The billion-dollar bookseller

In 1990, Jeff Bezos was just another down-sized worker on Wall Street. But he had a dream, and now his Amazon.com is the Internet's biggest success story. Joseph Gallivan reports

The wired world could hardly wish for a better poster boy than 34-year-old Jeff Bezos, founder and chief executive officer of the online bookstore Amazon.com. Tired, at 30, of the constraints of working for somebody else on Wall Street, Bezos charged up his capitalist tools and lit out for the West, looking for a homestead on the digital frontier. His wife drove while he pecked out a business plan on the laptop and stirred up investors on his mobile.

Bezos's big idea - to harness the power of the Web by offering a huge database of books for sale, shippable within days - set the Internet alight. Despite the low-key launch in 1995, word of mouth, proliferating Web links and good press soon made Amazon.com a leading brand on the Net, up there with Yahoo! AOL and Netscape. Other milestones flashed by in one short year: the successful stock flotation, the lawsuit with a jealous rival (Barnesandoble.com - settled), and, now, imminent paper billionaire status.

In classic start-up fashion, Bezos picked his location (Seattle) for its proximity to a major book distributor (Ingram's warehouse in Roseburg, Oregon) and to the hi-tech talent of the Pacific north west, rented a suburban house and moved his computers into the garage. There he and four recruits wrote the software necessary to sell books online. Bezos still owns 9.885 million shares (approximately 41 per cent of the company), a stake that is worth $910m based on Friday's NASDAQ closing price of Amazon.com stock at $92.37. The stock has traded as high as 100 and as low as 15.75 in the last year, but the trend is still upwards. On 28 May stockholders are expected to increase the common stock from 100 million to 300 million shares.

What makes the billion-dollar bookseller's position all the more exciting is that Amazon still hasn't made a penny in profit. Bezos has even he said he doesn't expect it to "for the first five years". Something is for sale here - and it's not just books.

Bezos graduated summa cum laude, Phi Beta Kappa in electrical engineering and computer science from Princeton in 1986 - a very bright boy. Not only does he know his computers inside out, he's a born entrepreneur. Halsey Minor, founder and CEO of the online news service C/NET, met Bezos back in 1989. They started a company together, building intranets for businesses long before there was a word for it, dreaming of delivering personalised news to stockbrokers. In the great downsizing of 1990, Merrill Lynch pulled the plug on them, but neither man was deterred.

"Jeff is one of the few hardcore developers who can do other things," Minor says. "He went on to do a lot of quantitative analysis at DE Shaw, and he understands marketing. He always had the dream of starting his own company. I know he admired Alan Kay, who invented the graphical user interface at Xerox, and Bill Gates."

"I decided that when I was 80 I wouldn't regret quitting Wall Street when I was 30, but when I was 80 I might really regret missing a great opportunity," Bezos told the Fort Worth Star Telegram.

Despite his passion to get out there on his own, Bezos went into business in a methodical manner. Once he had decided that online retailing was the future, he considered 20 different products, closely analysing five of them. It got down to a choice between books and CDs, and he chose books.

"There are 1.5 million English-language books and there are 3 million books in print world-wide," he explains. "No other product category has this many products." Also, the "800lb gorillas" of the book trade weren't as scary as those of the record industry.

All the analysts agree that Amazon's success resides in the way it has been marketed. On the frontier of digital commerce, branding is still the number one priority. "The fact that he chose to sell books helps - everyone can identify with that," says Melissa Bane, senior analyst at the Yankee Group. "They work hard to keep their customers."

Typical Amazonian innovations include keeping your details online so that you can do "one-click shopping" (this also puts you off filling in another form somewhere else); personalised suggestions based on your admitted tastes (something the independent stores claim is their forte); an associates program, whereby anyone can get a cut of a sale if it comes via a link on their Web page; and "deep discounting", which usually covers the cost of shipping.

Bezos knows that his advantage is paper thin - these days anyone can offer Books in Print as their catalogue and post the product. Borders and Bertelsmann (which just bought Random House) have plans to retail online this year, too, further diluting the market. Even the book wholesalers Ingram Book Company and Baker & Taylor are getting in on the act. But Bezos thrives on the precariousness of it all.

As a CEO, he has emerged as something of a scrapper, taking on Barnes & Noble, the "800lb gorilla" (a favourite phrase) the way Scott McNealy of Sun Microsystems takes on Microsoft. As recently as last month, mobile billboards reading "Can't find that book you wanted?" have been spotted cruising past Barnes & Noble's flagship store on Fifth Avenue in New York. The lawsuit over whether Amazon could call itself the "world's biggest bookstore" was settled in Amazon's favour, but the war of words is still on.

"He's really worked the company's first-to-market status," says Melissa Bane. "They have the advantage that they work on the Net all the time, whereas their competitors are bricks-and-mortar stores that are still trying to figure the Net out. And their market [capitalisation] is now only a few hundred million dollars less than Barnes & Nobles's - how insulting is that? That makes them the story everybody loves to tell, but they live up to it by being quick to respond to changes."

Bezos chose the name Amazon to suggest hugeness, and not sound techy, and for its alphabetical advantage. He almost called it Cadabra, but friends said it sounded too much like "cadaver". In any case, he knows how to work the smoke and mirrors of financial statistics. Always accentuating the positive, he stresses Amazon's 58 per cent return business, compared with 40 per cent reported by Barnesandoble.com. He also notes that his Internet sales figures are "about 8.5 times larger" than Barnesandnoble.com's.

"We generate more than $300,000 per year in revenues per operating employee," he added. "A traditional bookstore makes about $95,000 per operating employee."

"Amazon is an innovator not a follower," says Nicole Vanderbilt, director of digital commerce at the analysts Jupiter Communications. "They're paranoid, and rightly so. They're winning and want to keep it that way. Jeff doesn't do as many conferences as he used to. He keeps his cards pretty close to his chest."

Bezos's online tastes are rather vanilla and diplomatic -favourite websites include Movie Link, Quicken, Yahoo, Slate, Outside Online, C/NET and MS Expedia. He knows how to play the players in Silicon Valley, including the money men. Kleiner Perkins Caufield & Byer put $10m into the company, more than its original investment in Netscape.

He has plenty of other people rooting for him. David Shaw, president of DE Shaw, says: "Jeff has an unusually powerful combination of analytical abilities, entrepreneurial judgment, leadership skills, and genuine warmth. He did a great job in implementing the idea.

"I was one of Amazon's first customers, and was completely sold on it the first time I used it. Since then, I've ordered several hundred books for my personal use through Amazon."

Says his old friend Halsey Minor: "He's good with people, very self-effacing - I think that's partly why he's the darling of Wall Street."

Bezos isn't just selling books - he's selling the dream of online commerce. As his worth approaches the billion-dollar mark, everyone's betting that that's where the money is.