[MUSIC PLAYING] HOST: So I don't
think Jeff Bezos needs much of an introduction. You've perhaps heard
of this small company he runs out of some
city in the west coast-- [LAUGHTER] --where there's another company. I took a poll of the
faculty recently and-- I was at a faculty lunch
and we were talking about what people did online. And I sort of ask
people questions and eventually I said,
well, how many of you have bought something on amazon.com. And it was actually 100%,
I think, raised their hand. BEZOS: Yeah, baby! [LAUGHTER] HOST: I guarantee it
was not one of those. [LAUGHTER] Any rate, Jeff is a
graduate of Princeton. And I'm pleased to say, as
he was telling me upstairs, he graduated from
Princeton when it was still an EECS-- an electrical
engineering and computer science department. Before the department
bifurcated. And so he does have an
electrical engineering and computer science degree. And I think-- he tells me
he's glad he has one of those. And as he should be. After leaving Princeton,
he went to Bankers Trust. He worked there
in the development of computer systems. So presumably if you
need help with code, he can help you with
some of your programming and stuff of that nature. After that he went to D.E. Shaw. Well known for their
high-tech approach to finance. And in fact, one of two
financial services companies-- three, I guess-- that belongs
to our industrial program in the department. And then he left D.E.
Shaw to start amazon.com. And I'm sure he can tell you
more about that than I can. Jeff. BEZOS: Thank you. [APPLAUSE] Thank you, you guys
it's great to be here. So I'll start out telling you
a little bit about the founding of amazon.com and then I'm going
to do my favorite thing which is to give a live website demo. This is the house where
Amazon was founded. On the left-hand side here is
this little enclosed garage. I was living in New York City,
working for D.E. Shaw and Co and I came across the fact that
web usage was growing at 2,300% a year. This was one of those
weird things where you could measure
the rate of growth without actually knowing
the baseline usage. And people were doing that
because they could put sniffers at various points--
at various nodes-- and they could sort of see
how fast the traffic levels were growing past those nodes. And they could get a
statistical sample of those but they actually had no
idea what baseline usage was. But you could look
around the web already, in the spring of 1994, and
see that it was big enough that if it was growing at
2,300% a year, pretty soon it was going to be huge. And so I kind of
packed up my wife and I and we flew to Fort Worth,
Texas where my dad gave us a car-- a 1988 Chevy Blazer. Which by the way,
Consumer Reports recommends not to buy used
under any circumstances for any price. And we drove that car
from Texas to Seattle. Seattle was chosen
as the best place to start amazon.com
because it was a large pool of technical talent
and also nearby at the time, was the largest book
warehouse in the world. In a town called
Roseburg, Oregon. So we got there and the
first order of business was to recruit a
V.P. of Engineering. I talked to several people and
I found the guy I really liked, his name was Shell. He was with the
company for six years and was a huge instrumental
force in the company and in the early days-- not single-handedly of
course, but in large part-- led all of the
software engineering that was amazon.com. He had nothing to do with the
look of this website, though. This is what our website looked
like when we launched in 1995. I wrote all of
that HTML myself-- [LAUGHTER] [APPLAUSE] --please hold your applause. [LAUGHTER] But Shell did the
hard part, he wrote all of the code that
actually made it work. Before hiring Shell, I
was making our desks out of doors and four by fours. It took me three
months to convince Shell to come join this
company because it was really just a one person company. It was me and it was a
piece of paper and a name. And the name wasn't even Amazon
that time, it was Cadabra. Cadabra got changed
because whenever I would say it to
anybody over the phone, they would think
I said cadaver-- [LAUGHTER] --and I realized that wasn't
going to work very well. Amazon was incorporated,
by the way, by I-- I only knew two
people in Seattle so we're driving out there,
I wanted to be moving fast. I wanted the company
be incorporated by the time we arrived. So I called one of two
friends I had in Seattle and said, could you
recommend a lawyer who could help me get a
company Incorporated and open bank accounts
for the company. And do some stuff so I can
hit the ground running. My friend said, sure. So amazon.com was incorporated
by my friend's divorce lawyer-- [LAUGHTER] --not like some big
high-powered attorney. But anyway, I finally talked
Shell into coming and joining this intrepid venture. But before he had moved from
the Bay Area up to Seattle-- he was getting ready
to do that move. I called him and I said,
Shell, how tall do you want your desk to be? Because I'm making
them out of doors I bought at Home Depot
and four by fours. There was like 10 seconds
of silence on the line and I was thinking
to myself, oh great, now he realizes what a two-bit
operation this really is and he's going to
change his mind. He eventually
answered the question. About a year later
I said, Shell, do you remember when I asked you
how tall you wanted your desk to be a year ago? You were quiet for
like 10 seconds, were you like reconsidering
your decision? And he said, no I was
just considering how tall I wanted my desk to be. [LAUGHTER] So we got the software put
together-- took about a year to get the software put together
and to write this astonishingly beautiful HTML. It's really ugly, isn't it? [LAUGHTER] It is. And if you'll see-- I think the next
slide coming up-- no, well this is our
next real office. This is what-- I don't have what our
website looks like today, but you guys know what our
website looks like today. You will note, that it has
some minor improvements like a search box
on the main page. Here you had to actually
click through to search. You had to click on that link
that says, 1 million titles. So things have gotten better. By the way, since people don't
know this, our number one-- the number one thing we've
invested in at amazon.com has been technology. And in fact, since 1997, we
have-- in the last five years-- we've spent $800
million on technology. So when you look at what it is
today and look back at this-- that's what $800
million will buy. We've only spent $300 million
on five million square feet of fulfillment
centers, for example. And only $600
million on marketing. So technology has been our
single biggest investment and the company basically
runs on computer science. It's either that or
it's just my bias since that's my background. But at any rate,
that's what we do. We really focus on trying to
differentiate our experience with the engineering and the
algorithms that we put into it. So anyway, we got this company
just about ready to launch and we looked at it and looking
at this little tiny fulfillment center-- we were here by
then, in this building. We had a basement
fulfillment center. To call it a fulfillment
center was very grand. There's a lot of puffery. It was 400 square feet, which
is about the size of a one car garage. We launched this business
and we're looking at it and we didn't know if
anybody would order from us. We really didn't. And in fact, one of
the software engineers looked at this little
space and he said, I can't figure out whether
this is incredibly optimistic or hopelessly pathetic. [LAUGHTER] Indeed, we didn't know. We had no idea
whether anybody would want to buy things in this way. The business plan called
for generating sales very slowly as customers
change their attitudes. The original business plan--
which I thought was very optimistic at the time-- called for amazon.com
to generate $70 million in sales in the year 2001. We actually generated
in excess of $3 billion in sales in the year 2001. We knew, by the way,
that we were really on to something in
those first 30 days. In the first 30
days we got orders from all 50 states and
45 different countries. With not a dollar
of advertising, just all word of mouth. In the first year we didn't
spend anything on advertising. All of it was word of mouth. And that really
forged the company. We were going to focus
on customer experience. Because we saw the power
of word of mouth so very, very clearly in
those early days. Something great about
word of mouth online, by the way-- and
feedback from customers-- which is that email turns
off the politeness gene in the human being. It's wonderful. So people actually tell
you what they really think. Usually in all caps. [LAUGHTER] So we get lots of info and
feedback from our customers and we try to use it well. Well, in that first
few months, we got one order-- it was literally
in the first six months, I remember exactly when it
was-- an order from Bulgaria. I didn't even know they
had internet access in 1995 in Bulgaria, but they did. This person did not
pay with a credit card. They paid with cash. Which is a method of
payment we discourage. They had taken two
crisp $100 bills and folded them up in
a tiny little package. And they took those
$100 bills and put them inside a floppy disk. They opened the
little metal door and slipped them
in the floppy disk. And then they mailed
us the floppy disk. And on the note-- on the
floppy disk was a little note and it said, the money is
inside the floppy disk. [LAUGHTER] And then it went on to
say, the customs inspectors steal the money, but
they don't read English. So we opened up the
little door sure enough, there was $200 in there. They had written their
order number on it so we could associate it with-- and we shipped them their
books and all was well. Our vision has
changed a little bit but it hasn't changed
in about four years. About four years ago, we
came up with the notion that we wanted to be a place-- build a place where
people can come to find and discover
anything that they might want to buy online. Literally universal selection. Anything with a capital "A." We had already been on the path
of trying to be what we call, Earth's most customer
centric company. And we mean three things. We have a very
precise definition for what customer
centricity is at amazon.com. It means listen,
invent, and personalize. The basic idea is
you can't really run a business of any kind, I
think in most people's opinion, if you're not going to
listen to your customers. That sort of fundamental. But invention is
equally important. And invention, it goes far
beyond listening to customers. Because oftentimes,
customers don't really know what it is that they want. It's your job to
invent on their behalf and we've done a
tremendous amount of invention and innovation of
different kinds in the company. I'll tell you a little
bit more about that when I give you the live demo. And then finally
personalization. The notion of
customer centricity is to build a place where
each individual customer has his or her own website. And to do that in large part,
not by explicit information that the customer provides, but
through implicit observation of their behavior
on the website. So that we personalize that
experience based on the actions that they take. And we put a lot of
effort into that. We've been working on that for-- well for all but
for the first year of the company's operations. So for, I guess
about six years now. A lot of-- some of our smartest
people have worked on that. There are bunch of areas
where good algorithms, good heuristics,
and so on, turn out to be very important for
driving our customer experience. And that kind of discovery-- accelerating discovery
for customers, which is what personalization
is largely all about, is critical when you use this. When you decide to be
selection intensive. So we have over 28 million,
or something like that, items in our catalog. We have-- across all categories. When you have so
many items, you have to work hard to build tools that
help customers find products. But you also have to
work hard at something which is a little less intuitive
and actually, technically, even more challenging. Which is to help
products find customers. So we reverse the sense of that. We've put a lot of energy into
helping products find customers and it's paid off. This is the basic thing
that we work on every day. So what we want to do is have
the world's best customer experience. And there are a few things
that feed into that. Massive selection-- which
requires great discovery tools-- and low prices. Those are the two
biggest things. Low prices-- and both
of those things-- the heart of both
things is technology. It's very interesting
because I often get asked-- and again maybe it's just my
bias because I'm an EECS geek-- but how our business differs
from traditional retail. The answer to that question-- I happen to know the guy who
does real estate for Starbucks. And believe me,
this is like the guy who has the metaphorical
corner office. I mean, that business is
all about real estate. This is why the old retail saw-- the three most important
things in retail are location,
location, location. And in our business
it's technology, technology, technology. And one of the great
things about technology as opposed to real estate, is
that real estate on average-- economists will tell you-- will get more expensive
at the rate of inflation. So real estate gets more
expensive every year. And that's the core ingredient
of physical retailing. Whereas our core ingredients
get to follow Moore's law. So disk space getting twice
as cheap every 12 months. Bandwidth getting twice as
cheap about at that rate. CPU every 18 months. This is a tremendous advantage. As those things get cheaper
and cheaper and cheaper-- in and of themselves, they
don't offer any real benefit to customers. But what we get to do is
take all that compute power and layer innovation
on top of it to really change the
customer experience game. And that's a lot of fun. We have invested
enough in our software that we've become the more-- a big part of what we've done is
become more classic e-commerce company. A more classic
technology company, too. Where we actually now service-- make available as an
application service provider-- is an ASP model, our
e-commerce technology-- to others. We also have done-- and I think Rob is
going to give you guys a quick demo of our web
services stuff in a minute, too. Are we still doing
that competition? FREDERICK: Yes. BEZOS: Oh, good. This is what-- instead of our
400 square foot fulfillment center, we now have
five million square feet of full of fulfillment space. It turns out that
operations research and all the logistic stuff we do
here is astonishingly similar. When I started learning about
these techniques I was like, wait a second this
is computer science, they just have different
words for everything. One of the things
that's very interesting is, in some of these
fulfillment centers, we have two million
different items in the fulfillment center. And you can order
any two of those and somehow, we have to marry
those two items together and get them into a single
box and ship them to you. That sortation is
very challenging and there are many pieces
of it that are challenging-- to do in an efficient way. All of the most
obvious things you would try first turn
out-- they work but they don't work efficiently. The cost would be too high. And what you end up doing
is, using very sophisticated algorithms to calculate
an optimal pick path through the fulfillment center. you pick a bunch of
customer orders at once and a decentralized
swarm of people actually pick all these things. And then they have
to get married and it's sort of a
two stage sort later. But the picking
algorithms are like a dynamic traveling
salesman problem where the cities occasionally
move and disappear. It's like unbelievably-- [LAUGHTER] --it's actually very fun. And I didn't know-- when I started the
business, I thought the front end of
the business would be very fun and
intellectually stimulating and had envisioned a lot of
the kind of personalization features that we
could build online. But one of the things that I had
not known and not envisioned, is how intellectually
stimulating inventory optimization and pick
path optimization and these kinds of
things would be, too. This is kind of like
airline routing and so on. It's a very interesting problem. AUDIENCE: You wrote your
own software for that? BEZOS: We wrote our
own software for that. So it's a great question. In fact, we bought off-the-shelf
inventory optimization software. There is no good
picking software for the two million
items so that we built from the very beginning. We did buy inventory
optimization software and it didn't work very well
for such a large SKU base. One of the things
that we found, is that our operations
are significantly different from most companies
for a variety of reasons. Your typical mail order
company-- most of these things are made for like
warehouse management system and made for mail
order companies. And you can buy the
things off the shelf but they typically
have a different number of SKUs measured in
the tens of thousands. And a lot of things change
when you scale that up to millions of SKUs instead
of tens of thousands of SKUs. And so we had to do a
lot of it ourselves. We bought-- early on we
bought some personalization software that also didn't work. And one of the things
that's interesting about personalization-- and that's where we
put a huge amount of energy and attention-- is that first of all,
it has to work at scale with millions of customers. And on peak days we
will take orders for and ship 2 million items. And so it's very, very
sensitive to doing that-- and we do for
unrecognized customers, we do real-time personalization
based on their click stream. So there really is
nobody doing that. The other thing is, that we
can do active experiments. This is like a really big
point that most people miss. But it's one thing to
take a huge data set and sort of do backward
looking data mining on it. And you can actually find some
interesting things that way. But what you can't
get from that, is anything that
has a feedback loop. Where if you change
something, changing that thing is actually going to change
the customer behavior. So one of the most fascinating
tools we have at our disposal, is the ability to do
active experiments. It's kind of this huge
laboratory with literally, 30 million visitors a
month coming through. And every time we make a
little change on the website, we roll that change out
to a randomly selected group of people and
hold constant the rest. So we call it A/B testing. We may do-- half the
people see version A and half see version B. They're
seeing it simultaneously, so we're holding all
the factors constant. And we can actually tell. So if we develop a new
personalization algorithm that some smart person inside
the company comes up with, and they're really jazzed
and they think it's better, we never have to
argue about that. We say, well let's try it. And a few hours later, we
will know whether it's better. And that is huge because
those kinds of arguments are so useless and
energy draining. Come on up. I'm going to introduce-- this is Robert. You're an alum. FREDERICK: Yes I am. BEZOS: And Robert has been
with us for quite a while. How long have you been? FREDERICK: About
3 and 1/2 years. BEZOS: 3 and 1/2 years. We've been to Japan together. We've been through
several trials together. All good things. You've worked on our
wireless business and now you're doing a
lot with web services. Let me turn it over to you. FREDERICK: So again, my
name is Robert Frederick. I manage amazon.com's
web services program. How many of you have
heard of web services? Or are doing things
with web services? Okay, great. Amazon Web Services is something
that we launched this year in July. We found that by
providing an API-- a solid SDK or an API-- to our broad website developers
as well as our associates, that we would be able to get
more and more users to interact with our features
all over the internet rather than just
Amazon's website. So what we were thinking of
doing is, we had three goals. We wanted to define a product. And that product is the ability
to create your own store on your own website. To expose Amazon
services and features on, I believe it at
this point in time, it's 900,000 websites that
interact with this on a day by day basis. So what we were doing is, we
were defining a capability to interact. To get search results. To interact with our
similarities engine. To find products and to
build those storefronts on external websites
all over the internet in various countries. All through exposing
a solid API and SDK. So again, we had a market
of 900,000 websites. We have developers who wanted
to build SOAP packages, Scripts, Perl, PHP, you name
it-- .net applications. And we wanted to provide
those applications to each one of these
web site owners so that they can use our tools
and interact with us via soap or via XML over HTTP, in a
very easy and viable solution. So the economic model
for this as well-- or why are we doing this? Why would Amazon ever want
to expose the services that we have on our site to
all of these other websites on the internet? And the reason is very simple. The more people that are
interacting with our products, the more items that
will potentially sell. And then we also
have the capability to provide these
products on their website in a way that doesn't have to
make them recreate the wheel. It's easy to implement. Literally, anywhere between five
minutes to a couple of hours, and people are able to have
a very robust storefront. A very robust way of
interacting with our products and our selection. What we ended up
doing was, we came up with a SOAP interface and
a XML over HTTP interface. And I just wanted to go
through a couple of examples of some of the
things that people have built before turning
this over to Jeff again. So here is a very simple script. It's called Amazon light-- simple search. What we did here was, we
provided the capability for this one developer
to put this little search box over here on his site. And if I do a search for dogs-- [LAUGHTER] --sorry. So as you'll notice
over here on the right-- and this is kind of cool. Over here on the right,
when you type in dogs, you will be able to interact
with us in a very quick manner. Send a request over to
us via XML over HTTP, or via SOAP-- it all depends
on the back end system. That request is then parsed
by our back end services. It retrieves information
from our back end systems, our databases
and our search engine. And then sends back an XML file
to this particular website's script. They then use that
information and embed it into that existing site. The very cool thing down
here, is it says quick start. And this is where people will be
able to configure their website offering. Down here, by answering a
couple of these search questions or these questions right here. And then they'll be able to
copy the code and just embedded into their site and
it auto-magically-- it now allows them to-- [LAUGHTER] --do search on their
own site without having to actually build the
whole search engine and the whole technology. You click on that link up here
for these top search results and you're brought
over to an Amazon site or you're brought over to
a Amazon light site that is powered by that third party. Let me go ahead and click
on one of the links. So this will bring
you over to Amazon. Now the reason--
or why in the world would anyone want to embed
this on their website? Well, we've tied the
web services offering to our Associates
Program, which would allow the developer
or the website owner to earn a percentage for
every item sold on their site. So every time they're bringing
a customer over to Amazon, they actually are
given the opportunity to earn a referral fee. Anywhere between 5% and 15% of
the actual price of the item. So there's a built in model-- a built in reason why people
would want to use this. I know I only have
a little bit of time so I'm going to go really fast. So there's also a very
interesting implementation called Book Search
or Book Watch-- as soon as it opens up. What this site will do,
when it actually changes, is it's going to make a call
to Google's web services offering and Amazon's
web services offering, as well as this other web
service offering called Book Watch Plus. And it'll go-- or
On Focus, sorry-- and it'll go through
and find various topics all on the internet via
various peoples web logs. Then it will call Google
and then determine what the subjects
are for these people or this particular topic. And then it'll call
Amazon and find products related to those
books that people are talking about in their weblogs. So what you have here,
is an opportunity to see the item that people are
talking about in their weblogs. To see the news items that
are all over the internet concerning that particular item. And then to see Amazon's
similarity engine being used to provide products
that people are also buying on our web site. So this is an amalgamation--
or a combination-- of three different web
services displaying a page so that a customer would have a
different user interface that would allow them to find
out more information or to have a different
customer experience. A better customer
experience for the things that they're interested in. This is the "surprise
us" type of thing. This is what we were very
interested in seeing-- people coming up with new ways of
consuming our web services offerings to do things
that we had not even thought of ourselves. Then the last one
is my favorite. And as Jeff said before-- well actually, this isn't the
last, I'm going to do one more. But as Jeff said before, we
did something very interesting called an I-mode launch in
Japan, which was for our device access group. That's also a group
that I manage. And here in the US,
we found a company who knows what's playing
on any radio station all across the US. Now they have a web service
but they don't have products and they don't have
a business model for selling those products. So what did they do? They actually came up
with another build-a-link or build-a-script type of
interface where individuals are able to enter a city, a
frequency, choose a design-- this is actually what would
appear on any website-- enter in an associate ID. That is that ID I
was telling you about before that would allow us
to track a purchase made and then give credit to
that particular associate. Now the very interesting thing
about this is, if I click on-- if I change this to
a different station. Can someone give
me a Boston station just off the top of their head? Any chance-- any Boston station. AUDIENCE: MBR. FREDERICK: MBR,
that's a tough one. AUDIENCE: 92.5. [INTERPOSING VOICES] FREDERICK: What was it? AUDIENCE: 92.5. FREDERICK: 92.5, thanks. I needed a frequency. MBR was 88.5-- 88.1, yeah that's right. It's been a while. This one's taking a
little bit of time. Wouldn't you know,
when you doing a demo. But one of the things that
I was trying to say here, is that this particular
implementation is very unique. This is, yet again,
another business model that we had not thought of. This one provider,
this yes.net-- whenever it does come up here-- BEZOS: This slow web service
is not our web service. FREDERICK: Exactly. [LAUGHTER] BEZOS: We've got some standards. [LAUGHTER] FREDERICK: Right. This particular web
service offering-- and I don't know why it's
not coming up right now-- they came up with a model where
they give away their script for free. And one out of five
links on the page will be-- they will replace
that person's associate ID with their own associate ID. That way they're able
to earn that revenue. BEZOS: So they get 20% of the-- FREDERICK: Exactly. BEZOS: --revenue share. FREDERICK: And it's shared
all across the internet, where people who have web sites
are able to embed this onto their web-- onto their own web
sites and not even have to worry
about paying for it because it's already
built into the system. Sorry here. AUDIENCE: [INAUDIBLE] FREDERICK: Oh, it was? Okay. This is their little
detail page where you're able to see
songs with clips, people who listen to this song
also listen to these songs. [LAUGHTER] Isn't that cool? [LAUGHTER] I really like that one. And then here are
a few-- here are some links over to our web site. So if you want to see the last
few songs that were played, you can see the
song name and then buy that album from amazon.com. Very last thing, I promise
it will be the last. Is a whole store-- a whole store
different from Amazon-- built using our web
services offering. By a 21-year-old German student
who just wanted to play with it and see what he can build. He was able to build this simple
camera shop in a matter of-- I believe three hours. That's what he said. And he did something over
here where you're able-- great. [LAUGHTER] Well anyway, what I
was going to show was-- are you sure that I
have a connection here? But what he has at this
point, is the ability to compare products. This is what this
line over here is. And if you would press this Go
button and then the next page would allow you to
see a comparison across all the different
products with a check mark. I just wanted to show that. Hopefully we have we
still have a connection. Let me bring it
back over to Amazon. So one of the really cool
things about doing web services for amazon.com-- this is looking better-- is that we have a
competition going on right now for developers,
students, people all across the country
to be involved in. Where we're giving away
$5,000 to the best storefront builder developed by a
developer, or student, or whatever the case may be. I have some more
information about that. So if anyone afterwards would
be interested in learning more about the competition,
about Amazon Web Services, about device access or
just anything at all, just come and see me. Thank you. BEZOS: Thank you,
Robert, very nice. [APPLAUSE] FREDERICK: There is one more
thing that I wanted to do. And I wanted to recognize
some of the people who we have given offers to. We are still hiring, of course. One of the-- let me just-- I don't know if everyone
on the list is here today but these are some
of your classmates who have job opportunities with
us and hopefully they'll join. Alan McConnell, is he
here by any chance? Alex Denue, Joe Hastings, Andrew
Sutherland, Jonathan Brunsman, and Nicholas Hansons. So I don't know if
you know these people, but we're very excited about
them having the opportunity to come join our company. BEZOS: Thank you. [APPLAUSE] BEZOS: If you win the
web developers contest then you can have a Segway. [LAUGHTER] FREDERICK: Is it $5,000? BEZOS: It's $5,000. Perfect. All right I'm just going
to show you a few things. First I'll show you-- I've been talking a lot
about personalization. Some of the most impressive
things that our architects and engineers have done
actually doesn't demo well because a lot of it has
to do with scalability and what happens if a
particular service goes down. You know, how does
it fail gracefully and some of these things
are very complicated to do, but not that
interesting to demo. But if I come in-- let me
look at my recommendations for a second. And I'll tell you a story
the very first time-- now it wasn't the first time--
but one of the first times that I demoed recommendations live-- with a live web site-- I was speaking to a group
of Wall Street analysts. My number one recommendation-- number one personal
recommendation was a DVD called Slave Girls
Beyond Infinity. [LAUGHTER] Which was-- this is
much less embarrassing and you never know what
you're going to get. I never know exactly what I'm
going to get because it is live and it does change
from minute to minute but I'm glad to see that
today I've gotten Apollo. [LAUGHTER] And then I can see, of course,
why was I recommended this? Because I bought Cosmos
and Angle of Attack and another book called Apollo. So Slave Girls Beyond Infinity-- I'll just show you-- was a little embarrassing. [LAUGHTER] What happened to that laser
pointer thing-- oh here it is. Do not look directly
into me-- okay. Here it is, Slave Girls
From Beyond Infinity. Let's go over here. This is pretty interesting. So you can buy this DVD with
Assault of the Killer Bimbos. [LAUGHTER] Buy together, it's only $19.96. All of that product clustering
is done automatically, of course. Come down and you'll
notice that customers who bought Slave Girls-- [LAUGHTER] --also bought Sorority Babes
and The Slime Ball Bowl-O-Rama and my personal
favorite, Cannibal Women in the Avocado Jungle of Death. [LAUGHTER] And there's this
interesting thing here. We even know when things
are part of a series. And also they bought DVDs from
the Barbarian Queen series. So we can click through and
look at the Barbarian Queen and there's a
customer review here. It says, "For Lana
Clarkson fans only. This is Barbarian Queen 2. This is not even
Barbarian Queen. It's an incredibly bad film
whose only redeeming feature is Lana Clarkson in and
out of some skimpy outfits. She's completely
gorgeous but even she can't save a
disaster of a film." Then here comes the
great recommendation, "buy Death Stalker instead." [LAUGHTER] AUDIENCE: Everything you
had in the previous page, is that based on your inventory? Like what's next to each
other in your warehouse? BEZOS: No. [LAUGHTER] In fact-- were you
trying to be funny? [LAUGHTER] No, I didn't think so. No, it's not it's
very interesting. We use a technique
called Random Stow. So all of the items in the
warehouse are stowed randomly. There is no rhyme or reason. AUDIENCE: Hashed. BEZOS: As you--
yeah, they're hashed. So as you walk through,
they all have locations. They all have BINs so you
know where everything is. But only the computer
knows where everything is. As you walk through,
it'll be Slave Girls From Beyond Infinity,
right next to Dr. Seuss. They'll be side by side. [LAUGHTER] And so it does make--
walking through, it is like an incredibly
eclectic experience, when you go walk through
the fulfillment center. But these similarities
are incredibly hard to compute well. And there's a lot of stuff--
you have to look at how much information theory
there is in each-- I mean how much information
there is in each purchase. Because you don't
want, you know-- if you do this simple,
straightforward thing then every book just recommends,
oh and customers who bought this also bought Harry Potter. And that's not very interesting. So you have to take
that into account. You have to do a lot of things. And we have to compute
millions and millions of these and we have to do
it very rapidly. And we like to do
it on small machines so we figure out how to do that
in only two gigabytes of RAM. So there's a lot of-- there's a lot of cool
stuff along that. There was a great similarity,
I remember one time, I was looking at this book
and it was a book on zen. And I looked down at the list
of similarities-- customers who bought this book on zen
also bought-- and there were five or six similarities
as they usually are. And five of the six were
other books about zen and then the sixth one was How
to Have a Clutter Free Desk. And that's the
kind of connection that only a computer can make. I mean no human editor is going
to say-- they would always pick six other books on zen. But you know, people who
like zen also buy books on how to have a clutter
free desk and that comes out. Let's see. I'll show you one of
my favorite features. I can show it just
by any product. I've bought so many
things on the site. But I'm going to show
you the OXO Salad Spinner in our kitchen store. Here it is. The OXO Good Grips
Salad Spinner. Now, this is interesting
for a couple of reasons. One is that the customer
reviews on this product read like a sexual experience. I mean-- [LAUGHTER] --people love the OXO. People who don't eat salad
love the OXO Salad Spinner. That's how potent of
a product this is. And we do a couple of things
here that are interesting. One is, you can
see here it says, these friends have
purchased these items. These are friends of mine. And so as long as we're here,
and as long as I've already identified my friends,
we might as well-- whenever I stumble
across something I get to see which of my friends
have bought this thing. By the way, doing that in
real time isn't that easy. Remember this is a big
decentralized system with thousands of web servers
and you don't want to go back. What happens is, we use
a pub/sub technology. And when you first come to our
website, the instant you're recognized, we publish
a message to all of the different
services that subscribe. The ones that subscribe to that
message recognize it and they start immediately-- the
second you hit our gateway-- they start filling a high
speed cache of everything that might be interesting. That you might want to see
on this visit to the store. So that's one of
the ways that we're able to do millions
and millions of visits. Provide this level
of personalization and customization and have it
not be really, really slow. The other thing that was very
personalized on this page. And this is-- I told you earlier
that we very carefully test all of our features. When we do this testing, we
have a very simple objective function. It's a little more
complicated than this but basically our
objective function is, we prefer the thing-- if we're testing feature
A against feature B, we like the one that
generates more sales. We're pretty simple
minded in that regard. But this, what I'm
about to show you, is one of the few features
we've ever left on the web site even though with
statistical significance, it slightly reduces sales. And it's called the
Instant Order Update. So you can see up
there, at the very top it says, "Jeff
Bezos, you purchased this item on May 16th, 2000." So more than two years ago, I
bought the OXO Salad Spinner. Now with salad spinners it
doesn't happen very much. But with music CDs and a
whole bunch of other products, people forget
they've bought them. And they buy them a second time. [LAUGHING] So they're like,
I don't remember-- they buy that Madonna CD
and then they're like-- they get it home or maybe
they never notice it. But they buy it
accidentally a second time. And all of us do unless
you're like incredibly organized or something,
it's hard to avoid this. So you know, we're busy. People buy books a second
time and so on so on. So anyway, we thought
about this and we thought, well what we can do-- unlike any other store
anywhere in the world-- is every time you
come to a page, if you've already bought
it we'll just tell you. Then you won't buy
it a second time. Even though this
slightly reduces sales, we get so much positive
feedback from this. We get so many email
messages to customer service where people said, I was
just about to buy that Enya CD a second time-- [LAUGHTER] --and I didn't. Thank you. It's like they're
thanking us, because they didn't buy something. AUDIENCE: [INAUDIBLE] What's that? AUDIENCE: Do you
ever return items? BEZOS: Well you know,
the amazing thing is most people don't
return things very much. You know what they will do,
because it's a bit of a hassle to return something, if they got
a second copy of that Enya CD, typically they would give
it to a friend or something. They don't really
want it but it's not-- for an expensive item, yes
people would return it. But people also tend to
keep track of their-- they're not going to,
oh I already bought a digital camera. [LAUGHTER] Oh silly me. That's right I have a Segway! [LAUGHTER] Shoot! [LAUGHTER] But for a $12 CD, people
don't put the same amount of attention on it. So anyway, I'll just show you. This is just amazing to me. Every time I look at this,
there are new reviews. So this one was only
written on November 9th. And it's from this guy
named Warren Holzum, "this is one heck of a spinner. I've darn near gotten
up to centrifuge speeds with just a few easy pumps-- [LAUGHTER] --great for drying off all
kinds of fruits and vegetables." I mean just goes on and on. Literally, there
are-- well let's see, it should say down here. I don't know how many
customers reviews there are. There are hundreds. Well here it only says 74. I don't know why
there are only 74-- I thought there were more. But anyway, there's 74
customer reviews here. Look this one is labeled
"Sand," from Georgina. "This is a very good
spinner, at a good price. Most of the previous
reviews are dead on. Except they neglect
to mention that this spinner does a great
job of removing sand from red lettuce and
other exotic greens. Including dandelion, radish,
not to mention spinach. I bought it for
that reason alone." [LAUGHTER] People are just
fanatical salad spinners. Look at this, it's
all five star reviews. Oh here's somebody, "good
but questionable durability." There's always one
in the crowd, here. [LAUGHTER] We can sort these reviews. It's not a totally
straightforward algorithm, but we can basically-- we
try to put the reviews-- if you come back
to the main page-- some of the top reviews
are from people who've gotten lots of helpful votes. So you can always vote-- was
this review helpful to you? Yes or no. One of the nice things
about voting on amazon.com, is we have customer identity
because everybody who's using our system has a credit card
number and so we can kind of keep track of-- we don't let somebody stack
the deck and vote 100 times. I mean I guess it could if they
have a 100 different credit card numbers and 100
different accounts but it's not really
worth stacking the deck for the salad spinner
to get so many credit cards. AUDIENCE: Unless you make it. BEZOS: Well I guess that's true,
if you make it then why not? If you make it and you're evil. [LAUGHTER] We did have-- it was very funny. We do remove them. And I often think we
should at least build a graveyard for them somewhere. But we do have people who
put up spoof customer reviews and they're hilarious. We've had God review the Bible. [LAUGHTER] We had-- I can't
remember which Bronte sister it is, the one who
really hated Jane Austen. It was either
Emily or Charlotte. Does anybody know? AUDIENCE: Emily. BEZOS: Is it Emily? So we had Emily-- a few years ago there
were like two mini series and a full length motion picture
based on different Jane Austen novels. This was just a few years ago. And somebody started posting
customer reviews pretending to be Emily Bronte. And she was just like,
I hate Jane Austen. Two mini series in a full length
motion picture in one year? They were-- it was quite
amusing but we take those down. We also had one guy who said--
his review was incredibly honest, it wasn't a spoof. But it was also kind of like
damning with faint praise. His review started out,
this is the best book my brother ever wrote. [LAUGHTER] I'm like, golly
that's a tough family. [LAUGHTER] Unlike all my other
brothers books this one might be worth reading. [LAUGHTER] So let's see, I don't know
I might just switch over to Q&A. You know,
once you go in I can show you the page you made. This is the real time
click stream stuff. It's more useful for customers
who we don't recognize. But it's you know,
trying to make sense of these bizarre
pages that we've looked at-- The Dog Listener, Slave Girls,
and the OXO salad spinner. We're not giving it
much to work with here. But it's recommending the
Microplane Greater Zester. Which by the way, I
have that product. That's a great product. And it's recommending Assault
of the Killer Bimbos, the Dog Whisperer. It's also recommending the
mini salad and herb spinner. So if you need a herb spinner in
addition to your salad spinner. But I think I will
end the demo there. Let me see if I can get back. I don't even really need this. AUDIENCE: So these
recommendations, they're all based completely on
the customer experience? There's no variable of
how much money you make? BEZOS: The customer
recommendations are based on-- what we're trying
to do is get the probability. What we want is to increase
the probability that somebody will add an item to
their order, even if it's an inexpensive item. So it actually turns out
to work in our interest. So what we're
trying to do is, we look at-- for
personalization we basically calculate for every customer,
a probability that they will-- what's the most likely
product that you will buy. And then we try to take
out the most obvious sort of low information content
products like Harry Potter. Because probably, you've
already run across that 100 times in other ways. In the supermarket
and everywhere else. So putting that in
front of you, it's not like you're going to say,
oh Harry Potter 4 is out. You know you'd have to
be living under a rock. But we try to get
the things that are a little bit more
obscure products and then within that we optimize
those algorithms. And we're certainly doing it
out of our own self-interest. I mean we're not-- there's no question. We are in this
business to make money. But the way that we
do it, is by trying to help customers make
purchase decisions. And if you can do that--
and in small ways, as I showed you with the
instant order update-- we've been willing to
accept some features that decrease sales. But that's because we're
long term oriented. We believe that if we give up
those small amounts of sales today, the people who are
reminded not to buy the Enya CD a second time, will
think that we're so great that they'll come back and
buy more in the future. So it's a very
simple model, which is if you treat customers
right try to do the right thing and actually provide real
value, great prices-- we've been very focused
on cost structure. Making the prices-- so that
we can afford to lower prices. So we've got free shipping
on orders over $25. 30% off books over $15. Great product prices on
electronics and DVD players and digital cameras and so on. And we're the only place
you can buy the Segway Human Transporter. Now I realize this is
a little out of reach of your average
undergrad's budget but nevertheless, it's
a cool, cool product. And then I just like to
offer up my email address. I won't answer your
email if you email me, but I will forward it. I do read my emails and
if anybody is interested, we are always
looking for the best of the best in terms of
engineering talent, computer science talent. So if you have any interest
at all know you can email me, and I'll ship it off right
away to the right people. Anyway with that, I will
end and open it to questions and however much time we have,
I'll leave that up to you. Who's got a question? Yes, please. AUDIENCE: There's an
interesting controversy a year or two ago, something
about different customers were seeing different prices on
the same product [INAUDIBLE].. BEZOS: Yeah. AUDIENCE: I wanted to
know what going on, on the business side of that
with decisions on what to do. BEZOS: We did an A/B test
with best selling DVDs. Where what we did was, we took-- what we wanted to
determine was the shape of the price elasticity
in best selling DVDs. So what we did was, we
randomly took-- we actually subdivided customers into
three groups just based on the last digit of
their customer ID. So it was completely random. And we showed some people
30% off, some people 35% off, and some people 40% off. But what happened is, the
press got this all confused and they believed that there
was some devious algorithm where we were trying to charge
people in rich zip codes more. Which we weren't trying to do. We were actually just trying
to determine the shape of the elasticity curve. But it was so
confusing for people that we decided not to run
that kind of experiment. So we still do all the A/B tests
but we do them with features. We don't do them with prices. Yes? AUDIENCE: More about
leadership and process question on how you organize Amazon. Obviously, a lot of the
things that you know are very simple basics, like
treat your customers well. And then you develop all
these great innovations. Now I'm wondering, is it
all internal and customer based or do you benchmark
against traditional companies and how do you keep this
spirit of innovation alive? BEZOS: Well that is a
truly great question. First of all, the way to get a
lot of innovation in a company, in my opinion is to try
and-- is to work very, very hard to reduce the cost
of doing experiments. Because the problem is, if
experiments are expensive then very few people
are going to get to do very few experiments. That's just the way it works. So if you have a big group
of very creative people-- which we do, we have
a tremendous number of smart people who love to
innovate on behalf of customers and invent new things. You've got to set
up this kind of-- like what I was talking
about with the A/B testing framework-- something like that. So that if somebody comes up
with a new personalization algorithm that they think will
outperform the current one, you don't have to move heaven
and earth to get it tried. So it's important to reduce
the cost of experimentation and then to have some
objective standards about what's better than what. If you can do that, then you
can do a lot of innovation. Now some of the things
that we experiment with are really hard to do and
the cost of experimentation is high. For example, we don't really--
and with consumer behavior, it is based-- with
anything totally new, it is really very difficult--
anywhere between very difficult and impossible-- to guess how consumers
are going to behave. How a mass audience is going
to do anything in the future is very hard to determine. The easiest way to
determine it, is just to do it and see what happens. And I think a lot of
companies get that wrong. They put too much
energy into like arguing about how consumers
are going to behave and by the time
they're done arguing, they could've just done
it and seen what happened. So sometimes-- we spent a
huge amount of effort building customer self-service tools. So the customers could
cancel their own orders. We did some research up front
in the kind of classic way to try and determine
whether customers would want to do this. We got some encouraging results
but focus groups and things like that are
fraught with peril. People don't know, really
typically, what they will do. If you ask them what
you think they'll do, they'll try to
tell you the truth but they don't really know. And so we decided to
just take the gamble. There was no way to build
this in a simple way and sort of do A/B test
that we could think of. So we just went ahead and built
some heavy duty infrastructure to allow people to
cancel their own orders. By the way, internally
we argued about, should we let people
cancel their own orders? You know these are
the kinds of things that you get cold feet about. You're like, maybe they
will cancel their orders-- [LAUGHTER] --and maybe we'll have no sales. But in fact, of course, if
you give people more control-- you know, our basic theory
was, if you give people more control over
their environment-- if they know they can cancel
their own orders then maybe they'll order more. In fact, that seems
to have been correct. That by giving people
these self-service tools, we're empowering them and
they seemed to like that. But that was an example
where we couldn't really do a low cost experiment. You kind of had to build
the whole thing in order to test it. Yes? AUDIENCE: There was some other
less than successful experiment some time ago,
when companies were able to look to see from their
organization what people were buying. And I'm wondering, with all
of the personalization issues, do privacy issues
like that crop up? BEZOS: I'm not
sure what you're-- I think you're referring
to purchase circles. Which actually has
been quite successful. So I'm not sure. AUDIENCE: Before
purchase circles. This was a very long time ago. There was a news story
I think on Slashdot, but Xerox had looked to see
what its employees were buying. BEZOS: Yeah but
that's still up there. You can do that. No, no, no, no, Xerox
can't look to see what their employees are buying. And I don't-- and I doubt
Slashdot reported that. What you're thinking of-- I know exactly what
you're thinking of. Is that we aggregate the data. So companies can opt out
if they want but I think, like, four companies
have opted out. You can go online,
I could show you. And you can see what are the
best selling books from people who-- at MIT.edu. You can go online and see
what are the best selling books from amazon.com employees
or from Microsoft employees and so on and so on. But we have rules
about aggregation and we did from
the very beginning. So unless the group is
at least 250 customers, we don't aggregate that. We don't put the data out there. I think it's 250--
it's some large number. So that people can't back
into who bought what. And it turns out to
be really cool data, to see what these
companies are buying. What the best seller list is. We do it geographically
so you can go in and look at and see what's
the best selling book in-- what are the best selling
books in Massachusetts. And we do not only
best selling, but we do a special algorithm we
call, uniquely best selling. Just sort of scrape away all
the Harry Potters and so on. So you can see what's uniquely
best selling in Massachusetts. What's uniquely best
selling in Boston. What's uniquely best
selling in Cambridge. What's uniquely best
selling at Harvard and what's uniquely
best selling at MIT. And you can compare those and
it's actually kind of fun. And then we put the best
seller list-- we tie that back to the detail pages. So if you're stumbling around
and you find a detail page, you may see something like, this
is the number seven best seller at MIT.edu. Anyway, I think that's
what you're thinking of. Yeah? AUDIENCE: Can you speak back
to the decision you made maybe three or four years ago to
expand beyond sell books, DVDs and CDs to things like-- BEZOS: Electronics,
tools and kitchen. AUDIENCE: --yeah and one
of the questions, I think, of the financial
analysts at Amazon would indicate that you don't
make any money off anything but books. BEZOS: Well, but at that
time we didn't make money off books either. [LAUGHTER] The question was,
why did we expand into things like electronics,
tools, and kitchen since those businesses are
not, today, profitable? And the answer is
that it increases our addressable market size. So we can ultimately build
a much larger company by entering into those
new product categories. And second, while it's true
that those new categories, which are only three years old-- and
by the way, electronics, tools, and kitchen is now a $600
million business at amazon.com. Which makes it one
of the largest. On a standalone
basis it's probably in the top four or five
e-commerce companies anywhere in the world. So that business is growing
and growing very rapidly. One of the big
advantages it has, it has a huge audience
of early adopters. Which is why
companies like Segway choose us as the exclusive
launch platform for products like that. Because really,
early adopters are the kind of people who
buy stuff like this. But that business,
ultimately, will be-- electronics in
particular, in my opinion, will be our largest most
profitable business one day. When you start a
new business, there are certain fixed
costs that come along with starting that business. And then the business has to
reach enough scale so that the profit from the business--
the variable profit-- can cover those fixed costs. There's no sidestepping that. It's just a simple
investment issue. The company now, in a
trailing 12 month basis, generated $120 million
in free cash flow after interest expense. And really we're
just at break-even. The company is doing
very well financially. Yeah, way in the back. AUDIENCE: A little
bit about-- you were talking about
investing in technology. How do you deal with
competitors, like Barnes and Noble, for example. They've got that new
book browsing thing. How you deal with the fact that
new technologies are going out there and how you
compete against that, despite the fact
that you guys already invest a lot internally? BEZOS: Well really that is the-- I mean the good news, from a
technology investment point of view, is that compared
to most of our competitors-- well actually, really,
I guess compared to all of our competitors-- we're spending so much more. You would probably have to
add up the next 10 e-tailers together to get anywhere near
our technology spending budget. So at $200 million a year-- you know, most of
our competitors don't have $200
million in sales. So they can't spend-- we have $4 billion in sales. So $200 million a year
is just 5% of sales. At BarnesandNoble.com, $200
million would be half of sales. So that's a significant
advantage for us as we continue to build out. We want the gap between
our customer experience and those of our competitors
to actually widen. With these kinds of
personalization features. There's lots of stuff that I
can't talk about on the drawing board, that we think is going to
make the experience much, much better in the future. AUDIENCE: $200 million,
how much of it's R&D? BEZOS: Well, we-- the question
was, of that $200 million, how much of it is R&D? I never know exactly how
to answer that question. I mean-- AUDIENCE: Capital as
opposed to disk drives. BEZOS: Oh, as opposed
to disk drives. Almost all of it is-- I mean there's very little. The good news is, we're
a total Linux platform. So it's very cheap. It's all commodity hardware. We have a few big
database servers. But the stuff has
gotten so cheap. I don't know exactly what the
fraction is but a lot of-- a big fraction of that
expense is people expense. It's, you know, smart people. Yeah? AUDIENCE: Who are
your competitors? In your state, now where
Amazon is, right now? BEZOS: Well there are two
groups of competitors. Our big competition is
in the physical world. Online is still so small. Retail sales worldwide are
a $5 trillion dollar market. Online is less than
a percent of that. It's very, very tiny today. So you don't want to take sales
away from online competitors just because there isn't
that much sales to take away. So if you look at
physical-- all the sales in the physical world. So that's where the dollars are. That's where you need to
focus your primary competitive energy. You look at online
companies not because you want to get their sales, but
because sometimes you might be able to learn from them. I mean they're watching
customers too, hopefully. And so you need to
see what they're doing, how are they innovating? What are they thinking of? What kind of lessons
can we learn from that and incorporate into doing
things the way we do things? Rarely, by the way, have
I seen it successful online to do direct
copies of things. Usually, you get some
inspiration from something but then you have
to make it your own and make it be part of
doing things the way we do things for our customers. Once you're in the
physical world, the big competitors--
there's a different one for every category. So we would look at
Best Buy in electronics as our top competitor. Best Buy in the physical world. Barnes and Noble in books. And you can go
right down the line in every category and you can-- it's usually the kind of the
selection intensive superstore type competitor
defined by category. Yes? AUDIENCE: I've got a "as far as
the business of web services," question. I've got to imagine that there's
a fair amount of money to be made from the information
that Amazon generates and is able to collect from consumers. For example, I know many
product designers for baby toys go to Amazon, they look
up their customer reviews and figure out how
people feel about it. I'm wondering, so now
if I were to start using the web services from
Amazon to try to resell it, repackage it. How would you guys react? Sort of what's that
interplay like? BEZOS: The answer
is, right now you have to try and use the
web services as part of our Associates Program. So there's a contract
you sign when you sign up to get a developer token. There's some rules. And one of the things you
cannot do is download the data and repackage it for the sort
of purposes that you're talking about. And you can't cache the data. There are several things that-- because the data is valuable. We don't want you just
to write a program that like sucks all the data
out and then it's your data. That can't be. But you do-- but
if you're playing by the rules of
being an associate, you can invent a
lot of cool stuff. You own that stuff. You read the contract, you own
your application and the things you build on top of it. We just reserve the right
to take the data back. Yeah? We'll do some more
down here in front. AUDIENCE: So looking to
the non-desktop world-- what I guess you
could define it-- BEZOS: The non which world? AUDIENCE: The non-desktop. BEZOS: Non-desktop. AUDIENCE: Mobile or wireless. From a technology
perspective, what's uniquely interesting
about that world, that makes you want to
keep pumping dollars-- or any dollars into it. Or, perhaps is it not unique. AUDIENCE: So the question is,
is the mobile wireless world interesting? AUDIENCE: Aside from the
presentation-- combining lots of things into a small screen. BEZOS: Right. I think the answer is,
that that world is not very interesting today,
with the exception of Japan. Where, for whatever reason, it's
worked a lot better and people are willing to-- the real problem is the devices. So the devices have
very small input device and very small output device. And as we get to see
better web pads-- like this is a great
device, the BlackBerry. For doing email this
is my most valuable-- I'd give up my cell phone before
I would give up my BlackBerry. You will see devices with
this sort of form factor, with decent input devices,
that have a decent color screens with enough
resolution so you can actually look at enough data to actually
do something on the web. Right now, if you're
using your cell phone to do things on the
web, you're like hitting the three key three times
to get a particular-- I mean it's just bad. It's a bad customer experience. It's the best you can do perhaps
with that physical device. But that stuff will get better. And that's a pretty big deal. The thing that's a bigger
deal in the shorter term, is more people getting
instant on at home. It's not even the extra
bandwidth that you get at home. It's the fact that you can
leave your computer on. I think the thing
that will happen next, is that people will
have multiple computers in their home. So I already see that
starting to happen. One of our best selling
electronics products for years has been wireless routers. A lot of people installing
802.11 networks in their home. And it completely
changes your behavior when you get two or three or
four computers in your house instead of through one in the
office or one in the bedroom or whatever it is. When you look at your
average household, you're going to start to see
that the number of computer-- just like with phones, there
was a time when people said, why, would anybody ever have two
phones in their house, that's sort of ridiculous. Absurd luxury. And now, of course, people
put a phone in every bedroom. They put them in
their bathrooms. They put them in their kitchens. They put them everywhere. And the kitchen is
actually the key room. So I put a computer
in my kitchen and it doubled my
amazon.com purchases. [LAUGHTER] I strongly recommend--
you need an instant on computer in your kitchen. That will be a big deal. AUDIENCE: Is your behavior,
when you're in the kitchen, different enough that
amazon.com would take that into consideration in
making your recommendations? BEZOS: By making
kitchen recommendations? [LAUGHTER] I hadn't thought about that. Recommendations by room. Right. We need to be able to
impute your room though. Otherwise we'd have to ask
people, what room are you in? Or have you like
register your computer. This is my kitchen computer. [LAUGHTER] We'll make the OXO salad
spinner recommendation in there. Yes? AUDIENCE: A while ago
there was a dispute over the Amazon policy on
patents, on business methods. BEZOS: Yeah. AUDIENCE: What's
your feeling on that? Because there was some
replication and I believe you made a statement that you
thought that it was bad news. BEZOS: What I think
is-- my position on this is very clear which is, I
think patents in general are really, very good. If you look at the history
of the patent office and of innovation
in this country, it's hard to unlink the two. Now one of the
things that I think is-- if you look
back historically, the rate of change was slower. So if you look at the
lifetime of patents, it's actually increased
a little bit because of some international
treaties and it's basically gone from 17 years to 20 years. And for some
industries, 20 years is very appropriate lifetime. So for example, if
you're manufacturing a new pharmaceutical,
you probably need-- you may need 20 years. You've got to go through
10 years of FDA testing, and there's all
this stuff going on. You may need a long lifetime
to recoup your R&D costs. And you need some
exclusive period where all that R&D
benefits only you. But when you look
at software patents, it seems to me that 20
years may be too long. And so that's the point I made. It's really the same thing. I would say that there is
no chance of that changing. And the reason is, when
you go look at this-- and I did, I actually
went to Congress and I made my case in
front of few people, that seemed like too long a period. And the problem is, this thing
is now so well established, not just in the US but
by international treaty. Literally, hundreds of
nations that have all entered into mutually binding
patent treaties and it's very hard to get that
whole web of stuff changed. So that's why it's-- people tend to leave it alone. Yeah. AUDIENCE: So
getting stuff to me. It seems like your
business will scale, your computers will
scale, but one roadblock between me buying stuff
on Amazon all the time, is getting that stuff from
Washington to my home. I applaud you all for making
that $25 free shipping stuff. I think it's amazing, I
don't know how you do it. But where do you think
that's going to go? How do you think
those costs scale? BEZOS: Well it's
a great question. The question
basically is, is there some way to dramatically
change the delivery part of the business
model, so that you are-- and the answer is, at
certain scale levels, maybe. So already it's changed a lot
because when we first started, we shipped only out of Seattle. Now we have-- AUDIENCE: Fine, but
you're not going to have one in every city. BEZOS: Well, why not? AUDIENCE: Do you get the cost
benefit from that, though? BEZOS: Well it's all
a question of scale. If the question was,
you're not going to have one in every
city, then you probably won't have one in every city. But you very well
might have one-- I mean, you need a lot of scale. At $4 billion in
scale, we've got the right number of
fulfillment centers right now. But if you take that from
$4 billion to $40 billion, things would start to
change significantly. AUDIENCE: You actually
don't want a fulfillment in Massachusetts because then
you pay shipping and taxes. BEZOS: Yeah, you'd probably
put it in New Hampshire. [LAUGHTER] AUDIENCE: How do you
do that $25 deal? Do you get-- how does that work? No one else does it. BEZOS: Well, that's why you
should shop at amazon.com. I like this guy. Hey you're looking
particularly handsome today. [LAUGHTER] It is-- the $25
Super Saver Shipping is incredibly expensive. So it has to be-- it's the most expensive price
reduction we've ever made. And we're still hopeful,
by the way, that we'll leave it in place permanently. We're going to make
a decision at the end of the year about whether
to make it permanent. We were at $49. If we can't make $25 permanent,
we'll go back to $49. But I'm very hopeful we can
make the $25 level permanent. And the key there, is
being very efficient. The economics can
be made to work. It's just a question
of, does it generate enough incremental
lift in volume to justify the huge
price reduction that it effectively is. Yes? AUDIENCE: If you were
a 2002 college graduate with your newly minted
engineering degree, what are some of
the fields you'd be most interested in working in? BEZOS: Newly minted
2002 college student with an engineering degree,
what are some of the fields that I would be most
interested in working in? Well first of all,
what I would say is-- the best advice I
can give somebody, is do something that you
think is interesting. And let the waves catch you. Something that I
see people do, which I don't think is a
good idea, is they try to chase the current thing. I saw so much in
1997 and 1998, 1999, with respect to the internet. There were-- in '94, '95, '96,
and '97, mostly the people who were-- the earlier you
get, the more true this is-- but the people who are
sort of looking at this space and started companies were
genuinely interested in it. They thought it was really cool. By the time you got
to 1999, doctors were stopping-- you know,
screw that doctor thing, I'm going to start
a dot com company! So that really made
no sense whatsoever. People were sort of
abandoning the things they were genuinely interested
and trying to catch a wave. Whenever you try
to catch a wave, you're almost always too late. So it's better to just-- I mean, if you're
paddling after it. You basically have to wait in
place and let it come to you. So just bring something that
you're passionate about. I would definitely-- on
the career advice side, the most important thing about
your first job out of school is to pick a place where
your learning per unit time is going to be very high. You can optimize for
a bunch of variables and it can get very confusing. You know, where's the location,
what's the salary going to be? And all those things
are worth considering and they're all important. But make sure you pull back
after you've done your analysis and say, am I also
picking the place that I believe my
learning per unit time is going to be the fastest. You learn much more from
a best practices company than you do-- you learn
no matter where you go, so if you go work for
somebody and you're like, these people are all
crazy, this is insane-- you'll learn a lot of negative
lessons that you can use later and you can not do those things. But that process of elimination
method takes a long time. So it's better to try
and find a place that has really high hiring standards. Some of the basics especially. You know, a place that's trying
to recruit only the you know-- A's hire A's and B's hire
C's and C's hire D's. So you got to hire only A's. You need to pick
a company that's doing those kinds of
fundamental practices well, because the you'll learn
so much that will set you up to do other things. So I would say that's
probably the best career advice I can give. HOST: We've got
time for one more. BEZOS: Time for
one more question? Okay. AUDIENCE: I was wondering
about the international sites. I was actually buying stuff from
different sites like Canada, US and Japan. I've noticed that these sites
are actually really similar. BEZOS: The site are similar. Yeah our international
sites are similar. AUDIENCE: I was
wondering, how do you manage your
international subsidiaries? BEZOS: It's a very
good question and I'm very pleased to
note that you have found the sites to be similar. We insist-- all of our software
development is done in Seattle. We don't allow any software
development to be done-- we do have big physical
operations and great marketing teams and so on
outside of the US. But the software is so core
and so expensive to do well, that you want to have exactly
one set of source code that gets used all over
the world, globally. And many companies
have made the mistake of allowing their
different sets of source code in different countries
to get out of sync and they end up with two
completely different systems. Now they're getting
no fixed cost leverage across those two systems. They've got two different
teams, developing two different systems. And then they decide one day,
this is terrible and stupid, how did we let this happen? And they want to
recombine those systems. And the systems by that point
have diverged so much that recombining them
is very difficult. So it's very important to have
one set of source code around the world and that's-- thank you for noticing that. AUDIENCE: [INAUDIBLE]
distribution [INAUDIBLE].. BEZOS: But the software that
runs the fulfillment centers is also the same
all over the world. So the key is-- you know, what
happens to software. Software is fascinating
in a business because not only do you do
all the things that you're trying to do, but some stuff-- what happens is
business knowledge gets, over time, embedded
in the software. So little bits and pieces--
the software ends up knowing-- this is
my opinion, again I admit to being sort
of computer centric. But in my opinion, at
the end of the day, the software knows more about
your business than you do. And so it's really
important that you only have one such system. Because it's going
to be complicated and it's going to
be very interesting. It's going to have lots
of knobs and the reason it has all those knobs,
is because it knows a lot about your business. Thank you, you guys. [APPLAUSE]
