Amazon interviewed a number of high-powered executives, including Wall Street veteran Jamie Dimon, who had just been fired from Citibank by chairman Sandy Weill. But they settled on Joe Galli Jr., a flamboyant and aggressive salesman from Black and Decker who had developed the popular line of DeWalt power tools. Bezos, Covey, and John Doerr aggressively pursued Galli and closed the deal with him in June, snatching him away from PepsiCo, where he had tentatively agreed to take a job running its Frito-Lay division just a day earlier.8

Bezos himself drew up the unorthodox new reporting structure, according to John Doerr. All Amazon executives now reported to Galli, who in turn reported to Bezos. Galli also joined the Amazon board. The J Team was renamed the S Team (the S stood for “Senior”). Bezos was free to focus his attention on new products, public relations, his outside interests, and his family. MacKenzie was pregnant with their first child, and earlier that year, the couple had moved out of their apartment in Seattle and into a ten-million-dollar mansion in Medina, on the eastern shores of Lake Washington. “Jeff was really thinking that he would focus on his philanthropic and other interests, which were diverse, and that he would turn Amazon over more,” Galli says. “That was exciting to me.”

Galli, the son of an Italian American scrapyard owner from Pittsburgh, fashioned himself a cost-cutter and turnaround artist, and he was eager to make an impact on what was then one of the biggest business stages in the world. He walked the halls imperiously, wearing expensive Brioni suits and carrying a baseball bat for dramatic effect. Bezos seemed to love it, at first. “I hired Joe to be the adult,” Bezos told employees as he introduced Galli around the company. “But all I’ve asked Joe to do was pour more gasoline on the fire.”

Galli hit Amazon like an angry bull let loose on the streets of Pamplona. Everywhere around him, he saw employees operating without the discipline he had learned during his nineteen years at Black and Decker. “There were all these brilliant kids from Stanford and Harvard running up and down the halls,” Galli says. “But we lacked operational rigor and control. It was the Wild West.” One of his first moves was to cut a rare office perk, free Advil, which he viewed as an unnecessary expense. It sparked a near insurrection among employees.

Galli was not technical, a significant drawback at a firm whose employees somewhat defensively viewed their workplace as a software-development company, not a retailer. He read his e-mail only after his secretary printed it out for him, and he wanted to change the Amazon culture to favor phone calls instead of e-mail. He was absorbed with the trappings of authority and angled for his own private corporate jet, since he flew often to expand Amazon’s business abroad. There were widespread rumors at the company that he had parked his Porsche in a prime visitor’s spot one too many times and that a building security guard had finally had it towed. Galli remembers only parking it incorrectly.

In October of 1999, Galli led the acquisition of Tool Crib of the North, a small North Dakota hardware chain, and began preparations to open a tool category on the site. He flew to Cleveland to meet with executives from Sherwin-Williams to investigate the possibility of adding a paint category, even though paint did not ship easily and colors such as Swiss Coffee did not display well on the Web. Copying one of his successful marketing gimmicks from Black and Decker, he set up what he called swarm teams of black SUVs adorned with the Amazon logo; employees were supposed to drive them around the country and give tutorials on how to use Amazon.com and the Web in general. The effort faded amid other urgent priorities, and for a few months the vehicles sat abandoned in the Pac Med parking lot, a stark contrast with the cost-cutting efforts of the time. “Most companies have priority lists of forty-five good ideas and triage is easy,” Galli says. “At Amazon there were a hundred and fifty good ideas all the time and Jeff was capable of developing a new one every day.”

Bezos and Galli’s collaboration was troubled from the start. Though Bezos had drawn the new organizational structure himself, he kept his hands firmly on Amazon’s steering wheel throughout Galli’s tenure, voicing detailed opinions about everything from acquisitions to minute changes in the appearance of the home page. Galli thought he had signed up to run the company, and eventually he began to agitate for more authority. “Frankly, Joe was disruptive,” says board member Tom Alberg. “What Joe wanted was to be CEO, but he wasn’t hired to do that.” Bezos took some time off after the birth of his first child, Preston, and then returned to find the company in an uproar over Galli’s abrasive style. Amazon and its board of directors now had a leadership crisis.

But Galli was also making some important contributions. He turned category leaders like Harrison Miller and Chris Payne into general managers who had control over their own profit-and-loss statements and their costs and profit margins. He had experienced the push-and-pull of Black and Decker’s relationship with big-box stores like Home Depot, so he introduced traditional retailing concepts, like the idea of earning cooperative marketing dollars, or co-op, from suppliers in exchange for highlighting their products to customers. Covey was burning out after three years of nonstop work, and Galli helped Amazon hire a new chief financial officer, Warren Jenson from Delta. Galli finally had enough of the often absent Jimmy Wright, who was commuting from Bentonville, and Wright abruptly resigned, under pressure, right before the 1999 holiday season. Galli was instrumental in snagging a new head of operations, Jeff Wilke from AlliedSignal, and Wilke would play a pivotal role in the years ahead.

Customers flocked to the site over the 1999 holidays. After a year of hearing constant hype about dot-coms, consumers were ready to wade en masse into the alluring waters of the Web. The employees of Amazon held their collective breath.

There were now five distribution centers spread across the United States and two in Europe. Jimmy Wright and many of his Walmart cronies were gone, and a software system originally designed for the shipment of books had to accommodate everything from televisions to children’s sandboxes. Chaos, Amazon’s old foe, reared its head once again.

Soon after Thanksgiving, predictably, Amazon was failing to keep the most popular toys in stock. Kerry Morris, the buyer who joined Amazon from Walmart, says she organized Amazon employee visits to Costco and Toys “R” Us stores around the country and had them scoop up supplies of Pokémon toys and Mattel’s Walk ’N Wag dog, which were hot that season. She cleaned out the inventory of Pokémon products on the brand-new ToysRUs.com website and had everything shipped to Fernley, exploiting a rival’s free-shipping promotion. “Because they were so new to the e-commerce space that year, they really did not have the tools to alert them to us wiping out their inventory until it was too late,” Morris says.

The rapid growth once again required the company to initiate the Save Santa operation. Employees said good-bye to their families and headed off on two-week shifts to staff the customer-service phone lines or work in distribution centers across the country. Frugal to the bone, Amazon packed them two to a hotel room. To some, it was the greatest experience they had ever had at the company. Others hated it and complained vociferously. “I won’t say they were prima donnas but they weren’t used to it, they didn’t expect it, and a lot couldn’t handle it,” says Bert Wegner, the general manager of the Fernley distribution center.

In Fernley, some employees stayed at the Golden Nugget in Reno, and after they worked the graveyard shift, they met for beers at the casino bar at six a.m. Later, a few swore they had been working alongside furloughed prisoners from a nearby jail, though that is difficult to prove. Early employee Tom Schonhoff was among a group that went to Delaware, where the facility was having problems with the quality of the temporary labor pool. “There were a lot of temp workers that looked like the rehab center had pushed them out the back door,” he says. He watched one worker get fired for intoxication and then wet himself while he tried to protest.

Schonhoff and his team labored for a week clearing up Delaware’s backlog and organizing the staff. “We worked with sincerity and diligence. Can I say that without sounding like an ass?” he says. “The goal was to get Christmas out the door and uphold our brand promise. We believed in it.”

A team led by Kim Rachmeler and Joel Spiegel descended on the new eight-hundred-thousand-square-foot distribution center in McDonough, Georgia. The facility was not yet finished, so employees had to wear hard hats. Their group focused on a problem called FUD: fillable, unfilled demand. These were cases where products had been sold on the website but had not yet shipped because they were lost somewhere in the cavernous distribution center. This was a more serious problem than a hundred or so customers not getting their orders for Christmas (which itself was bad enough). During the holiday season, when the sorting machines were operating at absolute peak capacity, any order that didn’t successfully ship clogged up a chute and backed up another customer order, which then also wouldn’t ship on time. So as the FUD accumulated, it started to stall large parts of the facility. Rachmeler’s team worked to clear up the backlog but eventually it became evident that there was one item in particular that was causing the distribution center to go haywire—a missing pallet of Pokémon Jigglypuffs.

The Amazon database insisted that the Jigglypuffs had been delivered to the facility, but if so, they were either misplaced or stolen. Although Rachmeler put together a search team, the task seemed nearly impossible. The group was looking for a single box inside an eight-hundred-thousand-square-foot facility. “It was very much like that scene at the end of Raiders of the Lost Ark,” Rachmeler says. She dashed out to a nearby Walmart to buy a few pairs of binoculars and then passed them out among her group so they could scan the upper levels of the metal shelving.

After three days of exhaustive searching, at two o’clock in the morning, Rachmeler was sitting, spent and dejected, in a private office. Suddenly, the door flew open. A colleague danced in, and Rachmeler briefly wondered if she was dreaming. Then she noticed that the woman was leading a conga line of other workers and that they were jubilantly holding above their heads the missing box of Jigglypuffs.

When the 1999 holiday season ended, employees and executives of Amazon could finally take a breather. Sales were up 95 percent over the previous year, and the company had attracted three million new customers, exceeding twenty million registered accounts. Jeff Bezos was named Time’s Person of the Year, one of the youngest ever, and credited as “the king of cybercommerce.”9 It was an incredible validation for Amazon and its mission.

The company had stumbled and would write off $39 million in unsold toys. Still, thanks to herculean efforts up and down the ranks, there were no obvious disasters or disappointments for customers. Meanwhile, the websites of rivals like Toys “R” Us and Macy’s barely survived their first major holiday season and were plagued by customer complaints, bad press, and even an investigation by the Federal Trade Commission into unfulfilled promises made to shoppers.10

In January, after everyone recovered and many took well-deserved vacations, Amazon held its annual holiday costume party. Warren Jenson, the new chief financial officer, bought a few dozen Barbie dolls on Amazon and sewed them onto a sweater. He darkly joked that he was dressed as excess inventory. Harrison Miller thought it was only kind of funny.

Amazon had battled chaos and lived to fight another day. But it had come closer to the precipice than anyone knew. Its internal accounting was in disarray; rapid growth had led to misplaced and stolen inventory, which made it impossible to close the books on the company’s fourth quarter. Accountant Jason Child was working for Amazon’s German operation at the time but was called back to Seattle to take over as comptroller and tackle the problem. “It was the craziest quarter in Amazon’s history,” he says. The company sought outside help and hired a consultant through Ernst and Young. He came in, took a good look at the bedlam for a few weeks, and quit. Child and his colleagues had barely closed the books when the quarter ended in late January.

Now Amazon’s board had to deal with the leadership crisis. There were complaints about Galli, who was clearly agitating to be CEO, and Bezos, who many employees felt was not taking the time to cultivate other leaders, listen to their issues, or invest in their personal growth. John Doerr quietly phoned many of the company’s senior executives to get their take on the boiling tensions in the management team. To adjudicate the matter, he turned to a Silicon Valley legend, a former Columbia University football coach named Bill Campbell.

An amiable former Apple exec and the chief executive of Intuit in the mid-1990s, Campbell had a reputation for being an astute listener who could parachute into difficult corporate situations and get executives to confront their own shortcomings. Steve Jobs considered him a confidant and got him to join the Apple board when Jobs returned to the helm of that company in 1997. At Amazon, Campbell’s stated mission was to help Galli play nicely with others. He commuted between Silicon Valley and Seattle for a few weeks, sitting quietly in executive meetings and talking privately with Amazon managers about the metastasizing leadership problems.

Several Amazon executives from that time believe that Campbell was also given another, more secret mandate by the board: To see if Bezos should be persuaded to step aside and let Galli take over as chief executive. This was consistent with the overall philosophy in Silicon Valley at the time, which was to bring in “adult supervision” to execute the plans of a visionary founder. Meg Whitman had taken over at eBay; a Motorola executive named Tim Koogle had replaced founder Jerry Yang at Yahoo. The Amazon board saw Amazon’s egregious spending and widening losses and heard from other executives that Bezos was impetuous and controlling. They were naturally worried that the goose who laid the golden egg might be about to crack the egg in half.

Board members, including Cook, Doerr, and Alberg, deny they ever seriously considered asking Bezos to step aside, and in any case, it would have been fruitless if Bezos resisted, since he controlled a majority of the company. But Campbell himself revealingly described his role at Amazon this way in an interview with Forbes magazine in 2011: “Jeff Bezos at Amazon—I visited them early on to see if they needed a CEO and I was like, ‘Why would you ever replace him?’ He’s out of his mind, so brilliant about what he does.”11

Regardless, Campbell concluded Galli was unnaturally focused on issues of compensation and on perks like private planes, and he saw that employees were loyal to Bezos. He sagely recommended to the board members that they stick with their founder.

Galli says that the final decision to leave Amazon was his own. Before he joined the company, he had read the book Odyssey: Pepsi to Apple, by John Sculley, who had joined Apple as CEO in the mid-1980s and then ousted Steve Jobs in a boardroom coup. “Before I went out there, I promised myself and my family that I would never do to Jeff what Sculley did to Steve Jobs,” Galli says. “I just felt like Jeff was falling in love more and more with his vision and what the company could be. I could anticipate it was not going to work. He wanted to have a more hands-on role. I’m just not a great number two. It’s not in my DNA.”

In July of 2000, Galli left Amazon for the top job at a startup called VerticalNet, which perished soon after in the dot-com bust. Within a few months, he moved over to Newell Rubbermaid, a troubled consumer-goods company, where he managed four turbulent years of layoffs and declining stock prices. He later became CEO of the Asian manufacturer Techtronic Industries, which makes the Dirt Devil and Hoover vacuums. He has since presided over six years of growth.

After Galli left Amazon, the board tried to pair Bezos with another chief operating officer. Peter Neupert, the former Microsoft executive who ran Drugstore.com, sat in on S Team meetings for a few months. But Neupert and Bezos couldn’t agree on a way to collaborate permanently, and Bezos was coming to recognize that he enjoyed being needed by colleagues and engaged in the details and that he wanted to be an active chief executive. “He decided to spend the next umpteen years of his life building the company, as opposed to gradually withdrawing to pursue other interests,” says Tom Alberg.

The Galli experiment and all of the misadventures from that year would leave permanent scars on Amazon. As of this writing, the company has not given another executive the formal title of president or chief operating officer. Amazon wouldn’t make another significant acquisition for years, and when it did, Bezos carefully considered the lessons from his reckless binge.

As a new millennium dawned, Amazon stood on the precipice. It was on track to lose more than a billion dollars in 2000, just as the sunny optimism over the dot-com economy morphed into dark pessimism. As he had been doing over and over since the company’s very first days, Bezos would have to persuade everyone that Amazon could survive the cyclone of debt and losses that it had created for itself during a singularly feverish time.