In the book The Everything Store, Brad Stone takes an inside look at the rise of Jeff Bezos and Amazon. Bezos is notorious for his belief in the long term, which leads to the company sacrificing short-term profits to help fuel future growth. The company also has a maniacal focus on customer satisfaction, often at the expense of relationships with vendors, clients, and (sometimes) employees.
Stone reveals several anecdotes where these two factors meet to led to some ultra-shrewd business moves by Bezos and his team. Some examples:
When wrangling publishers to offer their books for the Kindle, Amazon purposefully never mentioned price. The publishers found out with the rest of the world at the Kindle launch event. From the book:
Among the gathered publishing execs at the Kindle press conference, there was confusion. Was the $9.99 price a promotional discount for the launch?
Finally the grim reality set in and publishing executives kicked themselves for their own gullibility
[One publishing executive said,] “If I could rewrite history I would have said, ‘Thanks so much, I love the idea of the Kindle, but let’s have an agreement that says you will not sell below the cost.’ I feel like I was asleep at the tiller.”
The new price made digital cheaper than paperback, which made customers buy more books, which made the publishers more dependent on Amazon. The company purposefully capitalized on the publishers lack of understanding about the new medium to provide the best value and make the book industry further reliant on Amazon.
In 2002, Amazon’s contract with UPS was up for renewal and the shipping company was ready to play hardball. Amazon was in a weak negotiating position. It wasn’t using FedEx at all, and the Postal Service was barred from negotiating rates. Six months before negotiating, Amazon moved to improve its positioning:
Over the course of six months [Amazon employee Bruce] Jones traveled to FedEx’s headquarters in Memphis, integrating their systems and quietly ratcheting up the volume of packages. Amazon also increased its shipment injections with the U.S. Postal Service: company employees drove Amazon’s trucks to the post office and inserted packages directly into the flow of federal mail.
Then, when UPS refused to lower their rates, Amazon “flipped the switch” and stopped using UPS cold turkey:
“In twelve hours they went from millions of pieces a day to a couple a day,” says Jones.
UPS execs caved and gave Amazon discounted rates.
In its early days Amazon would partner with various retailers to keep its site stocked with items from markets it didn’t understand or couldn’t fit in its warehouses. One of the company’s earliest partners was Toys “R” Us, and Bezos ratcheted up the theatrics:
The negotiations were, as was often the case when Jeff Bezos was involved, long and, according to Jon Foster, “excruciating.” When both teams met for the first time, Bezos made a big show of keeping once chair open at the conference-room table, “for the customer,” he explained.
They two companies ended up striking a deal after being at an impasse for months.
While Bezos and company weren’t so kind to their negotiating partners, no one can argue with the results. You can buy the book here.