[part 4]

word of mouth and it's that 58% of repeat customers every day the the 50% orders from repeat customers those people are our evangelists and help us sign up new customers let's see the I would say they're the most interesting thing though is I firmly believe this is day one this is a time when we know very little about e-commerce and very little about a merchandising there's a huge amount to be done if you look at the kinds of things we'll be working on in the near future we're gonna work on geographical expansion so we want to make it possible for people to buy a Japanese language book anywhere in the world for people to buy a German language book anywhere in the world just as we now do that for American books we're also working on product expansions so we want to leverage our customer base our competencies and our brand name into products like music and videos if you search you stat news groups you'll find at least once a week somebody will ask the question who's the amazon.com of music and we're desperate to say we are and so far we can't say that so so those are two of the things we work on but I think one of the most interesting things is this notion I spoke about earlier which is redecorating the store for each and every individual customer this is the future of effect we've stopped calling it ecommerce and started calling an emergent icing because commerce is the simple find it buy it ship it sort of be a action a merchandising is much more about customer behavior online in the physical world there are all sorts of interesting things that are understood about customer behavior so something called the hard right for example you walk into a store 90% of customers turn right that's why the cash registers are used on the left merchandise on the right there are a whole bunch of of those kinds of things nobody knows what those things are online and we view amazon.com is an experimental laboratory to try and figure out some of those things at the same time we can use advanced technology and we are as I said starting to do this now to not only understand our products on a product by product individual basis but to understand our customers on a customer by customer individualized basis so that we can the goal is to enhance the discovery process the goal is to make it you know discovery is an incredibly powerful motivator for people all of us like to discover things and when you walk into a bookstore and you serendipitously stumble across something that blows you away and say wow I really want to read this book that's very powerful all of us have read half a dozen books in our lives that have made a major impact on us in some way and I would posit that there are 500 books in the amazon.com catalog right now that could have that same sort of impact on you if you could only find them and I believe that we can use advanced technology to dramatically improve the odds that you can find those books because we'll not just let readers find books but we'll let books find readers and you know with what really is the case is that we know 2% about all this stuff that we will know ten years from now this is absolutely the Kittyhawk era of e-commerce and emergent izing and I thank you for listening to me and I am happy to take questions if there are any [Applause] and asking questions will you please rise and will you please state your name as well thank you speak into the boom yes I'm Dave too only question about other businesses that you think are relevant for commerce on the Internet beyond just records and music in some way in the future there are certainly a lot of other businesses that besides those three that are even in the near future going to be very successful online computer hardware and computer software sales are going to be a big deal a lot of companies are using the Internet very effectively not to sell necessarily sell things but to save significant amounts of money Federal Express is a great example with their package tracking website they have many fewer calls to their 1-800 number attracting packages so there are a lot of opportunities for many many companies to offer customer self-service the interesting thing is if you look at all the studies customers prefer self-service when it's done properly to being helped by somebody else because they have control over the situation I think that I may have this slightly wrong but I know the hotel industry does satisfaction surveys every year and I believe Embassy Suites always gets the highest customer service ratings even though they don't have any they just let everybody know you have your own coffeepot and your own things and and people love that Michael McCaskey when I visit amazon.com and I start to look at a review of a particular book you bring up suggestions for three other books and I wonder in what direction you'll be able to take that as the artificial intelligence component becomes more sophisticated I know some of the things I'd like you to be able to do but I'm curious about you know where you think it's going to be in four years or ten years or choose a time frame and by the way please come find me afterwards and tell me what you think we should do the there are huge possibilities for this one of the techniques that's being used today we're using on our website it's called collaborative filtering and the way collaborative filtering works is basically it looks for your affinity group so if we have something called instant recommendations it looks at the books that you've bought in the past from amazon.com and then it finds other customers who've bought the same books and then it looks for the things that does that group of customers have bought that you haven't and it recommends those things to you so it's basically looking for people who have the same tastes or interests that you do and then using them as a guide to what we should recommend to you there are other techniques that can be used people think that neural networks are going to be valuable in this space there are other simpler but sometimes the simple things work best just simple statistical techniques that can be used there are genetic algorithms that can be used it's you know these are a lot of this what's going to be done is a lot of experimentation and we're gonna find out what works best you mentioned you list 2.5 million books on your website but really only about 1.5 million are in print currently could you mention how amazon.com goes about finding those remaining million books for those who should have no order them if you look at the catalogue there are two and a half million books about 200,000 bestsellers we actually inventory ourselves in our own warehouses between 200,000 and 400,000 we go to a network of about a dozen different wholesalers to get those books between 400,000 and 1.5 million we go to over 20,000 different publishers directly to get those and then between 1.5 million and 2.5 million are out of print books and we use a network of search services there are companies that have specialized for years this actually isn't even a isn't a new industry it's just something that the Internet is allowing people to access more easily that we tap into those people search for the books there are two basic ways that this has traditionally been done one way you charge the customer search fee and the other way you you don't but you mark up the book we do the second thing and when and we actually promise to keep looking forever so we keep it on the search list we reinitiated every once in a while and you know so it's theoretically possible that you could put in an order and you know seven years later we'd email you and say you know we did find your book there are some interesting stories about out of print books found but I won't go into those good evening my name is Howard sanderman and I was wondering how do you infuse your employees with your entrepreneurial spirit and vision in essence especially in a growing company that's gone from seven to 1,000 employees so in essence how do you cultivate internal entrepreneurship or intrapreneurship definitely not claimed to have sort of a secret recipe for doing that some of it is self reinforcing so when a company is doing well and it's growing rapidly that naturally tends to excite everybody in the company I also think that corporate cultures are incredibly important and they're one thing that that can never be copied competitors can never copy a culture and the unfortunate thing I think for businesses and entrepreneurs is that you can set out from the very beginning with a particular culture that you want to form in mind as we did we are watch phrase for that was intense and friendly and we always talked about it in the sense that you have to be intense and in fact if you ever had to give up friendly in order to have intense we would do that so if we needed to be intense and combative we'd do that before we be not intense but but so you can start out with the way you want things to be and then really your early employees become the the you know the the beginning that you carry around they carry around the flame of what your culture begins so I think mostly it's a blend of sort of 30% what you set it out set out for it to be 30% who your employees your early employees happen to be and 40% random chance and the and the bad thing about the random chance part is that once it's set you've got it there's really no way to change a corporate culture you talked about about your how being customer obsessed is one of your key strategies that was wondering what other strategies you're going to need to break into the music industry our biggest disadvantage is that we don't have a first mover advantage in that space and amazon.com itself has demonstrated the first mover advantages on the internet are incredibly powerful and on in the music space companies like CD now and in 2k have the first mover advantage what we have is a customer base of more than a million and a half people who we have pulled know that many of them will buy music from us and that customer base is much larger than any other internet retailer any in any space so the the strategy really is to leverage that customer base leverage the brand name which we worked very hard to associate with high quality service low prices and ease of use an authoritative selection so those are the kinds of things that you'll see us do to try and be successful in that space and there are no guarantees whatsoever that we'll be able to do it Brad Bradford you have any anecdotal things on people who've been unhappy and wanted to send stuff back or if there's everybody been happy I would love to give you an anecdote like that but there just aren't any no there are many in fact often times when I speak I carry around a few of those messages because the more hostile ones are actually funny I mean there's always a good reason for why the person is so upset but it's a good you know sort of cheap way to get a laugh from the audience but I've gotten email messages from customers and all capital letters and upset for various reasons the one that springs to mind is a customer who was extremely unhappy that he had spent a large amount of time hours and hours filling his shopping basket and then he but he wasn't quite ready to purchase the books so his online electronic shopping basket amazona calm and then after 30 days had passed we if there's no activity on account for 30 days we clear out the shopping basket which he thought was an incredibly stupid policy and actually we have changed I think it's at the disk space actually isn't that costly kind of probably was a stupid policy and and he also thought that we should at least have warned him also probably a good point but he wasn't polite in his message I can assure you and and but but we did apologize and we actually went back through our logs our HTTP logs which are these huge massive files and found his shopping basket and sort of like raw data form and sent it to him which made him very happy but you know there are countless stories like that where did you see where do you see yourself in five years can continue to be a pioneer in electronic commerce electronic merchandising there are lots and lots of stories of companies that were pioneers and then disappeared from the face of the earth visicalc is a great one that you know that entrepreneurs should have nightmares over if their business was taken away by Lotus and then of course the same thing happened to Lotus when Microsoft took their business away so we are gonna work like crazy to expand not to defend the territory we have now because I think that strategy wouldn't work what happens if you just do that is that this is a scale business this is a business that only works in large size because of the their large fixed costs and the in very low variable costs and so what you need to do is have a business of a sufficient size so that you have right purchasing power and the brand name that's self-sustaining and really I think if we work on that combined with the discovery technology that I was talking about earlier if we can do those two things in the next five years that will be a huge success and in Amazon a comment we'll all be able to be very proud of ourselves Margaret Nugent given what you were saying about the people who are carrying the flame at the beginning and how critical they are could you talk a little bit about who you selected those seven people who were in that garage and whether they've evolved with the company or left all the original employees only one has left and he his wife finished her doctorate and they had to move across the country the basically when we are looking for people we're looking for intense hard-working smart people who want to be part of what we're doing so passion is a part of it just plain old smarts you know sort of high IQ brainy people we really like that and Mille who can hire other great people you know when I interview somebody I actually spend about a third of the interview asking questions designed to ascertain whether or not they can hire great people so it's sort of the third of the meta interview and that different businesses have different criteria but in this business we've reached an interesting inflection point where I would say 70% of the risk now to amazon.com is execution risk so it's inside the company it's you know our