Inside the Giant machine - An Amazon Story, Second Edition
Amazon sold its first book July of 1995; Bezos selected a name beginning with 'A' to provide early alphabetic listing, the word 'Amazon' was appealing because it conveyed a sense of 'bigness.' Author Kalpanik ended up working there after being laid off as a result of a merger. Getting hired, however, required a two-day-long marathon session lasting 9-10 hours each day and being interviewed by 23 different individuals. He was asked to design systems for real-time inventory information, traffic light control, guaranteed message delivery, credit card authorization, etc. He also wrote a program to find a pair of numbers such that their sum is K, another to find the most frequent character in a list, etc., explained how Jennifer Lopez's curvature could be approximated using a hyperbolic paraboloid, described why his first dot-com failed, explained various programming standards, and solved several brainteasers. Two weeks later, Kalpanik received a job offer! However, its 3-year non-compete requirement and relatively low salary led Kalpanik to decline the opportunity. The offer was sweetened, and Kalpanik was on-board.
Fresh college graduates had to stand out on SAT scores and college grade-point averages - Ivy Leaguers were preferred.
Amazon's performance review process utilized a 'rank and yank' system were the bottom 10% usually were fired. Kalpanik eventually realized that Amazon did not provide a nurturing environment for employees - it was a giant, cold, and calculating number-crunching machine. Most meetings at Amazon resembled stress-inducing oral thesis exams at major universities - ultimately what mattered most was how confidently you answered questions. Preparing for these meetings required long hours, contributing to 60-80 hour work-weeks.
Amazon requires all its managers and supervisors to work in a warehouse as part of its customer connection training. Its Fernley, Nevada sits is the largest. Special tape was placed on creates of inventory belong to other large merchants using Amazon as their fulfillment provider - eg. Target, Toys "R" Us. Item locations were optimized for shipping ease - bar-codes were essential to both identify items and their locations. Shipping carrier performance is measured at every hub, and if a hub makes too many mistakes Amazon stops sending packages there until corrections are implemented. Visual cues on performance come from piling up damaged, duplicated, or inaccurately picked items.
During early days picking and packing cost about 15% of sales, worse yet when Amazon expanded into toys and electronics. When Kalpanik visited in 2003, Amazon centers had halved the cost and cut picking and packing errors in half. Its affiliate program provides commissions ranging from 4 - 15% and has 900,000 members. By 2003, 20% of revenues came from overseas, including $750 million in China to 114 million customers.
Amazon has operating margins of less than 65, vs. eBay with 24% - in 2003 the latter's market capitalization was 3X that of Amazon while absent inventory risk, warehouse building/operating costs. The Amazon Marketplace boosted margins - providing connections between buyers and sellers. To keep third party sellers' customer service standards high, customer reviews were posted, with order cancellations due to lack of inventory, on-time shipments, returns, and claims filed were tracked. By 2003 the marketplace accounted for only one-sixth of revenues but one-third of profits. Amazon's uniform item description ensured customers they were looking at different prices for the same product, while those at eBay had to go through descriptions of every listing with similar sounding titles to be sure they were making apples-to-apples comparisons.
The 'Search Inside the Book' option allowed customers to flip through the first few pages of a book as well as to search within the book. Digitalizing a book involved scanning it one page at a time and then using OCR to create a digital version.
Amazon warehouse conditions became unbearable in the summer - employees began collapsing when internal temperatures went above 100 degrees. Many/most of the workers were temps employed through an agency and workers were afraid to ask for even unpaid time-off because this result in automatic demerit points. (Six points within three months --> dismissal.) Unlike other warehouse, Amazon would not open dock doors on opposite side to allow air circulation. Workers and supervisors who did not meet their targets were fired; in addition, the bottom 10% were in trouble. Workers were assigned hourly fulfillment rates, and as soon as they got used to that pace, the rates were increased.