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Amazon's 'Everything War' with Dana Mattioli · Masters in Business

0:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Master's in
0:11
Speaker 1: Business with Barry rid Holts on Bloomberg Radio.
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Speaker 2: This week on the podcast, I have another extra special guest.
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Speaker 2: Dana Mannioli is the Amazon reporter for The Wall Street Journal.
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Speaker 2: In addition to covering Amazon, she is an award winning
0:29
Speaker 2: reporter who has deep roots in both M and A
0:33
Speaker 2: and retail. Her new book is really quite fascinating, The
0:36
Speaker 2: Everything Wore, Amazon's ruthless quest to own the world and
0:39
Speaker 2: remake corporate power, just came out a few months ago.
0:42
Speaker 2: I thought this was a really interesting book. I read
0:45
Speaker 2: a lot of stuff for interviews, and this is a
0:49
Speaker 2: book that I would have just plowed through regardless. It
0:53
Speaker 2: was really fascinating. And you know a lot of the
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Speaker 2: things you spect about on Amazon, you think about, you know,
1:02
Speaker 2: how they flex their corporate muscles. You have like a
1:04
Speaker 2: loose idea, Hey, they really seem to be the eight
1:07
Speaker 2: hundred pound gorilla. I had no idea. You know, as
1:11
Speaker 2: I'm reading the book, I'm just genuinely shocked, and by
1:15
Speaker 2: the way, it's deeply investigating. In research, she did hundreds
1:19
Speaker 2: of interviews with former employees and executives and partners and
1:26
Speaker 2: like just everybody who was affiliated with this and these
1:30
Speaker 2: are not nice people. These are ethically compromised executives who
1:35
Speaker 2: are just hell bent on increasing profits by any means necessary.
1:41
Speaker 2: And she paints a not very pretty picture of the company,
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Speaker 2: It's culture, its tactics.
1:49
Speaker 1: Like I thought I.
1:50
Speaker 2: Knew Amazon, and it turns out I really didn't know Amazon.
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Speaker 2: Fascinating book and I'm really fascinating conversation that I think
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Speaker 2: you'll enjoy. With no further to do. My discussion with
2:02
Speaker 2: the Wall Street Journals. Dana Maddioli, Welcome to Bloomberg.
2:08
Speaker 1: Thanks for having me.
2:09
Speaker 2: So we've been trying to get the schedule for quite
2:12
Speaker 2: some time. We've been ships in the night, and I'm
2:14
Speaker 2: glad we finally did this. Before we get into the book,
2:17
Speaker 2: I just have to go over your background, which is
2:19
Speaker 2: really fascinating. You started the journal in two thousand and six.
2:23
Speaker 2: Tell us a little bit about how you got there.
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Speaker 1: Oh, I'd say I snuck through the back door. I
2:28
Speaker 1: started a week after graduating from college, Amazing as a
2:32
Speaker 1: journal as a major in an English major. I had
2:35
Speaker 1: some freelance clips while I was in college. I would
2:38
Speaker 1: go and take my articles that I wrote for class
2:40
Speaker 1: and sell them to the local newspapers in Washington, DC.
2:43
Speaker 1: Sometimes just give them away to get a byline. And
2:46
Speaker 1: that's sort of how I got hired at the Journal
2:48
Speaker 1: and just really learned as a grunt at that point
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Speaker 1: and rose up the ranks.
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Speaker 2: It's kind of fascinating that you're the Amazon reporter now
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Speaker 2: because you began covering retail companies like j C. Pennies.
3:02
Speaker 2: I don't know if it call Kodak retail. They had
3:04
Speaker 2: a tail arm. Tell us a little bit about some
3:06
Speaker 2: of the companies you covered and some of the front
3:08
Speaker 2: page scoops you got.
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Speaker 1: Yeah. So for a while I was the retail reporter
3:12
Speaker 1: at the Wall Street Journal. I loved that job. I
3:14
Speaker 1: basically covered thirty different publicly traded retailers, from Gap to
3:19
Speaker 1: Macy's to Nordstrom and got to know a lot of
3:23
Speaker 1: those CEOs very well, people like Mickey Drexler over at
3:25
Speaker 1: shake Crew right like legends. And that was a really
3:28
Speaker 1: good education for me actually in writing this book, because
3:30
Speaker 1: I saw firsthand through their lens of how they had
3:33
Speaker 1: to react to a young Jeff Bezos and how that
3:36
Speaker 1: was decimating their businesses.
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Speaker 2: Right. You started six at that point, Amazon is what
3:41
Speaker 2: a decade old just about Yeah, and had already begun
3:45
Speaker 2: to damage traditional retailers. You go from retail to doing
3:51
Speaker 2: large M and A deals. You covered the Pfizer Alergen
3:55
Speaker 2: deal and a bunch of other M and A tell
3:57
Speaker 2: us how you went from retail to mergers and eye acquisitions.
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Speaker 1: Yeah, there was a stop before that. Actually, I covered Quodak,
4:03
Speaker 1: like you said, that was my first corporate gig, and
4:05
Speaker 1: then retail, and then I was the M and A
4:08
Speaker 1: reporter with another reporter named Dana Simluca who's a good
4:11
Speaker 1: friend of mine, and our whole job was to break
4:13
Speaker 1: what companies were buying other companies, and it was a
4:16
Speaker 1: really exciting job. You'd get these giant tips one hundred
4:19
Speaker 1: billion dollar deals and you put the headlines down. You'd
4:21
Speaker 1: see the stock prices just go through the roof, right.
4:24
Speaker 1: It was like this kind of adrenaline rush of a beat.
4:27
Speaker 1: So I did that for six years, which is a
4:28
Speaker 1: very long time to cover that beat because it's fairly
4:30
Speaker 1: all on. You know, you work every Sunday because deals
4:33
Speaker 1: get announced on Monday. But also a through line on
4:36
Speaker 1: that beat was the beginning of that beat. When I
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Speaker 1: started in twenty thirteen, the retail companies, the consumer companies
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Speaker 1: were worried about Amazon. By the time I left that
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Speaker 1: beat in twenty nineteen, every single corporate boardroom I spoke
4:47
Speaker 1: to every CEO, every banker, in industrials, healthcare, every industry
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Speaker 1: was worried about Amazon.
4:54
Speaker 2: Huh. And just to wrap up the M and A,
4:57
Speaker 2: you win another Lobe award in twenty sixteen covering the
5:01
Speaker 2: Dow DuPont merger. That was a giant merger. Tell us
5:04
Speaker 2: a little bit about that story.
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Speaker 1: Yeah, that was you know that this was a time
5:08
Speaker 1: when there were a lot of there's a lot of
5:09
Speaker 1: industrial m and A, A lot of these corporate giants
5:13
Speaker 1: that you know, had been esteemed companies were hitting a
5:16
Speaker 1: rough patch and we started to see a lot of
5:18
Speaker 1: deals in the chemicals space and the industrial space. I
5:20
Speaker 1: broke that with my colleagues Danis and Luca and Dave Banoit,
5:23
Speaker 1: and that was one of the biggest years for em
5:25
Speaker 1: Anda that I was on the beat.
5:27
Speaker 2: So retail m and A, how do you end up
5:30
Speaker 2: not just back in their online retail space with Amazon,
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Speaker 2: but making that your sole beat? How did you become
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Speaker 2: Amazon only as a reporter?
5:39
Speaker 1: So after six years on the M and A beat,
5:42
Speaker 1: you know, writing probably hundreds of articles. It's very competitive,
5:46
Speaker 1: beat Bloomberg pretty fiercely. It was time for me to
5:49
Speaker 1: take a step back from that type of reporting. You
5:52
Speaker 1: get fairly burn.
5:53
Speaker 2: It's a grind, it is.
5:54
Speaker 1: It's a grind, you know. I was reporting stories out
5:56
Speaker 1: from my friend's weddings, from christenings, from family birthday parties,
6:00
Speaker 1: ever off. So I wanted to take a step back
6:02
Speaker 1: and do a bigger, like investigatory beat. And the only
6:05
Speaker 1: thing that really excited me at the time was Amazon.
6:08
Speaker 1: I'd seen them be this major player on the retail beat,
6:12
Speaker 1: on the M and A beat, I saw stupid M
6:14
Speaker 1: and A happening because of Amazon. I remember I broke
6:17
Speaker 1: this deal when CVS was buying Etna. This is a
6:21
Speaker 1: bet the farm sort of eminem deal. Sixty nine billion
6:24
Speaker 1: dollars were the CVS, this pharmacy was buying an insurance company.
6:28
Speaker 1: And I learned that the CEO of CVS was terrified
6:32
Speaker 1: of Amazon. Every board meeting he had with his board,
6:35
Speaker 1: they had Amazon proofing plans put in place. And I
6:37
Speaker 1: started seeing that in other boardrooms too, that these dumb
6:39
Speaker 1: deals were happening because people were trying to Amazon proof
6:42
Speaker 1: their businesses, and I started to think about how how
6:46
Speaker 1: little people knew about how Amazon always seemed to win,
6:49
Speaker 1: how they seemed to have their finger on the scale
6:51
Speaker 1: in a lot of ways. So I pitched this investigatory
6:54
Speaker 1: Amazon beat to my bosses at the Wall Street Journal,
6:57
Speaker 1: and they were into it. They said, if you think
6:58
Speaker 1: you could get inside this black box, the do it?
7:00
Speaker 2: What ye was that?
7:02
Speaker 1: That was twenty nineteen, all right.
7:04
Speaker 2: So by then I'm trying to remember how big Amazon
7:09
Speaker 2: had become. I mean, they obviously blew up after the pandemic,
7:13
Speaker 2: but I want to say Scott Galloway's book The Four
7:16
Speaker 2: had already come out, Brad Stone's book The Everything Store.
7:19
Speaker 2: I don't know if that had come out yet.
7:21
Speaker 1: That did that came out? I want to say maybe
7:24
Speaker 1: twenty fifteen, And.
7:25
Speaker 2: Both of those books sold very well and drew a
7:28
Speaker 2: lot of attention Amazon. It doesn't sound like it was
7:31
Speaker 2: a tough argument to get the editors of woll Street
7:34
Speaker 2: General to say, Hey, these guys are a behemoth. We
7:36
Speaker 2: need a dedicated person covering justice one company.
7:39
Speaker 1: Yeah, And they were excited that I've raised my hand.
7:41
Speaker 1: I had, you know, a history of being very scoopy
7:44
Speaker 1: getting inside companies.
7:45
Speaker 2: Again war winning, right, and and you.
7:48
Speaker 1: Know Amazon's such a big company. You know, they're two
7:50
Speaker 1: trillion dollars today, and they're kind of like a giant.
7:52
Speaker 1: They're not kind of they're giant conglomerate. They're like fifteen
7:55
Speaker 1: different publicly traded companies in one company. Yeah, so I
7:58
Speaker 1: had I wanted to do this in a way that
7:59
Speaker 1: I my spots. If you just cover Amazon news day
8:01
Speaker 1: and day out, you could just write wire stories all day. Right,
8:05
Speaker 1: there's a million stories about them. I wanted to be
8:07
Speaker 1: deliberate and investigate them.
8:09
Speaker 2: So let's talk a little bit about that delibered investigation.
8:13
Speaker 2: The book covers Amazon's quest to own the world and
8:18
Speaker 2: remake corporate power. What does that mean?
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Speaker 1: Well, Amazon, you know they started as this against all odds,
8:25
Speaker 1: grudge startup, right, But what we've seen in more recent
8:28
Speaker 1: years is that they've become the number one or two
8:32
Speaker 1: player by size in about eight different industries. You know,
8:35
Speaker 1: from retail, which we are already know forty percent of
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Speaker 1: everything bought online in the US is Amazon to cloud computing,
8:41
Speaker 1: where they are the biggest cloud computing in the world
8:44
Speaker 1: exactly in the US. They deliver more parcels than UPS
8:47
Speaker 1: or FedEx. And it goes on and on and on.
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Speaker 2: Say that again, they deliver more parcels than UPS or FedEx.
8:53
Speaker 1: Yes, they are the number one parcels.
8:55
Speaker 2: That's astonishing.
8:56
Speaker 1: And guess what it's they're only their own product. They're
8:59
Speaker 1: not delivery it really for other people. That's just Amazon goods.
9:03
Speaker 2: Wow.
9:04
Speaker 1: They've taken over industry after industry, and that's forced bankruptcies,
9:07
Speaker 1: it's forced lack of innovation. And beyond that, you know,
9:11
Speaker 1: my book gets into how they have this pattern of lying, cheating,
9:16
Speaker 1: copying their way to the top, and using their leverage
9:19
Speaker 1: in all these different industries to crush competition.
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Speaker 2: So we're going to get into the details of that
9:24
Speaker 2: for sure. I just want to go through the eight
9:26
Speaker 2: areas where they're number one or two. So online retail, cloud, computing,
9:33
Speaker 2: package delivery. What are the other four or five where
9:37
Speaker 2: they're dominant?
9:37
Speaker 1: Yeah, voice assistant devices.
9:39
Speaker 2: Yeah, nobody comes close to that.
9:40
Speaker 1: Right. In online advertising, the number three actually a whole
9:45
Speaker 1: charged which.
9:46
Speaker 2: By the way, the online advertising is has become so
9:51
Speaker 2: ubiquitous throughout the site. So it's Google, Facebook, Amazon, exactly amazing.
9:57
Speaker 2: Give us the other two or three ebook ebooks, and
10:01
Speaker 2: that's before we get to other gadgets. Yeah, I mean
10:04
Speaker 2: the Kindle. Just Barnes and Nobles still make the Nook
10:07
Speaker 2: or is it do?
10:07
Speaker 1: And it's it's kind of a paltry experience. And I'll
10:10
Speaker 1: tell you ninety percent of my ebooks for this book
10:13
Speaker 1: have been sold in Amazon, which just tells you, right,
10:16
Speaker 1: how much of a dominant.
10:18
Speaker 2: I'll tell you something fascinating that when you Google search
10:21
Speaker 2: your book, the first link that comes up is Amazon.
10:25
Speaker 2: And that's true on so much stuff. I mean on Google,
10:29
Speaker 2: I don't mean on the Amazon site. Yeah, but on
10:32
Speaker 2: eight verticals, most of which they are either number one
10:36
Speaker 2: or number two.
10:37
Speaker 1: And they're keeping you know, they're going to keep growing.
10:39
Speaker 1: They they're getting into space with this project Kuiper.
10:44
Speaker 2: They are, now that's separate from Bezos's Blue Origins company.
10:49
Speaker 2: You're talking about a wholy different pursuit coming from Amazon
10:55
Speaker 2: proper within their own company, and what do they want
10:57
Speaker 2: to do in space.
10:58
Speaker 1: They're going to go head to head with Elon Musks
11:00
Speaker 1: Starlink with this these satellites, these orbital satellites, and that
11:05
Speaker 1: should launch in the next year. So they're ever growing
11:07
Speaker 1: and they have a lot of bandwidth to do that
11:10
Speaker 1: in ways that other publicly traded companies really don't.
11:12
Speaker 2: Why on earth does Amazon want to be in the
11:16
Speaker 2: satellite business out of curiosity? Is this related at all
11:21
Speaker 2: to Blue Origins and what Bezos is doing with that?
11:25
Speaker 1: Well, it's a question for Bezos, I would say. You know, Starlink,
11:29
Speaker 1: which is Elon Musk's venture, is considered one of his
11:32
Speaker 1: crown jewels. Okay, so there's like definitely an appeal there.
11:36
Speaker 1: The way that Elon has its structured it does fit
11:38
Speaker 1: into his space exploration company SpaceX. So some people pose
11:41
Speaker 1: it that this should this be part of Blue Origin
11:43
Speaker 1: rather than Amazon. Sure, but as of right now it
11:46
Speaker 1: is part of Amazon is.
11:47
Speaker 2: I guess the thinking must be, Hey, if we have
11:49
Speaker 2: more people with access to the Internet, we're shopping more
11:52
Speaker 2: people will shop online and we'll capture forty percent of
11:55
Speaker 2: it or whatever.
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Speaker 1: They're right, they'll boost those two hundred million pribes ribers
12:00
Speaker 1: could grow exponentially.
12:02
Speaker 2: Right. How do you define Amazon Prime as a vertical?
12:06
Speaker 2: Is it just part of their delivery process? It comes
12:10
Speaker 2: with a lot of other things. Where do you put
12:13
Speaker 2: Amazon Prime into this?
12:14
Speaker 1: I mean, it's one of the biggest membership programs there
12:17
Speaker 1: is at any company.
12:18
Speaker 2: It's amazing, right, pay for the privilege.
12:20
Speaker 1: To shop with this company.
12:21
Speaker 2: Well, you theoretically pay for two day delivery, although if
12:26
Speaker 2: you've been an Amazon user for any length of time,
12:29
Speaker 2: that turns out to be bs because they do everything
12:32
Speaker 2: they can to dissuade you from next day or two
12:36
Speaker 2: day or same day delivery. Hey, ship on Wednesdays with
12:39
Speaker 2: even fewer boxes, create less ecological waste. Ship next Thursday.
12:46
Speaker 2: Here's a ninety nine percent digital coupon. Ooh, that's great.
12:50
Speaker 2: I rent ahead of Beatle. I'll save ninety nine cents.
12:53
Speaker 2: But obviously it works because the more they can spread
12:58
Speaker 2: out their shipping. My experience has been the shipping timeliness
13:05
Speaker 2: has decreased dramatically.
13:07
Speaker 1: I hear that from a lot of shopping right.
13:09
Speaker 2: I mean, So, I've been an Amazon member since I
13:13
Speaker 2: got a gift certificate from my college roommate. I want
13:17
Speaker 2: to say it was ninety eight, ninety eight, So this
13:19
Speaker 2: is early member and I out of college long before that.
13:22
Speaker 2: But but early member, like I used to just search
13:27
Speaker 2: and click whatever came up first, and it was always
13:30
Speaker 2: the right thing. I ordered lithium batteries with a like
13:34
Speaker 2: for a keyfob on your car. It's a very specific
13:37
Speaker 2: model number, wouldn't that exact model number come up first?
13:41
Speaker 2: So I was, and I went back and I redid
13:43
Speaker 2: it and figured out, oh, that's a sponsored link that
13:46
Speaker 2: has nothing to do with what I requested other than
13:49
Speaker 2: it's roughly a lithium ion battery. So I went to
13:53
Speaker 2: return it, and every now and then Amazon will say, yeah,
13:56
Speaker 2: I don't bother, just just keep it right and we'll
13:59
Speaker 2: credit you because it's more expensive to send it back
14:02
Speaker 2: then the product is worth. So the search has been terrible,
14:07
Speaker 2: The pages are just festooned with advertising. The whole experience
14:11
Speaker 2: is much worse. And then there's the other two issues.
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Speaker 2: The prices are no longer the lowest, and the interesting
14:17
Speaker 2: thing about the pandemic is when they were frequently out
14:20
Speaker 2: of things, it sent you searching. So I think everybody
14:24
Speaker 2: has a Target account, a Walmart account, which may not
14:27
Speaker 2: have been true in twenty nineteen pre pandemic. So the
14:31
Speaker 2: whole experience is much less delightful than it was. I
14:37
Speaker 2: kind of think since Bezos left, the people who are
14:41
Speaker 2: there are just focused on how do we max out
14:44
Speaker 2: profitability and the hell with the user experience, which wasn't
14:48
Speaker 2: what it felt like under Bezos or am I wildly
14:52
Speaker 2: overstating that.
14:53
Speaker 1: Well, there's a large part of my book gets into
14:56
Speaker 1: this toxic culture at Amazon. Uh huh, where employees are
15:00
Speaker 1: in this hunger games like scenario where they're competing with
15:03
Speaker 1: their other employees to keep their jobs.
15:06
Speaker 2: Talking about the six percent, Yeah, they get cut at
15:08
Speaker 2: the end of the year, ranking that whole like everything
15:11
Speaker 2: they said they weren't doing.
15:12
Speaker 1: The Actually time, I have all the documents.
15:14
Speaker 2: GE used to cut the bottom ten percent six percent?
15:19
Speaker 2: And then where did the force ranking come from?
15:22
Speaker 1: Jeff like that Intel did this right, That's what he
15:24
Speaker 1: said to his leadership team, like, let's do this because
15:27
Speaker 1: we have to get rid of the bottom performers. But
15:29
Speaker 1: that has unintended consequences. It means that everyone at Amazon,
15:33
Speaker 1: on the white collar side, is driven to work in
15:36
Speaker 1: a way that just benefits their numbers, benefits their bottom lines,
15:39
Speaker 1: even if it's not good for you as the customer,
15:41
Speaker 1: even if it means it's unsafe for the customer, as
15:44
Speaker 1: long as it's expanding selection and increasing profits. That often
15:48
Speaker 1: is the name of the game.
15:49
Speaker 2: Unsafe for the customer. How is it on?
15:51
Speaker 1: Yes, So I have anecdotes in the book where there
15:53
Speaker 1: are well meaning people on the Child's Marketplace team that
15:57
Speaker 1: are that where there's they're selling clothes for children, right,
16:00
Speaker 1: and there's a mandate from Bezos to expand selection and
16:03
Speaker 1: get more sellers into Amazon dot Com because the more
16:06
Speaker 1: sellers you have, the more sales you get, the more
16:08
Speaker 1: sales sellers come on exactly, And they make changes to
16:13
Speaker 1: the sign up process for sellers to on board to
16:16
Speaker 1: Amazon dot Com. They want to make it easy as
16:18
Speaker 1: possible sign up and you could be selling within a day, okay, right,
16:22
Speaker 1: so not really betting these sellers.
16:23
Speaker 2: So in other words, Chinese junk with that's not fireproof,
16:27
Speaker 2: that's not exactly.
16:29
Speaker 1: So then the Chinese junk comes in within a day
16:31
Speaker 1: and some of these parents on the team are horrified.
16:33
Speaker 1: There are children's pajamas that smell.
16:35
Speaker 2: Like gas, aldehyde and gas.
16:38
Speaker 1: There are hoodies that have strings around the acuatch are
16:41
Speaker 1: a strangulation hazard that are banned from being sold in
16:43
Speaker 1: the US because if it's strangled tall there there are
16:46
Speaker 1: all these.
16:46
Speaker 2: Listen, if kids have to die in order for our
16:49
Speaker 2: profit margin to expand, that's just a little collateral damage.
16:53
Speaker 2: Who can complain as long as our profits are gone.
16:56
Speaker 2: I mean, you know it's a tough world. That tough enough.
17:00
Speaker 1: So they flagged this to the Actually they take upon
17:02
Speaker 1: themselves to add some of the friction back into the process.
17:04
Speaker 1: Design it okay, and their boss yells at them, it's
17:07
Speaker 1: just take that off, and they said, well, we're trying
17:09
Speaker 1: to protect the consumer. We ostensibly we are a customer
17:12
Speaker 1: obsessed organization, which is what they say, right, And he said, well,
17:14
Speaker 1: if that's what you know Bezos wants, there's other people
17:17
Speaker 1: that will handle that. So they reluctantly do that, and
17:19
Speaker 1: all the goods fled back in right. And ironically, their
17:22
Speaker 1: boss who told them not to do that, is now
17:23
Speaker 1: the VP of Customer Safety and Trust. But my book
17:27
Speaker 1: found other examples. Amazon was selling carbon monoxide detectors that
17:31
Speaker 1: don't detect carbon monoxide.
17:32
Speaker 2: Well, you know, that's extra if you want it to
17:34
Speaker 2: actually work. Yeah, that's a different that's that's carbon monoxide prime.
17:41
Speaker 2: You know, you can't just order early, you know. In
17:44
Speaker 2: the two thousands and twenty tens, it felt like the
17:49
Speaker 2: reason people were terrified of Amazon is huge selection, fairly
17:54
Speaker 2: high quality product, and the prices were almost always the cheapest.
17:59
Speaker 2: I don't find any of those things now. The selection
18:02
Speaker 2: is sort of a it's paradoxically, there's so much garbage
18:07
Speaker 2: on it, like when this when they first started marketplace,
18:11
Speaker 2: my immediate reaction was, Hey, if I wanted products from
18:14
Speaker 2: a garage sale, I know where eBay is. I can
18:17
Speaker 2: click over there. Why are you making this worse? But
18:20
Speaker 2: I guess you know it's worked out.
18:22
Speaker 1: From Well, there's a reason for that. You know, Amazon
18:25
Speaker 1: has been sued for being an illegal monopoly.
18:27
Speaker 2: Uh huh.
18:28
Speaker 1: And the idea here is that, you know, when when
18:30
Speaker 1: a company is building monopoly, they have to have the
18:33
Speaker 1: best experience because they have to steal market share from
18:35
Speaker 1: their competitors. So when Amazon was coming up, when you
18:38
Speaker 1: like the experience, it was fast shipping, the quality was
18:41
Speaker 1: much better, The prices were low because they were using
18:43
Speaker 1: predatory pricing to undercut their rivals, to steal market share,
18:47
Speaker 1: get people to sign up for prime, and put companies
18:49
Speaker 1: out of business. You know, Lens, the last time you
18:51
Speaker 1: saw a circuit city.
18:52
Speaker 2: Right, circuit city.
18:55
Speaker 1: It goes on. And I spoke to all those CEOs
18:58
Speaker 1: for this book, and they lived at first hand. Amazon
19:00
Speaker 1: is undercutting them on price to steal their customers and
19:03
Speaker 1: put them out of business. What happens to monopoly once
19:06
Speaker 1: they become a monopoly is that there's less competition. Where
19:10
Speaker 1: are you going to go? So they could raise prices,
19:12
Speaker 1: they could flood the feed with advertisements that are annoying
19:15
Speaker 1: to you. They could do all these things to make
19:17
Speaker 1: it a lesser experience. But have you canceled your Prime account? Probably?
19:20
Speaker 2: I haven't canceled my Prime account, but I will tell
19:22
Speaker 2: you that I have dramatically reduced the products I buy
19:27
Speaker 2: on Amazon, and very often in the old days it's like,
19:31
Speaker 2: oh it's on Amazon. Remember one click buying. There is
19:35
Speaker 2: no more one click buying because when you see something,
19:37
Speaker 2: especially if it's something you're not familiar with the price,
19:40
Speaker 2: you have to quickly Google Walmart, Target, and Google shopping
19:45
Speaker 2: to see because every now and then a third party
19:47
Speaker 2: seller will have a product that's double or you know,
19:51
Speaker 2: fifty percent more than what it should be. I just
19:53
Speaker 2: bought something from Target the other day that was twenty
19:56
Speaker 2: two dollars. It was thirty four dollars on Amazon, and
19:58
Speaker 2: it wasn't being sold by Amazon, but it was by
20:01
Speaker 2: a marketplace.
20:02
Speaker 1: That's why also part of this building. The monopoly situation
20:06
Speaker 1: is that Amazon's third party sellers. Sixty percent of what's
20:09
Speaker 1: sold on Amazon is these third party sellers. They are
20:11
Speaker 1: so reliant on Amazon because forty percent of everything's sold
20:14
Speaker 1: online is there. They have to be there, and it's
20:17
Speaker 1: this weird love hate relationship.
20:18
Speaker 2: We're going to go into the details on some of
20:20
Speaker 2: the really dubious things that they did just across the board.
20:25
Speaker 2: We'll talk about. I mean, the book is kind of horrifying,
20:28
Speaker 2: as I don't know if that was your intention, but
20:30
Speaker 2: as you're walking working through it, it's like, oh, this
20:33
Speaker 2: company has some ethical compromises and some just culture that
20:39
Speaker 2: seems to be really toxic, not just for the customers,
20:44
Speaker 2: but the employees as well and the partners. It seems
20:46
Speaker 2: across the board it's when it all costs, and you
20:49
Speaker 2: don't often stop and think what that means, but it
20:52
Speaker 2: means a lot of really bad things. According to your.
20:54
Speaker 1: Book, it does.
20:56
Speaker 2: Let's talk a little bit about how Amazon's culture got
21:01
Speaker 2: to where it is today, going back to its origin story.
21:06
Speaker 2: Bezos works at Hedge Funds, Qunshop d Shaw, and he
21:11
Speaker 2: is given the task, along with three other employees, of
21:14
Speaker 2: investigating this new fangled Internet thingy and what the possible
21:20
Speaker 2: areas for growth and disruption might come out of it.
21:24
Speaker 2: Three or four different analysts were given different sections. Bezos's
21:29
Speaker 2: was tasked with looking into the impact of the Internet
21:33
Speaker 2: on retail, directly by David Shaw. Tell us a little
21:36
Speaker 2: bit about that project. How long on d Shaw's dime
21:42
Speaker 2: was Bezos researching the Internet months?
21:46
Speaker 1: And he liked what he saw. At the time, the
21:48
Speaker 1: idea that this would take off was really far fetched.
21:52
Speaker 1: Nine four ninety three and three percent of Americans had
21:56
Speaker 1: ever been on the World Wide Web. So think of it,
21:58
Speaker 1: and you know, and and David Shaw was the nerdy
22:02
Speaker 1: programmer type of person who could see the potential for it.
22:04
Speaker 1: So he thinks, let's have my you know, my star
22:08
Speaker 1: associates and vps look into the commercial uses for the Internet.
22:12
Speaker 1: One looks into banking, and Jeff looks into retail. And
22:17
Speaker 1: the idea is, if they think it's worth worthwhile, that
22:20
Speaker 1: d Shaw will open up these verticals and they do
22:22
Speaker 1: it with the other areas that the people that research
22:25
Speaker 1: the other areas for for David start businesses for him
22:28
Speaker 1: that make money.
22:29
Speaker 2: Why didn't David Shaw invest in Bezos and Amazon when
22:34
Speaker 2: when he left for Seattle.
22:36
Speaker 1: Well, so, then Bezos likes what he sees all on
22:39
Speaker 1: d Shaw's dime. He does his research report, sees that
22:42
Speaker 1: there's likes for this, thinks that books could be the
22:44
Speaker 1: first area of selling online. And he goes on this
22:47
Speaker 1: walk with David the in Central Park and says, Hey,
22:50
Speaker 1: I think I'm going to quit and start an online
22:52
Speaker 1: book shop. And David said, you know, I think that's
22:55
Speaker 1: you already have a really good job. I think that's
22:57
Speaker 1: a good idea for someone else. And by the way,
22:59
Speaker 1: you know, that was my idea. We might go head
23:02
Speaker 1: to head with you and compete with you on this.
23:03
Speaker 1: And Bezos basically says I'll take the risk and moves
23:06
Speaker 1: out to Seattle.
23:07
Speaker 2: Kind of surprised that Shaw went that way instead of saying,
23:11
Speaker 2: you know, sort of let us seed you us, let
23:14
Speaker 2: us participate in this, like it was a little adversarial
23:19
Speaker 2: as opposed to cooperative.
23:21
Speaker 1: Yeah, And actually Bezos had a really hard time fundraising
23:24
Speaker 1: this idea because it was so wild. You know, it
23:28
Speaker 1: took him a really long time to get his first
23:29
Speaker 1: million dollars. Most of his investments trickled in in fifty
23:32
Speaker 1: thousand dollars.
23:33
Speaker 2: Increments literally friends and family. Oh, yeah, big time until eventually, right,
23:38
Speaker 2: who was the first VC to put money into.
23:40
Speaker 1: Believe it was Kleiner. They're on the board and oh
23:44
Speaker 1: that's right.
23:44
Speaker 2: John Door was on the board for forever. That's ocky,
23:47
Speaker 2: so really kind of interesting that he missed it. But
23:50
Speaker 2: the whole thing, just the way I learned about it,
23:55
Speaker 2: it's kind of shady.
23:56
Speaker 1: Isn't I mean it's copycat mentality that continues to this date. Amazon.
24:00
Speaker 1: Oh that's a good idea. Be a shame if someone
24:02
Speaker 1: took it.
24:04
Speaker 2: So Amazon is not only Custer obsessed, as Bezos once said,
24:09
Speaker 2: but it's also competitor obsessed. Where does that come from?
24:13
Speaker 2: And how does it manifest itself?
24:15
Speaker 1: Oh, they're the most competitor obsessed company I've ever covered,
24:18
Speaker 1: and I've covered companies for eighteen years. Part of it
24:21
Speaker 1: is the culture, because they have to be performing at
24:24
Speaker 1: all times to justify their existence, to not get cut.
24:27
Speaker 1: It's this pressure cooker of an environment that people that
24:29
Speaker 1: I've spoken to that might have worked at other companies
24:32
Speaker 1: wouldn't be tempted to do illegal things on ethical things,
24:34
Speaker 1: anti competitive things are sort of forced to their breaking
24:37
Speaker 1: point at Amazon, and I could give you an example
24:39
Speaker 1: if you like. There's a scene in the book that
24:42
Speaker 1: has resonated with a lot of people where Amazon, at
24:45
Speaker 1: Jeff's behest wanted to create like a Trader Joe's like
24:49
Speaker 1: product line of food. He liked that Trader Joe's was
24:51
Speaker 1: quirky and cool. So the team at Amazon writes the
24:56
Speaker 1: sixth pager that's how they come up with ideas, and
24:59
Speaker 1: it says, we want to copy the top two hundred
25:02
Speaker 1: best selling items at Trader Joe's. And they get the
25:05
Speaker 1: green light for management to do that. But Trader Joe's
25:07
Speaker 1: is a really secretive company. They don't do online shopping.
25:10
Speaker 1: It's hard to figure out what the best sellers are.
25:12
Speaker 2: Literally walk through the store, and they have to walk.
25:13
Speaker 1: Through the store and people love to do it. It's
25:15
Speaker 1: like a really delightful experience, right. So the head of
25:19
Speaker 1: the team goes about hiring the senior executive from Trader Joe's.
25:23
Speaker 1: She doesn't really know what her job's going to be,
25:25
Speaker 1: moves out to Seattle, and her first week in Seattle,
25:29
Speaker 1: stumbles across this really secretive room conference room. It has
25:34
Speaker 1: paper over the doors and the walls, brown paper. Suit
25:37
Speaker 1: can't see inside, and she goes inside and it's filled
25:40
Speaker 1: with Trader Joe's boxes of foods, and she has this
25:43
Speaker 1: light bulb moment like, oh, crap, I've been hired to
25:46
Speaker 1: replicate my former employer. From there, her boss starts hounding her, saying,
25:50
Speaker 1: give me any documents you retained from your time at
25:53
Speaker 1: Trader Joe's, which is.
25:55
Speaker 2: Clearly like and the collect correct answer is I have
25:57
Speaker 2: no documents that they made me turn everything in as
26:00
Speaker 2: per my prior employment agreement.
26:03
Speaker 1: Or if I do, I cannot give them over to
26:05
Speaker 1: because that's actually illegal. Okay, So she says no. The
26:08
Speaker 1: boss keeps hounding her, hounding her, and it becomes this
26:12
Speaker 1: really tense experience. Then she emails him the top selling
26:15
Speaker 1: items from Trader Joe's from one whole week in the US,
26:18
Speaker 1: ranked by products that were sold, and they start to
26:22
Speaker 1: disseminate that within the team. They have their blueprint to
26:24
Speaker 1: copy the top two hundred items at Trader Joe's. And
26:26
Speaker 1: then he doesn't stop there. He says, no, send me
26:28
Speaker 1: all the margins, really, and she says, no, I'm not
26:31
Speaker 1: doing that, and he screams at her in the middle
26:33
Speaker 1: of the Seattle office starts crying and someone reports to
26:36
Speaker 1: HR because it was just like such a clear violation,
26:38
Speaker 1: and Amazon actually fired those people because it went up
26:40
Speaker 1: to HR. But that sort of scenario plays out at
26:44
Speaker 1: Amazon every single team.
26:46
Speaker 2: I want to stay with the idea of some of
26:49
Speaker 2: the earlier advantages that Amazon had and how it resulted
26:55
Speaker 2: in their growth. We'll get to diapers dot com, We'll
26:58
Speaker 2: get to some of the other headlers. Let's talk about
27:02
Speaker 2: the state tax advantage, So talk about arbitrage. Bezos specifically
27:08
Speaker 2: picks Washington state because there's so few shoppers in the
27:15
Speaker 2: state that by locating there and shipping to the rest
27:19
Speaker 2: of the country, he doesn't believe he has to collect
27:22
Speaker 2: state sales tax because of an old Supreme Court case.
27:27
Speaker 2: Maybe it even involved a catalog. It wasn't Sears.
27:29
Speaker 1: Was it was a catalog, It wasn't Seiers.
27:31
Speaker 2: That said, hey, you only collect interstate commerce is not taxable.
27:36
Speaker 2: Therefore you don't have to collect it its own unless
27:39
Speaker 2: you have a nexus to that state. So immediately they're
27:44
Speaker 2: at a six seven eight percent advantage over everybody else
27:49
Speaker 2: in most states. Tell us how they push the envelope
27:52
Speaker 2: with state sales tax.
27:54
Speaker 1: This is simultaneously brilliant but horrifying for the rest of retail.
27:59
Speaker 1: He comes up with this idea that his warehouses don't
28:01
Speaker 1: count as physical locations for Amazon.
28:03
Speaker 2: Which is kind of bizarre because of course it is right.
28:07
Speaker 2: I mean, if you locate a warehouse in New York,
28:10
Speaker 2: you now have in nexus with New York.
28:12
Speaker 1: But they tried to carve that out as a separate entity.
28:15
Speaker 1: And up until twenty seventeen, Amazon was not collecting sales tax.
28:19
Speaker 2: In something, so they had a twenty year head start.
28:21
Speaker 1: Exactly, and up to ten percent in some of these states.
28:23
Speaker 1: And that just had ripple effects because people once the
28:26
Speaker 1: advent of online shopping came about, people became really price conscious,
28:30
Speaker 1: you know, people would do comparison shopping. And I spoke
28:33
Speaker 1: to you one of the presidents of Sears who had
28:36
Speaker 1: to deal with this head on, and he said, you know,
28:38
Speaker 1: Amazon and him would be selling the same Sony television.
28:41
Speaker 1: Let's say it's five hundred dollars market the price. Amazon
28:45
Speaker 1: for many states could sell that for five hundred dollars flat.
28:49
Speaker 1: Sears would have to charge eight percent sales tax in
28:51
Speaker 1: New York. So what would Sears do? They would cut
28:54
Speaker 1: the price of their TV by eight percent in order
28:58
Speaker 1: to go head to head with Amazon, and they would
29:01
Speaker 1: just completely destroy their margins. And it created this race
29:04
Speaker 1: to the bottom on electronics prices because they had to
29:07
Speaker 1: try to compete but at a loss. And this happened
29:10
Speaker 1: in so many companies where they either couldn't compete and
29:13
Speaker 1: they lost the sale to Amazon, or they cut their
29:16
Speaker 1: prices and they destroyed their margins. And that's like a
29:19
Speaker 1: very easy way to go bankruptcy.
29:21
Speaker 2: So with the benefit of hindsight, you look at they
29:24
Speaker 2: have this advantage for twenty years, which is a long time.
29:28
Speaker 2: I'm kind of shocked that states didn't stand up and say,
29:33
Speaker 2: not only are we losing jobs in our states, but
29:36
Speaker 2: we're losing tens of millions or hundreds of million in
29:39
Speaker 2: tax revenue. Why did the various states tolerate this for
29:44
Speaker 2: as long as they did.
29:45
Speaker 1: That's a really good question. I spoke to someone in
29:47
Speaker 1: Amazon's public policy office that worked on this, and he said, like,
29:50
Speaker 1: this was our secret sauce, and Amazon fought tooth and
29:53
Speaker 1: nail to preserve it, to not get rid of this
29:55
Speaker 1: advantage they had, and so they know they'd go to court,
29:58
Speaker 1: they would go for Congress and make their case and
30:00
Speaker 1: some states did come knocking.
30:02
Speaker 2: Wherever there is a state income tax, there's usually a
30:05
Speaker 2: state sales tax potend. Right, So if you open a
30:10
Speaker 2: warehouse there and the state is losing a lot of revenue,
30:13
Speaker 2: why wouldn't they just sue Amazon and say, hey, we
30:16
Speaker 2: figured out you sold this money goods in our state
30:20
Speaker 2: and uo of sales tax here because you have an.
30:21
Speaker 1: Ex Well, what part of what I found is that
30:23
Speaker 1: many of these legislators in the states were very short sighted.
30:26
Speaker 1: They wanted to put up press releases that oh, we
30:29
Speaker 1: got an Amazon warehouse at all of these temporary jobs.
30:32
Speaker 1: And there's this horrible scene in the book where Jerry Storch,
30:35
Speaker 1: who's the CEO of Toys r US at the time,
30:37
Speaker 1: which is one of New Jersey's.
30:38
Speaker 2: Largest employee r speaks to Chris Christie.
30:40
Speaker 1: He speaks to Chris Christie. He says, you guys are
30:42
Speaker 1: killing me. Why are you not making Amazon collect sales
30:45
Speaker 1: tax in New Jersey. You're putting Toys r Us out
30:47
Speaker 1: of business. You're gonna put Main Street on business. And
30:49
Speaker 1: Chris Christie sort of the aaas him. And then a
30:52
Speaker 1: year later they announced this big Amazon warehouse in Robbinsville,
30:56
Speaker 1: New Jersey. They give Amazon all these tax credits for it.
31:00
Speaker 1: Christy gets to put out the press release that they're
31:01
Speaker 1: bringing hundreds of jobs to New Jersey. But Jerry's whole
31:04
Speaker 1: point was, Okay, you're getting hundreds of jobs there, You're
31:07
Speaker 1: gonna lose thousands of jobs just from my one company, right,
31:10
Speaker 1: So that's really short sighted. And that's what happened out
31:12
Speaker 1: you know, toys or restaponant of business.
31:14
Speaker 2: It's amazing how effective they were manipulating so many self
31:19
Speaker 2: interested politicians who were so short sighted. But we saw
31:22
Speaker 2: that time and time again. It was fascinating that the
31:25
Speaker 2: Amazon two HQ was slated for New York, and a
31:30
Speaker 2: lot of people in New York said, this is a
31:32
Speaker 2: money losing deal. This isn't a wealthy company. Why do
31:35
Speaker 2: we have to give them tax breaks? They have to
31:37
Speaker 2: compete with everybody else, and they said, screw you.
31:39
Speaker 1: Going to New York was one of the rare cities
31:42
Speaker 1: to really call them out on that. Just think about
31:44
Speaker 1: the frenzy around hundreds of different cities lobbied and put
31:49
Speaker 1: in these very intensive applications for the pleasure of having
31:52
Speaker 1: these warehouse jobs and the second headquarters there, and that
31:56
Speaker 1: just shows how politicians really just want the jobs.
31:59
Speaker 2: Right, That's right, And so it was kind of interesting
32:02
Speaker 2: that when you ran the numbers as people in New
32:05
Speaker 2: York did, it wasn't a good deal and they ended
32:09
Speaker 2: up sort of splitting it. It's kind of part in Virginia.
32:12
Speaker 2: And where where did the rest of the Amazon headquarters
32:16
Speaker 2: end up going.
32:16
Speaker 1: Oh, it's in Virginia. But they haven't broken ground on
32:19
Speaker 1: a lot of it really.
32:20
Speaker 2: Yeah, so that was years ago. I mean, after all
32:23
Speaker 2: those crazy contests and RFPs and submissions, they got like
32:28
Speaker 2: two hundred cities applying for this, they still haven't broken gup.
32:32
Speaker 2: That's amazing.
32:32
Speaker 1: They have one building up for sure, but the whole
32:34
Speaker 1: plan has not come to fruition.
32:36
Speaker 2: Ironically, if you take the Long Island Expressway out past Jericho,
32:41
Speaker 2: sayas It, you'll see this immense warehouse that they built
32:45
Speaker 2: that used to just be like an empty parking lot.
32:48
Speaker 2: I don't know what was there if for years it
32:51
Speaker 2: was rumored that something was coming, and what a perfect
32:54
Speaker 2: location right off the highway. Why do you need to
32:57
Speaker 2: give you know, that gives them access to forty million
33:02
Speaker 2: people or fifty million people on the aisle, and why
33:04
Speaker 2: would you have to give them a tax break for that.
33:07
Speaker 2: That's where the customers are. Shouldn't their business model be
33:10
Speaker 2: able to accommodate building warehouse?
33:12
Speaker 1: I mean they have something like six point five billion
33:15
Speaker 1: dollars in subsidies on taxes from different jurisdisdictions around the US.
33:19
Speaker 1: It's pretty staggering.
33:20
Speaker 2: Yeah, that's really amazing. The other thing that was so
33:23
Speaker 2: disruptive was how Amazon changed how Wall Street itself viewed retailers,
33:31
Speaker 2: both in terms of profit versus growth and startups versus
33:35
Speaker 2: established retailers. Talk a little bit about the impact Amazon
33:39
Speaker 2: had on how Wall Street thought about other companies.
33:42
Speaker 1: Yeah, this is huge. There probably wouldn't be an Amazon
33:45
Speaker 1: today if Jeff did not convince Wall Street that we
33:47
Speaker 1: don't have to make profits.
33:49
Speaker 2: Right His initial shareholder letter was, hey, don't expect profits
33:52
Speaker 2: for the next ten or twenty years exactly.
33:54
Speaker 1: And that just was not the norm back then. It
33:57
Speaker 1: is today, but that was definitely not the norm. This
34:00
Speaker 1: just gave him a tremendous roadway to reinvest in his
34:03
Speaker 1: business and grow and steal share and cut on prices
34:06
Speaker 1: to get customers and.
34:07
Speaker 2: Not pay federal taxes because if you're not profitable, no
34:10
Speaker 2: tax it's a.
34:11
Speaker 1: Great point tax rate, and that really destroyed his competitors
34:16
Speaker 1: because they couldn't catch up with him on online shopping.
34:19
Speaker 1: I spoke to a lot of these CEOs who went
34:20
Speaker 1: head to head with Amazon in the nineteen nineties and
34:23
Speaker 1: two thousands. One of them was the CEO of Linens
34:25
Speaker 1: and Things, and I said, you know, why were you
34:26
Speaker 1: all so late to online shopping? Did you not believe
34:30
Speaker 1: in it? And he said, Dana, we believed in it.
34:32
Speaker 1: But my boardroom, my board of directors, laughed me out
34:35
Speaker 1: of the room when I asked for one hundred million
34:36
Speaker 1: dollars to get our e commerce and logistics up and running,
34:40
Speaker 1: because that would have tanked our earnings, that would have
34:43
Speaker 1: tanked our share price.
34:44
Speaker 2: There's a little bit of short termism there because and
34:48
Speaker 2: again we have the benefit of hindsight, but he obviously
34:51
Speaker 2: saw what was coming. Why can't you stay to the board? Look,
34:55
Speaker 2: here's the trade off. Either we spend one hundred million
34:58
Speaker 2: dollars now and be able to compete with them, or
35:01
Speaker 2: we and and lose some stock price for a couple
35:05
Speaker 2: of quarters or years, or we're dead. Those are your choices.
35:09
Speaker 2: You want, you want a little bit of a pullback
35:12
Speaker 2: now or you just want to go bankrupt.
35:15
Speaker 1: Retail's a notoriously hard business. It could be a low
35:17
Speaker 1: margin and they have to manage to Wall Street quarter
35:20
Speaker 1: after quarter, quarter to quarter, and they couldn't. You know,
35:23
Speaker 1: the CEO told me, we couldn't miss one quarter of earnings,
35:26
Speaker 1: let alone years of them like Bezos did. I'd be
35:29
Speaker 1: out of a job. I would be fired. The company
35:30
Speaker 1: could go bankrupt. And that was exactly what was going
35:33
Speaker 1: on in every company that was trying to compete with them,
35:35
Speaker 1: to the point where so many of them had to
35:37
Speaker 1: outsource their logistics to Amazon, which is their main competitor.
35:40
Speaker 2: Go through the list Toys, r US, Linens and things Target.
35:44
Speaker 2: Why on earth would Target, which is a giant company,
35:48
Speaker 2: outsource its e commerce to Amazon.
35:50
Speaker 1: Well, Jerry Storch, who was the see of Toys r US,
35:53
Speaker 1: first Target on dot com, and he told me a
35:55
Speaker 1: story that he got yelled at by senior leaders for
35:58
Speaker 1: spending ten thousand dollars on buying the domain name Target
36:02
Speaker 1: stores dot com.
36:02
Speaker 2: That's an amazing story in the book, which is like
36:05
Speaker 2: ten thousand dollars for a domat like that is around.
36:08
Speaker 1: It to be so careful with their money because it's
36:10
Speaker 1: a hard business, right, and so yeah, Target Borders Toys
36:15
Speaker 1: r US and they they had to outsource it, which
36:18
Speaker 1: meant Amazon kept their customer data. They paid Amazon a
36:21
Speaker 1: fee for shipping it, they paid Amazon a fee for
36:24
Speaker 1: listing it. They paid Amazon all these fees, and Amazon
36:27
Speaker 1: had all the upside and.
36:29
Speaker 2: They figured out, you write in the book, they figured
36:31
Speaker 2: out that if they were losing sixty five seventy million
36:33
Speaker 2: dollars a year on their site, hey we could charge
36:36
Speaker 2: them fifty million and it's a cost saving for them.
36:39
Speaker 1: Yeah, they just can The lowshold just astonishing.
36:44
Speaker 2: So let's stay with books for a minute. I'm fascinated
36:48
Speaker 2: that Barnes and Noble tries to respond very aggressively to Amazon,
36:52
Speaker 2: and they figure, we're going to take over wholesaleer Ingram
36:56
Speaker 2: in order to get a little more bulk, be able
36:59
Speaker 2: to stands Amazon, which at that point had become a
37:03
Speaker 2: substantial market share of the book selling world. And Amazon
37:08
Speaker 2: gets the takeover stopped on anti trust grounds. How ironic?
37:12
Speaker 2: Explain what happened there.
37:13
Speaker 1: Yeah, so Barnes and Noble, in order to stay competitive,
37:16
Speaker 1: tries to buy Ingram, this book distributor that Amazon also used,
37:20
Speaker 1: and Amazon cried foul and said the should be an
37:22
Speaker 1: antitrust violation. And basically, Amazon even today sometimes has this
37:27
Speaker 1: mentality that they are the David going up against Goliath,
37:29
Speaker 1: even though that has not been true for a very
37:31
Speaker 1: very long time, including in that anecdote, Amazon by market
37:34
Speaker 1: value was way bigger than Barnes and Noble at that time.
37:36
Speaker 1: And Len Reggio, the CEO of Barnes and Noble at
37:38
Speaker 1: the time, calls them out on it. He says, you're
37:42
Speaker 1: crying fall and pretending like this is going to hurt
37:44
Speaker 1: this little player, but you are the behemoth here. You
37:47
Speaker 1: know that the regulators do turn it down.
37:49
Speaker 2: So we were talking earlier about Amazon's lack of profitability
37:54
Speaker 2: for the first couple of years. It's kind of interesting
37:57
Speaker 2: how Bezos's initial share hold your letter, I want to
38:01
Speaker 2: say ninety six something like that, seventy seven, the same
38:05
Speaker 2: year as the IPO warrant investors not to expect profits
38:09
Speaker 2: for years to come. We're going to spend a billion
38:12
Speaker 2: dollars building out our website. Not only did this not
38:17
Speaker 2: have a negative impact, Wall Street applauded the profitless growth.
38:22
Speaker 2: Tell us a little bit about what an advantage and
38:25
Speaker 2: how prescient that shareholder letter from Bezos was.
38:29
Speaker 1: I mean, he trained his shareholders essentially to not expect anything,
38:33
Speaker 1: and he was very clear communicating that. But it also
38:35
Speaker 1: just gave them roadway to take all their money and say,
38:39
Speaker 1: you know, books are not the bi all end all.
38:41
Speaker 1: We're going to use this as a test case. We're
38:43
Speaker 1: going to make some money, and then we're going to
38:44
Speaker 1: take all that money and put it into expanding our verticals.
38:46
Speaker 1: Let's open this up to toys, Let's open this up
38:48
Speaker 1: to electronics. It allowed them to build the Everything store,
38:51
Speaker 1: and then it allowed them to put this money toward
38:53
Speaker 1: other areas of growth beyond retail and really create this
38:57
Speaker 1: Amazon octopus.
38:59
Speaker 2: To say the very least, let's talk about Amazon Web Services.
39:04
Speaker 2: I love the part of the book where you describe
39:06
Speaker 2: how this became a thing every time they would stand
39:10
Speaker 2: up a new vertical or open a new division, and
39:13
Speaker 2: people forget what it was like in the nineties and
39:15
Speaker 2: early two thousands before there was an AWS. You ought
39:19
Speaker 2: to go out and buy a couple of hundred servers
39:22
Speaker 2: and a lot of software engineers to put this together
39:25
Speaker 2: and to manage it. And then you had to build
39:27
Speaker 2: like you were reinventing the wheel every time there was
39:30
Speaker 2: a new startup. Tell us about how Andy Jassey kind
39:34
Speaker 2: of looked at this and said, hey, why don't we
39:37
Speaker 2: just do this once and scale it for ourselves and
39:40
Speaker 2: maybe someone else will want to buy the access from us.
39:42
Speaker 1: Yeah. So Andy Jasse, who's the CEO today, started at
39:44
Speaker 1: Amazon a few like a little bit before the IPO,
39:47
Speaker 1: so he's been there from the early days. Amazon's retail
39:49
Speaker 1: business was expanding so rapidly, and they had so much
39:52
Speaker 1: data and they needed so much computing power that they
39:55
Speaker 1: were continuously adding that to their own business, and they
39:58
Speaker 1: got good at it. Jeff and and and a few
40:00
Speaker 1: other people started figuring out like, hey, yeah, we're a
40:02
Speaker 1: retail company, but we're also good at this technology stuff.
40:05
Speaker 1: If we need this, other companies probably also need this
40:08
Speaker 1: as they explore expanding online. So they productized it. They
40:11
Speaker 1: created a company called Amazon Web Services. It was very
40:15
Speaker 1: iffy as to whether this would take off. They didn't
40:17
Speaker 1: dedicate a ton of resources to it at the beginning.
40:19
Speaker 1: Andy remembers sheepishly asking for like a few dozen employees
40:23
Speaker 1: to work on it with him and thought that was
40:24
Speaker 1: like a big deal standalone. If this were to be
40:27
Speaker 1: split off from Amazon, would be one of the biggest
40:28
Speaker 1: tech companies in the world on its.
40:30
Speaker 2: Own right, and one of the biggest sources of profits
40:34
Speaker 2: for Amazon.
40:34
Speaker 1: As well, an enormous source of profits.
40:36
Speaker 2: So they start out with storage, they start out, they
40:39
Speaker 2: had computes, They had a number of different services that
40:43
Speaker 2: just allow anybody, you don't have to go buy a
40:47
Speaker 2: bunch of servers, and that really led to an enormous
40:51
Speaker 2: adoption cycle by a lot of tech startups, a lot
40:55
Speaker 2: of small companies that hey, you don't need one hundred
40:57
Speaker 2: million dollars worth of junkets, two guys on a laptop,
41:00
Speaker 2: you can launch a business exactly.
41:01
Speaker 1: And also a lot of their competitors, a lot of
41:03
Speaker 1: their fiercest competitors, Netflix, Apple use as the CIA uses aws, right,
41:08
Speaker 1: So this is a really entrenched business product for them,
41:11
Speaker 1: and it's very sticky. Once you're on it, you don't
41:13
Speaker 1: really leave.
41:14
Speaker 2: So it's kind of interesting what happens in other areas
41:18
Speaker 2: of Amazon, where there's supposed to be a Chinese wall
41:21
Speaker 2: between you as a customer of their corporate services and
41:25
Speaker 2: the rest of their business. But you described time and
41:28
Speaker 2: time again in the book how that Chinese wall really
41:31
Speaker 2: doesn't exist. Anybody has access to everything throughout the company.
41:35
Speaker 2: Let's talk a little bit about marketplace, all right. So
41:38
Speaker 2: originally Amazon, Chase, Deebay launched an auction site. It actually failed,
41:43
Speaker 2: and the pivot was to marketplace. Hey, let's bring in
41:46
Speaker 2: third party sellers of stuff rather than auctions, just selling
41:50
Speaker 2: it at standard prices. That's now more than half of
41:53
Speaker 2: the business.
41:54
Speaker 1: It's more than sixty percent of their real Wow.
41:57
Speaker 2: That's amazing. So that becomes wildly successful. But all of
42:02
Speaker 2: these small businesses that sell in marketplace, they haven't been
42:07
Speaker 2: very happy with how marketplace works. Tell us what's going on.
42:10
Speaker 1: Yeah, they have this uncomfortable situation of selling on marketplace,
42:13
Speaker 1: relying on it for their income, but then also seeing
42:17
Speaker 1: a lot of their products that they've gone to great
42:20
Speaker 1: lengths to use RND to create showing up in very
42:24
Speaker 1: similar versions on Amazon's private label side of the business
42:27
Speaker 1: called Amazon Basics or Amazon Essentials. And for years they've
42:30
Speaker 1: alleged that Amazon stole my idea, and Amazon has always
42:34
Speaker 1: very vocally refuted that notion. They say, you know this
42:37
Speaker 1: is there's firewalls. We would never copy our own sellers,
42:41
Speaker 1: and they've they've disputed that, and I was able to
42:44
Speaker 1: get documentation and find the receipts that they've been doing
42:47
Speaker 1: this for a very long time.
42:48
Speaker 2: So let's put a little flesh on that. So Amazon
42:51
Speaker 2: is both the platform to these third party sellers as
42:54
Speaker 2: well as a original competitor, not merely selling other people's
42:59
Speaker 2: products but creating their own. Anything that's a hot seller
43:02
Speaker 2: on Amazon, they are aware of through their own data,
43:06
Speaker 2: and they look at it. They look at the margin,
43:08
Speaker 2: and they figure out how cheaply can we make this
43:11
Speaker 2: and how much do we want to go after this.
43:13
Speaker 2: They've been pretty aggressive about that, haven't they They have.
43:16
Speaker 1: I mean, the documents that I was given shows how
43:19
Speaker 1: they reverse engineer these best selling products, and they have
43:22
Speaker 1: everything from the number of items sold to the cost
43:26
Speaker 1: to sell them, to the number of returns to the margins.
43:29
Speaker 1: There's twenty five different fields that the employees on the
43:31
Speaker 1: private label side of the company who have been told
43:35
Speaker 1: you probably shouldn't be doing this. There's policies in place
43:37
Speaker 1: at Amazon that are essentially not enforced, and because they're
43:40
Speaker 1: afraid of losing their jobs and not hitting their numbers,
43:42
Speaker 1: they've often resorted to looking over the fence and taking
43:45
Speaker 1: this type of data to reverse engineer best selling hits
43:49
Speaker 1: because it makes them look good and it keeps their jobs.
43:51
Speaker 1: And Amazon, even under oath, told Congress that they were
43:55
Speaker 1: not doing this.
43:56
Speaker 2: Really, yes, under oath, and yet it's pretty obvious they've
43:59
Speaker 2: been doing that and doing it for a long time.
44:02
Speaker 2: Let's talk a little bit about Alexa and how they
44:06
Speaker 2: sent up a venture funds that was very different than
44:09
Speaker 2: the typical venture funds. Tell us a little bit about
44:11
Speaker 2: what's going on with Voice and Alexa inside of Amazon.
44:15
Speaker 1: Yeah, Amazon was one of the pioneers of this voice
44:18
Speaker 1: technology and you know these voice assisted robots, and as such,
44:21
Speaker 1: they set up this vcarm called the Alexa Fund. And
44:24
Speaker 1: what I learned was that a pattern played out. They'd
44:27
Speaker 1: have all of these CEOs and founders pitch them on
44:30
Speaker 1: getting money and seed investments for their companies, and under
44:33
Speaker 1: the auspices of either getting an investment or being bought
44:36
Speaker 1: by Amazon's M and A arm, they'd share all of
44:39
Speaker 1: their proprietary data things like, you know, their patents, their technologies,
44:44
Speaker 1: all the stuff that companies go to great lengths to
44:46
Speaker 1: keep secret because they think they're getting an investment. And
44:48
Speaker 1: time and time again, Amazon would take that information, bring
44:51
Speaker 1: the heads of different Amazon businesses to these meetings to
44:54
Speaker 1: learn from it, and then ghost them and introduce the
44:57
Speaker 1: same exact product from an Amazon brand.
45:00
Speaker 2: Later you talk about the firewalls and the vcs, and
45:04
Speaker 2: one entrepreneur is in a meeting with a bunch of people, Hey,
45:09
Speaker 2: who are those guys? I know you are? And who
45:11
Speaker 2: are who are these guys? And it turns out they're
45:14
Speaker 2: the product heads that are going to be making the competing,
45:18
Speaker 2: competing product. It's really the the I like the VC
45:22
Speaker 2: quote Amazon is a wolf in wolf's clothing, Like there's
45:26
Speaker 2: a very really not even a big attempt to hide it.
45:32
Speaker 2: A different part of the book describes an entrepreneur where
45:35
Speaker 2: there are people in the room with their arms closed,
45:38
Speaker 2: looking bored and like not usual venture capital behavior if
45:44
Speaker 2: you're really interested in this technology. They eventually figure out
45:48
Speaker 2: this is just a Yeah, that was fishing is too kind?
45:54
Speaker 2: You call it specifically VC espionage. Talk a little bit
45:58
Speaker 2: about how misleading even the NDA's were. The non disclosure.
46:03
Speaker 1: Oh my god, this was galling to me as a
46:04
Speaker 1: deal geek who covered M and A. I asked some
46:07
Speaker 1: of these founders I spoke to for the book to
46:08
Speaker 1: send me all the documents that Amazon gave them prior
46:11
Speaker 1: to these meetings, and I read them very thoroughly and
46:13
Speaker 1: found something called a residual's clause buried in the legal ease,
46:17
Speaker 1: and it basically said that anything retained in the memories
46:21
Speaker 1: of Amazon executives at these meetings where proprietary stuff is
46:25
Speaker 1: being disclosed could be used by Amazon in their own
46:28
Speaker 1: business without any legal repercussion. So it's a license to steal.
46:32
Speaker 2: So essentially, and I keep coming back to this from
46:35
Speaker 2: the original d Shaw issue the culture at Amazon. They
46:40
Speaker 2: hired senior lawyers from some of the best firms. It
46:43
Speaker 2: seems like ethics is completely irrelevant. It seems like this
46:48
Speaker 2: is a group of rogue capitalists who are just rapacious
46:52
Speaker 2: in their greed regardless of ethics and business standards. They're
46:59
Speaker 2: just opera reading in a gray zone of legality, but
47:03
Speaker 2: in a very black and white zone of ethics. These
47:06
Speaker 2: are bad people doing bad things.
47:08
Speaker 1: The interesting thing is so many of my sources for
47:10
Speaker 1: this book are the people doing the bad things, because
47:14
Speaker 1: once they take a step back from Amazon and they
47:16
Speaker 1: realized how this company pushed them to their breaking point,
47:20
Speaker 1: that it made them do things that they would not
47:21
Speaker 1: have done at a company that was not so cutthroat.
47:24
Speaker 2: They feel bad, Well they should. They have a guilty
47:26
Speaker 2: conscious because they did really bad things for the money.
47:29
Speaker 2: They could feel bad about it after the fact. But
47:32
Speaker 2: let's be blunts. They had big stock options and reasonable
47:35
Speaker 2: pay packages. And if you're coming over from a top
47:39
Speaker 2: twenty law firm where you're giving up a seven figure job,
47:42
Speaker 2: you're doing it because you have the chance to make
47:44
Speaker 2: ten figures in your stock options. So I feel bad
47:48
Speaker 2: that they feel bad. Not really, they did bad things
47:53
Speaker 2: because they were in for the money and they realized
47:56
Speaker 2: the trade off wasn't worth it. Sell your soul for
47:58
Speaker 2: a few bucks, you still made to deal with the devil.
48:01
Speaker 1: I would agree with you. And you know, that's the
48:03
Speaker 1: one thing I wanted to depict in this book is
48:04
Speaker 1: the human toll of that. I mean, when I was
48:06
Speaker 1: reporting out that chapter, you're just describing the founders that
48:09
Speaker 1: would cry to me on the phone about what happened
48:11
Speaker 1: to their companies, how Amazon just decimated them. It was
48:15
Speaker 1: really hard reporting, just as a journalist to like internalize
48:17
Speaker 1: a lot of that. This company that didn't need to
48:20
Speaker 1: do these things to win chose to rit and it
48:22
Speaker 1: cost people their jobs, their livelihoods, their technologies at what costs.
48:27
Speaker 2: Let's talk a little bit about diapers dot com and
48:29
Speaker 2: what was the parent company, Quizzy Quizzy Quizzy, So this
48:32
Speaker 2: is kind of interesting. Amazon can't figure out how to
48:36
Speaker 2: ship diapers quickly, right, And moms are a giant demographic
48:41
Speaker 2: in retail. I think the book says they make eighty
48:44
Speaker 2: four percent of the consumer spending the controls in the household. Like, there,
48:48
Speaker 2: you win the moms, you win retail. And these guys
48:51
Speaker 2: have figured out how to have diapers arrived next day, like,
48:55
Speaker 2: they figured out how to reach moms. And Amazon decides
48:59
Speaker 2: to go out after them, and they start predatory pricing,
49:03
Speaker 2: selling diapers twenty percent below cost, which one would think
49:10
Speaker 2: is illegal, isn't that.
49:11
Speaker 1: Yeah, it's the definition of predatory pricing. It's twenty ten.
49:14
Speaker 1: Jeff Bezos becomes laser focused on Quidzy, which is started
49:17
Speaker 1: by these two entrepreneurs that are like the first people
49:20
Speaker 1: in their in their families to even go to college, right,
49:22
Speaker 1: these are homegrown talent, Mark Lori and Vinie Berra, Right.
49:26
Speaker 1: And he puts together a team to essentially spy on
49:30
Speaker 1: them and figure out how they do it, and Amazon
49:32
Speaker 1: starts to really cut the prices of their own diapers
49:35
Speaker 1: thirty percent. They cut the price of their diapers so
49:38
Speaker 1: much that they start losing two hundred million dollars a
49:40
Speaker 1: month just on diapers. According to internal documents.
49:43
Speaker 2: That's two point two billion a year on diapers.
49:46
Speaker 1: Along because they were so threatened by this little startup
49:48
Speaker 1: in New Jersey. Okay, and Amazon eventually makes a buyout
49:53
Speaker 1: offer to this firm, but they don't want to do
49:54
Speaker 1: it because they're doing so well they think they could
49:56
Speaker 1: ipo one day, so they turn them down. So then
49:58
Speaker 1: Amazon ratchets up the heat, cuts price of diapers more,
50:03
Speaker 1: creates this loyalty program to incentivize moms to shop with
50:06
Speaker 1: Amazon not Quidzy, and it becomes to the point where
50:09
Speaker 1: it's untenable for the quizy people. They start missing their
50:11
Speaker 1: internal numbers. They have to start considering a sale. Unfortunately,
50:14
Speaker 1: they're really crestfallen about that Amazon's one of the biggest
50:17
Speaker 1: players in the space. They even have to consider an
50:19
Speaker 1: offer from the person that did this to them. Okay,
50:23
Speaker 1: So they're at this private dinner with Amazon executives discussing
50:26
Speaker 1: this offer. They don't want to sell to Amazon. And
50:29
Speaker 1: Mark Lori's BlackBerry at the time gets an email pop
50:32
Speaker 1: up and it's an offer from Walmart, and they're excited
50:35
Speaker 1: to for.
50:36
Speaker 2: Like one hundred million dollars more than the five and
50:38
Speaker 2: change exactly five point fifty Amazon head offers it's a.
50:41
Speaker 1: Higher offer and it's not the company that's destroyed them.
50:44
Speaker 1: So they go in the hallway, they discuss it, and
50:46
Speaker 1: they say, let's take this Walmart offer. They go back
50:48
Speaker 1: into the room with the Amazon executives. They say, hey,
50:50
Speaker 1: just want to let you know we got this offer.
50:52
Speaker 1: It's better for a shareholders. We're going to go in
50:54
Speaker 1: this direction. And they're told by a senior Amazon executive, Okay,
50:58
Speaker 1: you go ahead and do that, and we'll go to
51:00
Speaker 1: cut the price of our diapers to zero.
51:02
Speaker 2: That seems legal, right, We're going to give our diapers
51:04
Speaker 2: a way to put you out of business and prevent
51:06
Speaker 2: you from selling to our competitor Walmart.
51:08
Speaker 1: Right. And the people in that room knew that if
51:11
Speaker 1: Walmart had decided to acquire Quidzy and Amazon put them
51:15
Speaker 1: out of you know, created this pricing war that they
51:17
Speaker 1: were selling diapers for either zero or.
51:19
Speaker 2: Like a dollar material change exactly. In fact, elements that
51:23
Speaker 2: would lead to the deal falling apart.
51:25
Speaker 1: Walmart could back away from the deal scot free, so
51:28
Speaker 1: they were forced to sell to their main competitor who
51:30
Speaker 1: put them in this position. And this created, you know,
51:32
Speaker 1: generational wealth for those two men who didn't even go
51:35
Speaker 1: to for a drink to celebrate because they were so upset.
51:38
Speaker 2: Now, what what did they end up doing in the
51:40
Speaker 2: future post that that purchase?
51:42
Speaker 1: Oh, they shut it down. They shut down quids They.
51:46
Speaker 2: Just took all the clients. They took the few years
51:49
Speaker 2: and then eventually was folded in. The two guys who
51:52
Speaker 2: created Quidcy. Did they do anything else in the field?
51:54
Speaker 1: Now, Mark Lori went on to start a company called
51:57
Speaker 1: jet dot.
51:57
Speaker 2: Com, he said, Which gets why.
51:59
Speaker 1: Walmt by it for a very significant sum, a couple
52:02
Speaker 1: of billion. Body now owns if you live in New York,
52:04
Speaker 1: there's a place called Wonder, this restaurant company that is
52:07
Speaker 1: I actually really like Wonder. So he's doing that now,
52:10
Speaker 1: So I mean this, He's gone on to do really
52:12
Speaker 1: big things.
52:12
Speaker 2: So the fascinating thing is, after being forced to sell
52:16
Speaker 2: the diapers dot Com company to Amazon, Jet dot Com
52:21
Speaker 2: became essentially the back end of all of Walmart online retailing.
52:26
Speaker 2: So I want to say he got a little bit
52:29
Speaker 2: of payback. Whether whether or not he, you know, put
52:35
Speaker 2: as much pain to Amazon as Amazon put to him
52:37
Speaker 2: is arguable. But it was pretty obvious, and you make
52:41
Speaker 2: it clear in the book he was imagine getting bought
52:44
Speaker 2: for five hundred and fifty million dollars and leaving dejected.
52:48
Speaker 2: I know, it's kind of amazing.
52:50
Speaker 1: It is, it really is. I mean, I just I
52:51
Speaker 1: think it speaks to like the pain and suffering they
52:53
Speaker 1: went through with this M and A battle.
52:55
Speaker 2: What are the things that kind of shocked me. You
52:57
Speaker 2: mentioned what a difficult a place to work Amazon is.
53:03
Speaker 2: They even backload their stock options. Your stock options are
53:08
Speaker 2: like if you work at Google or somewhere else, you
53:10
Speaker 2: get stock options and they'll vest in three years and
53:13
Speaker 2: you could start selling. At least that's what it used
53:15
Speaker 2: to be. I don't know what it is these days,
53:17
Speaker 2: but they backloaded. It's five fifteen. Year three is forty
53:21
Speaker 2: percent of your stock options. Year four is forty percent.
53:25
Speaker 2: You really have to stick it out, don't you.
53:27
Speaker 1: Yeah, And that creates this pernicious cycle. The average white
53:31
Speaker 1: collar employee at Amazon lasts a year and a half.
53:33
Speaker 1: That's a major so most of them leave their stock
53:35
Speaker 1: options on the table. But if you want to get
53:37
Speaker 1: your full payout, you have to survive. You have to
53:39
Speaker 1: not be part of that bottom six percent. And that
53:42
Speaker 1: creates that pressure cooker of an environment that I talk about.
53:45
Speaker 2: So let's ask the question about the big question. Is
53:50
Speaker 2: Amazon a monopoly? Have they remade corporate power in their
53:53
Speaker 2: own image? And what sort of antitrust enforcement might we
53:58
Speaker 2: expect in the future.
53:59
Speaker 1: Well around the world, including our government, have said it
54:02
Speaker 1: is a monopoly. The Federal Trade Commission filed a lawsuit
54:05
Speaker 1: last year saying it's an illegal monopoly, and the lawsuit
54:08
Speaker 1: says it could be broken up.
54:10
Speaker 2: What about Europe, they've been pretty strict about Amazon as well.
54:13
Speaker 1: The ear was way ahead of us on policing our
54:15
Speaker 1: own giants. Marguerite Bestare was looking into Amazon, Facebook, Google,
54:20
Speaker 1: and Apple years ago and people thought she was crazy.
54:23
Speaker 2: Right, So we're recording this a week before the election.
54:26
Speaker 2: We don't know what the outcome is going to be,
54:28
Speaker 2: but it appears that no matter who wins, Amazon's going
54:33
Speaker 2: to stay in the FTC's crosshairs. Because Lena Kahan works
54:39
Speaker 2: for the Biden Harris administration, the assumption is if Harris wins,
54:44
Speaker 2: she continues, and Trump really dislikes Bezos because of his
54:49
Speaker 2: ownership with The Washington Post and has said Amazon should
54:52
Speaker 2: be broken up. What's it like inside the lobbying arm
54:57
Speaker 2: of Amazon heading into this election.
55:00
Speaker 1: It's really fascinating. I don't know which administration they would
55:03
Speaker 1: want to win. They you know, they had a really
55:05
Speaker 1: painful four years under Trump where he was just berating
55:08
Speaker 1: them online every day, alleging that Jeff Bezos was using
55:11
Speaker 1: the Washington Post as a political tool to.
55:14
Speaker 2: Attack him to the Amazon Washington Post.
55:16
Speaker 1: Amazon Washington Post, that should be a lobbyist, according to him.
55:20
Speaker 1: So that was like super painful. But then the Biden
55:22
Speaker 1: administration came in where they had good connections, and that
55:25
Speaker 1: was even more painful in some ways. You know, Biden
55:27
Speaker 1: chooses Lena Khan to be the head of the FTC.
55:30
Speaker 1: She brings forward the lawsuit against Amazon for being a monopoly.
55:34
Speaker 1: So either way, it's not like a really great outcome
55:37
Speaker 1: for that company.
55:38
Speaker 2: You know. The interesting thing about the anti trust enforcement
55:41
Speaker 2: against Microsoft in the nineties was just having that enforcement
55:46
Speaker 2: hanging over their head was enough to allow all these
55:48
Speaker 2: small companies to get out from under you know, every
55:53
Speaker 2: startup had to deal with the question every software startup, Hey,
55:57
Speaker 2: what's going to prevent Microsoft from just building these features
56:00
Speaker 2: to office or into Windows? And it was really challenging.
56:05
Speaker 2: The anti trust enforcements seem to have forced them to
56:09
Speaker 2: behave better and that, you know, that was the Cambrian
56:12
Speaker 2: explosion of dot COM's Might we see something similar with Amazon?
56:17
Speaker 2: Might online retail expand from the forty percent market share
56:22
Speaker 2: Amazon has elsewhere if this anti trustwork is enforced.
56:26
Speaker 1: You know, the big question is will this FTC suit
56:29
Speaker 1: have a chilling effect on the way Amazon behaves? I
56:32
Speaker 1: would say they have more competition these days, Timu and
56:35
Speaker 1: Shean are you know, these low cost Chinese marketplaces. But
56:39
Speaker 1: I don't see any changes to the way Amazon is operating.
56:42
Speaker 1: You know, Andy Jasse there's a scoop in the book.
56:44
Speaker 1: He's telling his deputies, you know, at around the same
56:47
Speaker 1: time that they have this historic lawsuit against them for
56:49
Speaker 1: being too big, that they should be so much bigger.
56:52
Speaker 1: He tells them, we should be a ten trillion dollar company. Okay,
56:55
Speaker 1: so how do you get to ten trillion dollars when
56:57
Speaker 1: you're two trillion dollars. It's competing the way you're you've
57:00
Speaker 1: been competing.
57:01
Speaker 2: Putting it, supersizing it. And since we're talking about antitrust enforcement,
57:06
Speaker 2: it's kind of fascinating that the entire we've had forty
57:10
Speaker 2: years of lacks anti trust enforcement, dating back to the
57:15
Speaker 2: Reagan administration and Judge Bork, who was one of the
57:19
Speaker 2: big advocates of moving away from historical anti trust enforcement.
57:25
Speaker 2: You describe in the book. Lena Khan is a twenty
57:29
Speaker 2: seven year old law student at Yale. She writes a
57:33
Speaker 2: law review paper on how much Amazon is monopoly? And
57:39
Speaker 2: when was the last time a law review paper when
57:42
Speaker 2: viral like this? This completely upended what was going on.
57:46
Speaker 2: Tell us a little bit about Lena Khan.
57:47
Speaker 1: Yeah, she was this law school student at Yale, where
57:50
Speaker 1: actually Bork had been a professor, and she writes this
57:53
Speaker 1: seminal law review article saying that the antitrust laws the
57:56
Speaker 1: way that they're being interpreted, partially because of Bork, are
57:59
Speaker 1: failingstomers and consumers in the US, and that Amazon's the
58:02
Speaker 1: prime example of this. That Amazon is a monopoly and
58:06
Speaker 1: it's allowed to be monopoly because we're not enforcing her
58:08
Speaker 1: anti trust laws the way that they were first derived.
58:11
Speaker 1: And this might be the only time that a law
58:13
Speaker 1: review article goes viral. Millions of people read this thing,
58:16
Speaker 1: including legislators, CEOs. It gets picked up by the New
58:21
Speaker 1: York Times, right, it becomes this like zeitgeist type of movement.
58:24
Speaker 1: It's the first time that people start equating this company
58:27
Speaker 1: with the smile on the box, with potentially being a monopoly.
58:30
Speaker 1: And she starts to with this other band of trustbusters
58:34
Speaker 1: start to reshape this moment in time about whether anti
58:38
Speaker 1: trust laws are failing Americans. She makes the.
58:40
Speaker 2: Point that the way Amazon has become a monopoly and
58:44
Speaker 2: abuses its platform power is very reminiscent of what we
58:48
Speaker 2: saw under standard Oil and Rockefeller tell us a little
58:52
Speaker 2: bit about some of the abusive uses of their power
58:56
Speaker 2: that manifest in their growth.
58:59
Speaker 1: Yeah. So, she points to predatory pricing that Amazon was
59:02
Speaker 1: undercutting the market in those early days in order to
59:05
Speaker 1: steal share from rivals and put them out of business.
59:07
Speaker 1: She also says they're like a utility, that this isn't
59:09
Speaker 1: a company that you might want to work with. You
59:12
Speaker 1: sort of have to work with them if you want
59:13
Speaker 1: to reach shoppers, and that has power over the sellers
59:16
Speaker 1: on their website, where they could you know, Jack up fees.
59:19
Speaker 1: It has power over lots of different competitors that feel
59:22
Speaker 1: like they're forced to work with their main rival in
59:25
Speaker 1: order to access markets.
59:26
Speaker 2: And share a lot of data a lot of their
59:29
Speaker 2: rather not as well as by advertising from them.
59:32
Speaker 1: Advertising is another area.
59:33
Speaker 2: In the book. You talk about how when Amazon enters
59:36
Speaker 2: into the marketplace with a competitive product, they shut off
59:41
Speaker 2: their competitors' ability to advertise that.
59:43
Speaker 1: Product they do, and that's you know, advertisings become so
59:46
Speaker 1: core to being successful as a seller on Amazon dot
59:49
Speaker 1: Com because there's millions of other sellers that flywheel that
59:52
Speaker 1: if you don't buy advertising, you're not showing up in search.
59:55
Speaker 1: And what did Amazon do Roku, which makes a competing
59:58
Speaker 1: device for them for streaming TV, all of a sudden
1:00:00
Speaker 1: they can't buy ads anymore. You know, this happened across
1:00:02
Speaker 1: the device's space.
1:00:04
Speaker 2: And so the anti trust law is, Hey, if you
1:00:06
Speaker 2: want to be a platform, you could be a platform.
1:00:07
Speaker 2: If you want to be a retailer, you could be
1:00:10
Speaker 2: a retailer, but you can't tie your platform advertising into
1:00:15
Speaker 2: reducing the competitiveness of your products versus other people.
1:00:18
Speaker 1: Well, that's where the Congress was alleging that if you
1:00:20
Speaker 1: can't own the world's biggest online platform and also compete
1:00:23
Speaker 1: on it, that it has to be one or the.
1:00:25
Speaker 2: Other spin out that separate business and.
1:00:28
Speaker 1: Do FTC lawsuits a little bit different. She alleges that actually,
1:00:32
Speaker 1: in this current form, Amazon's become the monopoly. They don't
1:00:35
Speaker 1: have to do predatory pricing anymore. They could actually exert
1:00:37
Speaker 1: their power on their sellers. You know, a decade ago,
1:00:40
Speaker 1: the average seller in Amazon gave nineteen cents on the
1:00:43
Speaker 1: dollar back to Amazon and fees. Today that's forty five
1:00:46
Speaker 1: cents on the dollar. That's unbelievable, and that means those
1:00:49
Speaker 1: sellers have had to raise the price of their goods
1:00:51
Speaker 1: to cover Amazon's margin.
1:00:52
Speaker 2: Or reduce their own margin or their own margin.
1:00:55
Speaker 1: And the FTC lawsuit says, because Amazon's so big and
1:00:58
Speaker 1: they require those sellers to also have the lowest price
1:01:01
Speaker 1: in Amazon, that they have to raise the price on
1:01:03
Speaker 1: Target dot Com and Walmart dot Com and on and
1:01:05
Speaker 1: on and on, and it's created higher prices for all
1:01:08
Speaker 1: of us.
1:01:08
Speaker 2: Huh, So are you an Amazon Prime member? Do you
1:01:11
Speaker 2: use Amazon?
1:01:12
Speaker 1: We have a Prime account because my husband watches football
1:01:15
Speaker 1: and they have Thursday Night Football. We don't really shop
1:01:18
Speaker 1: on it though.
1:01:18
Speaker 2: You don't very rarely. Huh, that's really interesting. All right,
1:01:22
Speaker 2: Let's jump to our favorite questions. We ask all of
1:01:24
Speaker 2: our guests starting with, so what are you streaming these days?
1:01:28
Speaker 2: What are you either listening to on Audible? What are
1:01:30
Speaker 2: you watching on Amazon Prime or Netflix or Apple Plus?
1:01:34
Speaker 2: What was keeping you entertained besides Thursday Night Football?
1:01:37
Speaker 1: I watch Nobody Wants This. That was very good, charming,
1:01:40
Speaker 1: really really good. I listened to my favorite murder. It's
1:01:43
Speaker 1: a true crime podcast. I'm a Murder, you know they
1:01:45
Speaker 1: call it.
1:01:46
Speaker 2: Tell us about your early mentors who helped shape your career.
1:01:50
Speaker 1: Oh gosh, I have so many of them. Joanne Lublin,
1:01:52
Speaker 1: who was this dynamo at the Wall Street Journal, Danis Simaluka,
1:01:56
Speaker 1: my former boss at the Wall Street Journal on M
1:01:58
Speaker 1: and A Jamie Heller who's now the CEO of Business Insider,
1:02:02
Speaker 1: Dennis Berman, who is an amazing m and a reporter
1:02:05
Speaker 1: at the Journal. And Drew Dowell, I would say, who
1:02:08
Speaker 1: he's now overseas for us.
1:02:09
Speaker 2: Let's talk about books. What are your favorites? What are
1:02:12
Speaker 2: you reading right now?
1:02:13
Speaker 1: So some of my favorites are The Moonstone by Wilkie
1:02:15
Speaker 1: Collins it's like one of the first Victorian detective mysteries.
1:02:19
Speaker 1: I love the Bronts and Jane Austin. I know that's
1:02:21
Speaker 1: like pretty trite. I'm reading some just fun Halloween type
1:02:26
Speaker 1: of books right now, this book called Lucy Fowley called
1:02:29
Speaker 1: The Midnight Feast. That's been really fun. And I love
1:02:31
Speaker 1: Sally Rooney. I have her new book ready to read
1:02:35
Speaker 1: after this one.
1:02:36
Speaker 2: All right, our final two questions. What sort of advice
1:02:39
Speaker 2: would you give to a recent college grad interested in
1:02:42
Speaker 2: a career in either journalism, m and a retail what's
1:02:47
Speaker 2: your advice journalism?
1:02:49
Speaker 1: It's I mean, you have to hustle. I would say
1:02:52
Speaker 1: it's to get as many bylines as you can, even
1:02:55
Speaker 1: if it's not at one of the prestige newspapers. At first,
1:02:58
Speaker 1: I fully believe the way I got hired at the
1:03:00
Speaker 1: was freelancing my college papers. My college you know, articles
1:03:04
Speaker 1: to other places to get a byline in places in
1:03:07
Speaker 1: tiny newspapers that probably don't exist anymore. And you just
1:03:10
Speaker 1: have to be reporting around you all the time, making
1:03:12
Speaker 1: sources wherever you are, keeping a great rolodex. So I
1:03:15
Speaker 1: think that's the most important thing you could do.
1:03:18
Speaker 2: And what do you know about the world of journalism today.
1:03:22
Speaker 2: You wish you knew twenty years or so ago when
1:03:24
Speaker 2: you were first starting out.
1:03:27
Speaker 1: Oh my gosh. When I first started out, dot com
1:03:30
Speaker 1: was like not even that much of a thing, right,
1:03:33
Speaker 1: you know. The WSJ dot Com was this like bastard
1:03:36
Speaker 1: step child, right, And that's that's what I was put on. Actually,
1:03:41
Speaker 1: I think I wish I knew that you just have
1:03:44
Speaker 1: to be so resilient in this profession that if you're
1:03:49
Speaker 1: doing your job well, it means a lot of rejection.
1:03:51
Speaker 1: That you're gonna cold call people and they're gonna hang
1:03:52
Speaker 1: up on you, and that's fine, cold call the next one.
1:03:55
Speaker 1: You just get up again and get up again, because
1:03:57
Speaker 1: so much of journalism is a numbers game.
1:04:00
Speaker 2: Really really interesting. Thank you, Dana for being so generous
1:04:03
Speaker 2: with your time. We have been speaking with Dana Mattioli.
1:04:07
Speaker 2: She covers Amazon for The Wall Street Journal and is
1:04:10
Speaker 2: the author of the book The Everything War, Amazon's ruthless
1:04:14
Speaker 2: quest to own the world and remake corporate power. If
1:04:18
Speaker 2: you enjoy this conversation, well be sure and check out
1:04:21
Speaker 2: any of the five hundred or so previous discussions we've
1:04:23
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1:04:27
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Speaker 2: and be sure and check out my new short forum
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1:04:48
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1:04:52
Speaker 2: I would be remiss if I do not thank the
1:04:53
Speaker 2: correct team that helps us put these conversations together each week.
1:04:57
Speaker 2: Sarah Livesey is my audio engineer. Jone Russo is my
1:05:01
Speaker 2: head of research. Anna Luke is my producer. Sage Bauman
1:05:05
Speaker 2: is the head of podcasts at Bloomberg. I'm Barry Bertolts.
1:05:09
Speaker 2: You've been listening to Masters in Business on Bloomberg Radio.