WEBVTT - Seth Godin on living in Amazon's world 0:00:03.240 --> 0:00:06.360 Business journalism proves the old adage that truth is stranger 0:00:06.360 --> 0:00:11.760 than fiction. You literally cannot make these stories up. The 0:00:11.840 --> 0:00:14.000 Unrun story was a complete game changer in my career 0:00:14.000 --> 0:00:17.320 because n Run became this cultural moment in American history. 0:00:18.800 --> 0:00:22.480 This major American company, with these executives who were supposed 0:00:22.480 --> 0:00:25.480 to be the smartest guys in the room, could collapse 0:00:25.520 --> 0:00:30.560 into bankruptcy in the space of about six months. But 0:00:30.600 --> 0:00:33.120 a lot of people who become investigative journalists set out 0:00:33.159 --> 0:00:35.080 to be that they want to go shed light on 0:00:35.200 --> 0:00:39.320 wrongdoing in corporate America. I didn't necessarily set out to 0:00:39.320 --> 0:00:43.200 do that, and I still don't. I'm primarily driven by curiosity. 0:00:43.200 --> 0:00:50.000 I want to explain things. I'm Bethany McClain. This is 0:00:50.120 --> 0:01:22.320 making a killing. If you type relentless dot com into 0:01:22.360 --> 0:01:26.720 your browser, you'll be redirected to Amazon dot com. Relentless 0:01:26.920 --> 0:01:29.720 was the original name that Jeff Bezos wanted for Amazon, 0:01:30.360 --> 0:01:33.920 and now more than ever, we can understand why the 0:01:33.959 --> 0:01:36.880 company that started out selling books is in so many 0:01:36.920 --> 0:01:41.320 ways today the Everything store. In nineteen ninety six, Amazon 0:01:41.360 --> 0:01:43.800 had one hundred and fifty one employees and five point 0:01:43.800 --> 0:01:47.720 one million dollars in revenue. Last year, Amazon had six 0:01:47.840 --> 0:01:51.520 hundred and forty seven thousand, five hundred employees and total 0:01:51.560 --> 0:01:55.120 revenue across all its business segments, which obviously includes a 0:01:55.160 --> 0:01:57.880 lot more than books these days, of two hundred and 0:01:57.920 --> 0:02:01.720 thirty two point eight nine billion. Its net income, though, 0:02:02.000 --> 0:02:05.840 was only ten billion dollars. Amazon has long been criticized 0:02:05.840 --> 0:02:09.959 for its risky strategy of inefficiency, burning capital without delivering 0:02:09.960 --> 0:02:13.760 consistent profits, but this strategy helped it dominate several key 0:02:13.800 --> 0:02:18.959 markets online retail, ebooks, audio books, cloud computing, to name 0:02:19.040 --> 0:02:22.440 just a very few, and it keeps on coming. There's 0:02:22.440 --> 0:02:27.040 Amazon grocery, Amazon restaurants, Amazon healthcare. There's so much to 0:02:27.120 --> 0:02:29.680 understand about Amazon, and given its rate of growth and 0:02:29.760 --> 0:02:32.600 change lately, it can feel a little dizzying. But my 0:02:32.680 --> 0:02:35.280 main interest is not in whatever the latest daily headlines 0:02:35.280 --> 0:02:37.839 are about the company. I'm interested in what all those 0:02:37.880 --> 0:02:41.440 headlines add up to, taken as a whole, what Amazon 0:02:41.480 --> 0:02:44.960 has become, what industries it has disrupted and forever changed, 0:02:45.360 --> 0:02:49.000 and ultimately what that means for all of us because okay, 0:02:49.040 --> 0:02:51.040 not quite all of us, but most of us are 0:02:51.080 --> 0:02:54.680 Amazon's customers. I'll confess to getting boxes on a frighteningly 0:02:54.720 --> 0:02:59.080 regular basis. That means, in a sense, where Amazon's enablers 0:02:59.240 --> 0:03:02.960 as it decimate its other businesses, from our neighborhood bookstores 0:03:03.200 --> 0:03:06.799 to now our grocery stores to maybe our pharmacies. If 0:03:06.880 --> 0:03:09.880 ultimately it's Amazon's world and we just live in it, 0:03:09.960 --> 0:03:12.800 is that a good thing? Can Amazon be trusted to 0:03:12.840 --> 0:03:16.240 wield its ever growing power benevolently or are we all 0:03:16.280 --> 0:03:20.160 going to come to regret the monster we've created? Is 0:03:20.200 --> 0:03:24.680 Amazon a modern day Frankenstein? My guest now is Seth Godin, 0:03:24.720 --> 0:03:27.440 who hardly needs an introduction. Seth and I share a 0:03:27.480 --> 0:03:30.519 publishing on the Mater portfolio, the business imprint of Penguin 0:03:30.600 --> 0:03:33.360 Random House, and one of my memories from long ago 0:03:33.400 --> 0:03:36.720 as of my publisher handing me sus remarkable book, Purple Cow. 0:03:37.400 --> 0:03:39.000 But it's hard to believe this is the first time 0:03:39.000 --> 0:03:42.120 we're actually meeting live. He's exactly who I wanted to 0:03:42.120 --> 0:03:44.560 talk to in order to dive into questions of Amazon 0:03:44.640 --> 0:03:49.400 and publishing, but also retail in marketing and trust Sas 0:03:49.440 --> 0:03:52.280 latest book, This Is Marketing, is a New York Times bestseller. 0:03:55.640 --> 0:03:58.360 I know it's supposedly terrible podcasting to talk about something 0:03:58.400 --> 0:04:00.560 only we can see, so let me just what we're 0:04:00.560 --> 0:04:03.000 looking at. There are these two pictures of Jeff Bezos 0:04:03.040 --> 0:04:05.840 side by side. On the left is this nineteen ninety 0:04:05.840 --> 0:04:08.320 eight Jeff looking very gentle and sweet and a frumpy 0:04:08.400 --> 0:04:11.400 brown sweater like a New York City book editor. This 0:04:11.560 --> 0:04:15.160 Jeff's caption is I sell books. Over on the right 0:04:15.280 --> 0:04:19.240 is Jeff from twenty seventeen with a shaved head, aviator, glasses, 0:04:19.600 --> 0:04:23.839 black vest, muscles, bulging, very badass, looking like he should 0:04:23.880 --> 0:04:25.919 be the lead in the next Fast and Furious movie. 0:04:26.279 --> 0:04:29.120 This Jeff's caption is I saw whatever the fuck I want. 0:04:30.360 --> 0:04:32.520 I love this because it's just the perfect metaphor for 0:04:32.560 --> 0:04:36.920 Amazon's evolution, the change from selling books to selling everything 0:04:37.560 --> 0:04:41.039 but more as this attitude of relentlessness is relentless. The 0:04:41.120 --> 0:04:44.400 right word seth well. Relentless was Jeff's word. The original 0:04:44.480 --> 0:04:47.680 name for Amazon was relentless dot com. I think it's 0:04:47.720 --> 0:04:52.960 important to differentiate between the media's perception of Amazon as 0:04:53.040 --> 0:04:56.760 the work of someone who has a plan about what 0:04:56.880 --> 0:04:58.720 he's going to sell on how he's going to sell it. 0:04:59.560 --> 0:05:02.360 It's more are about the system and if we can 0:05:02.480 --> 0:05:05.960 understand the systems analysis of what is it like to 0:05:06.000 --> 0:05:08.000 work there what is it like to sell there, what 0:05:08.200 --> 0:05:10.440 is it like to be an investor? Each of the 0:05:10.560 --> 0:05:14.960 elements of the system add up into the Amazon as 0:05:14.960 --> 0:05:18.400 we experience it. I don't think Jeff could change the 0:05:18.440 --> 0:05:22.840 system by himself, even if he wanted to. He's responsible 0:05:22.880 --> 0:05:26.480 for the system. We are all impacted by the system. 0:05:27.200 --> 0:05:30.640 But what we're going to need to understand is systems 0:05:30.640 --> 0:05:33.720 that end up changing our culture at some level are 0:05:33.839 --> 0:05:36.880 on us because we are the culture, and we as 0:05:36.880 --> 0:05:41.040 a people have the privilege and the possibility of changing 0:05:41.360 --> 0:05:44.359 systems if it's important enough to us. We just can't 0:05:44.360 --> 0:05:46.640 wait till it's too late, because if we do, then 0:05:46.680 --> 0:05:49.799 we don't get to change the system. It's interesting because 0:05:49.800 --> 0:05:54.040 I mentioned this analogy of Amazon as being like Frankenstein, 0:05:54.400 --> 0:05:57.120 and it's an interesting comparison because when you talk about 0:05:57.480 --> 0:06:00.640 even Jeff bez As being unable to control the monster 0:06:00.720 --> 0:06:03.040 he's created, right, it's taken on a life of its own. 0:06:03.480 --> 0:06:05.840 What are the key ingredients in that system that make 0:06:05.880 --> 0:06:09.160 it so powerful or make it so disruptive. Well, so 0:06:09.240 --> 0:06:12.240 let's talk about the Amazon we see, not Amazon Web 0:06:12.279 --> 0:06:15.560 services or the other things that contribute most of their profit. Yeah, 0:06:15.680 --> 0:06:18.640 but the Amazon that we see is a company that 0:06:18.760 --> 0:06:23.760 sells everything. They don't sell anything, and that's a really 0:06:23.800 --> 0:06:27.560 big distinction. Most of the retail that we've ever seen 0:06:27.600 --> 0:06:30.919 in our whole lives is run by merchants, and merchants 0:06:30.920 --> 0:06:32.920 are driven by the idea that they have a limited 0:06:32.960 --> 0:06:35.760 amount of shelf space. So there's a skill and a 0:06:35.880 --> 0:06:39.760 talent and a gift involved in being a good merchant. 0:06:39.800 --> 0:06:44.320 Selectivity and curation, and not just curation, but owning the 0:06:44.360 --> 0:06:48.880 outcome of what you just did. So when Nieman Marcus 0:06:49.240 --> 0:06:53.080 pushes a certain kind of look, or when an item 0:06:53.160 --> 0:06:55.400 is sold in a chain of car stores and a 0:06:55.400 --> 0:07:00.200 different item isn't these have impacts on us. Amazon began 0:07:00.360 --> 0:07:04.920 with the insight that there's infinite shelf space, and therefore 0:07:05.200 --> 0:07:10.000 the entire organization is built around we sell everything, and 0:07:10.160 --> 0:07:13.480 no one here has the power to sell a thing. 0:07:14.200 --> 0:07:17.320 So the entire system is run by an algorithm, and 0:07:17.440 --> 0:07:22.520 the algorithm says this click, this moment, this bit on 0:07:22.560 --> 0:07:27.400 the screen, what's its maximum value today? And the problem 0:07:27.440 --> 0:07:30.680 with day trading today is you don't know where that 0:07:30.760 --> 0:07:34.520 cycle keeps pushing you. There's no long arc. There's just 0:07:34.640 --> 0:07:37.520 the oh if I use this word instead of that word, 0:07:37.760 --> 0:07:41.640 today's sales go up. And the problem with that is 0:07:41.680 --> 0:07:43.880 it usually leads to a race to the bottom, a 0:07:44.000 --> 0:07:46.280 race to the bottom in what respect in terms of 0:07:46.320 --> 0:07:50.400 the cheapest merchandise wins rather than the quality merchandise. So 0:07:50.440 --> 0:07:52.440 that's a great question. So race to the bottom could 0:07:52.480 --> 0:07:55.000 be make it cheaper so you can sell it cheaper. 0:07:55.240 --> 0:07:58.120 Race to the bottom could be make it more urgent, 0:07:58.280 --> 0:08:00.480 or pander to the people that you're trying to sell 0:08:00.520 --> 0:08:03.480 to make it more vivid. It said that if you 0:08:03.920 --> 0:08:07.040 ab test a website enough, sooner or later it will 0:08:07.040 --> 0:08:11.040 become a porn site because it's really depressing. It is depressing, 0:08:11.080 --> 0:08:13.360 but sooner or later, this picture will get more clicks 0:08:13.360 --> 0:08:15.520 than that picture this claim will get. So if you 0:08:15.600 --> 0:08:20.680 look at the horrible news and the buzzfeedification of the web, 0:08:21.200 --> 0:08:25.440 it didn't happen because Walter Conkite's airs wanted it to happen. 0:08:25.920 --> 0:08:29.840 It happened because the algorithm said, make the headline one 0:08:29.880 --> 0:08:32.240 that people click on. And the same thing's true with 0:08:32.440 --> 0:08:35.280 solar lanterns, and the same things true with paper clips. 0:08:35.440 --> 0:08:38.400 Expand that solar lantern piece of it. You and I 0:08:38.400 --> 0:08:41.600 had discussed that, but expand, expand tell us what happened 0:08:41.600 --> 0:08:44.640 with solar lanterns in the old days. If someone came 0:08:44.720 --> 0:08:47.240 up with an idea for a solar lantern, there wouldn't 0:08:47.280 --> 0:08:49.600 be very many factories that could make one. You would 0:08:49.640 --> 0:08:52.520 take a risk, craft it, bring it to the merchant 0:08:52.880 --> 0:08:56.880 at Walmarter Kmarter Target and say here, I made this. 0:08:57.559 --> 0:09:00.400 The merchant would have to allocate you scarce shelf space. 0:09:00.520 --> 0:09:03.120 You'd have to stand behind it. There might be one 0:09:03.240 --> 0:09:06.080 or two to choose from, and if it was good, 0:09:06.080 --> 0:09:08.320 you would change the culture because you could get a 0:09:08.400 --> 0:09:12.560 piece of the market. In the modern age of infinite 0:09:12.600 --> 0:09:16.760 shelf space with dozens or maybe fifty companies, many of 0:09:16.800 --> 0:09:19.480 them in China, but around the world. Using cheap labor 0:09:19.520 --> 0:09:25.320 and cheap systems, anyone can commission a solar lantern. You 0:09:25.360 --> 0:09:27.560 don't have to have a known brand name. You'll still 0:09:27.559 --> 0:09:30.600 get shelf space. You need reviews, you can buy reviews. 0:09:30.800 --> 0:09:33.640 You can buy reviews for a nickel, And so all 0:09:33.640 --> 0:09:36.640 of a sudden, the consumer who types in solar lantern 0:09:37.200 --> 0:09:40.480 because the search box wins every time you type it in, 0:09:40.520 --> 0:09:44.080 because it's convenient solar lantern, and you end up at 0:09:44.080 --> 0:09:48.920 Amazon's right. But then Amazon search box shows you fifty 0:09:48.920 --> 0:09:52.720 solar lanterns, twenty solar lanterns. Anyone can sell a solar lantern. 0:09:53.360 --> 0:09:56.960 They're sorted by review, but the reviews are fake. And 0:09:57.160 --> 0:09:59.120 which one are you going to buy? They're all the same, 0:09:59.400 --> 0:10:03.800 Buy the cheap one, the algorithm keeps saying, by the 0:10:03.880 --> 0:10:07.520 cheap one. Okay. There's nothing that sounds appealing about this. 0:10:07.720 --> 0:10:09.760 Is there a good side to it? Is there any 0:10:09.800 --> 0:10:13.360 benefit apart from cheaper merchandise. It's all going to work 0:10:13.400 --> 0:10:18.080 itself out in the following way. More access, more choice 0:10:18.200 --> 0:10:22.120 will enable more consumers to make better decisions, and that 0:10:22.280 --> 0:10:25.760 over time, the fake reviews will work themselves out. That 0:10:25.880 --> 0:10:29.040 Amazon will always give you a refund if you say 0:10:29.160 --> 0:10:33.000 my solar lantern is lousy. Amazon's brand is the most 0:10:33.080 --> 0:10:35.440 respected brand in America. You're not going to switch. You 0:10:35.440 --> 0:10:39.080 don't have a lot of choices. This is hypercapitalism. It's 0:10:39.160 --> 0:10:43.920 infinite choice, with nobody being the nanny state, nobody saying 0:10:44.120 --> 0:10:48.760 I'm the merchant, I'm in charge. Instead pick So let's 0:10:48.760 --> 0:10:51.200 go back to this, to the retail part of Amazon, 0:10:51.280 --> 0:10:53.360 this obvious retail part, because I want to push a 0:10:53.360 --> 0:10:55.240 little bit on what the cost of this has been 0:10:55.559 --> 0:10:58.319 and there's this common perception right that it's Amazon that's 0:10:58.320 --> 0:11:01.440 putting retailers out of business Jim Boree Toys r US. 0:11:02.400 --> 0:11:04.320 But this has been happening for a long time. We 0:11:04.400 --> 0:11:07.520 had superstars years ago putting the little guy out of business. 0:11:07.720 --> 0:11:10.120 I remember watching the nineteen ninety eight Tom Hanks make 0:11:10.240 --> 0:11:12.959 Ryan movie You've Got Mail, or the Big Fox Box 0:11:13.000 --> 0:11:15.760 Barnes and Noble look alike as putting cute little shop 0:11:15.800 --> 0:11:18.160 around the corner out of business. Now the bad guy 0:11:18.240 --> 0:11:21.280 is Amazon. So has anything really changed or is this 0:11:21.760 --> 0:11:25.679 just evolution. Well, there's a very long history of retailers 0:11:25.720 --> 0:11:28.439 going out of business, and if Amazon wasn't putting them 0:11:28.440 --> 0:11:31.719 out of business, somebody else would retailers go out of 0:11:31.720 --> 0:11:35.640 business because landlords never go out of business. The question 0:11:35.760 --> 0:11:38.840 for me is what will we do to our culture 0:11:39.559 --> 0:11:44.679 when there is no main Street. I'm not saying that 0:11:44.920 --> 0:11:48.080 our culture can't survive without main Street. I'm saying that 0:11:48.080 --> 0:11:51.679 there's going to be a significant cost to that dislocation. 0:11:52.160 --> 0:11:55.440 Because what main Street does for us, in addition to 0:11:55.520 --> 0:11:58.080 giving us a convenient place to pick up a kind bar, 0:11:58.840 --> 0:12:02.920 is oh there's a bathroom, Oh there's lights, Oh there's 0:12:02.960 --> 0:12:05.360 another human being. Maybe I could have a conversation without 0:12:05.440 --> 0:12:08.480 human being exactly. If you watch enough Old Star Trek, 0:12:08.520 --> 0:12:10.839 you'll come to see there are no stores. No one 0:12:10.920 --> 0:12:13.160 goes shopping in science fiction. You know, I had never 0:12:13.200 --> 0:12:16.560 noticed that, but you're absolutely right. The real question is 0:12:18.400 --> 0:12:23.080 this improvement that's going on making things cheaper. Improvement in quotes, right, 0:12:23.400 --> 0:12:26.480 This improvement in quotes, this change things are cheaper. I 0:12:26.559 --> 0:12:30.319 shop at Amazon all the time because it's more convenient, 0:12:30.400 --> 0:12:34.840 more reliable, cheaper. I like that brand as something that 0:12:35.000 --> 0:12:39.080 makes it easier for me to do my life. Most 0:12:39.080 --> 0:12:42.000 of the cash benefit accrues to the middleman in this 0:12:42.040 --> 0:12:45.360 case Amazon, but it is all being sucked out of somewhere. 0:12:46.040 --> 0:12:49.760 And the question is when that somewhere is gone, what 0:12:49.920 --> 0:12:53.640 will we replace it with? And will we be able 0:12:53.640 --> 0:12:57.800 to fashion another culture, a better culture, one that we're 0:12:57.840 --> 0:13:01.520 proud of when we take away the thing that has 0:13:01.520 --> 0:13:04.760 fueled it. And So, when I think about the book 0:13:04.800 --> 0:13:07.720 industry and the people that I cherish that I've worked 0:13:07.720 --> 0:13:09.880 with for all those years, there isn't going to be 0:13:10.240 --> 0:13:12.480 a New York City book industry in twenty years. It's 0:13:12.480 --> 0:13:16.200 impossible to imagine that it will exist because they don't 0:13:16.200 --> 0:13:18.920 have any friction. If there is no friction, where are 0:13:18.960 --> 0:13:21.200 they going to generate the heat they need to pay 0:13:21.200 --> 0:13:23.800 the bills? They won't be able to. So what will 0:13:23.840 --> 0:13:28.400 those people do? How will we create cycles a forward 0:13:28.520 --> 0:13:33.199 motion that enable people who create, or merchants or people 0:13:33.240 --> 0:13:37.000 who sell, or people who own a factory to thrive 0:13:37.200 --> 0:13:39.760 in a world where there is no friction. It's a 0:13:39.800 --> 0:13:42.079 great irony, isn't it that it is all of us 0:13:42.200 --> 0:13:46.199 Amazon's customers who are enabling something that in the end 0:13:46.280 --> 0:13:49.080 may be very antithetical to our interests. It may not 0:13:49.160 --> 0:13:51.520 be what we want. Is there something or welly in 0:13:51.720 --> 0:13:54.319 about the Amazon that it's going to become? Well? So, 0:13:54.520 --> 0:13:57.080 then the question is, once you build the systems and 0:13:57.160 --> 0:14:01.240 the algorithm, and you are doing it to please the 0:14:01.360 --> 0:14:05.400 public markets, where do we see that the public markets 0:14:05.400 --> 0:14:10.880 have ever been right in their long term perspective about 0:14:10.880 --> 0:14:13.400 what it is to please them? Because the companies that 0:14:13.440 --> 0:14:15.240 we are the most proud of, the ones that we 0:14:15.320 --> 0:14:18.800 point to, aren't the ones that Wall Street is happy 0:14:18.840 --> 0:14:21.320 within the long run. That what it means to be 0:14:21.760 --> 0:14:23.640 to make Wall Street happy in the long run is 0:14:23.680 --> 0:14:28.800 that you are predictably and reliably beating estimates on your 0:14:28.880 --> 0:14:33.480 quarterly earnings per share, yep, not that you're leaving behind 0:14:33.800 --> 0:14:36.760 something better than you found it. So let's pause on 0:14:36.840 --> 0:14:40.800 that point. Because Amazons somehow manage to play the game differently, 0:14:40.880 --> 0:14:43.400 at least for a number of years, in the sense 0:14:43.400 --> 0:14:46.840 that Amazon didn't produce consistent profits, and yet the company 0:14:46.880 --> 0:14:49.960 has had unlimited access to capital raising and a soaring 0:14:50.000 --> 0:14:52.960 stock price. Why were the rules different from Amazon? Why 0:14:53.000 --> 0:14:54.880 was Jeff bez Us able to play by a different 0:14:54.880 --> 0:14:57.720 set of rules, at least in the short term. Well, 0:14:58.960 --> 0:15:02.560 to bring in a overused phrase, Jeff is almost always 0:15:02.560 --> 0:15:06.000 the smartest guy in the room and real, for real, 0:15:06.440 --> 0:15:10.240 no sarcasm in that right. And he understood that something 0:15:10.320 --> 0:15:13.400 was shifting in the stock market because something was shifting 0:15:13.440 --> 0:15:16.320 in the way the Internet worked, and that there are 0:15:16.360 --> 0:15:20.000 stocks that are traded because their numbers make sense, and 0:15:20.040 --> 0:15:22.920 there are stocks that are traded because their story makes sense. 0:15:23.280 --> 0:15:26.640 And if you can have the best story stock and 0:15:26.720 --> 0:15:29.840 there's a limited supply of it, people who want the 0:15:29.880 --> 0:15:34.120 best story stock will buy it. So Jeff said, here's 0:15:34.120 --> 0:15:36.440 what I want you to measure me on, and he 0:15:36.520 --> 0:15:40.000 has regularly exceeded the thing he said to be measured 0:15:40.080 --> 0:15:43.200 on Other companies say you want to be measure us 0:15:43.200 --> 0:15:46.200 on profit, go ahead, measure us on profit. So Jeff's 0:15:46.240 --> 0:15:51.840 consistency in that approach was key. He's vulnerable now for 0:15:51.880 --> 0:15:55.800 the following reason. Lots and lots of the key people 0:15:57.000 --> 0:15:59.400 who he works with need the stock price to keep 0:15:59.440 --> 0:16:02.640 going up. When it was just him, it was okay 0:16:02.680 --> 0:16:05.680 if the story hit a speedboat. But when it's lots 0:16:05.680 --> 0:16:08.720 of people who are all have their hands on the algorithm. 0:16:09.360 --> 0:16:11.640 The challenge you have, and I live through this when 0:16:11.680 --> 0:16:14.040 a Well was my biggest customer, and I live through 0:16:14.080 --> 0:16:17.000 this when I worked at Yahoo, is that these people 0:16:17.080 --> 0:16:19.840 have their hands on the dials and there are decisions 0:16:19.880 --> 0:16:22.760 that they will make based on what Wall Street is 0:16:22.800 --> 0:16:26.200 telling them, because at some point Wall Street always says, 0:16:26.960 --> 0:16:29.440 we heard the story, now we want to go back 0:16:29.440 --> 0:16:31.960 to the thing we like to measure. Jeff business has 0:16:32.000 --> 0:16:33.800 also been able to do something else that I think 0:16:33.880 --> 0:16:36.480 is really interesting, which is that he's created sort of 0:16:36.480 --> 0:16:40.560 this with Amazon Web Services, the cloud computing business. It 0:16:40.680 --> 0:16:43.040 essentially gives him leverage in the retail business that other 0:16:43.080 --> 0:16:46.800 retailers don't have because he's got this money making appendage 0:16:46.920 --> 0:16:50.040 kind of stuck on this mammoth retail business. And so 0:16:50.080 --> 0:16:52.400 I think the AWS accounts for what like one hundred 0:16:52.400 --> 0:16:55.200 and fifty percent of Amazon's operating business, And so how 0:16:55.240 --> 0:16:59.840 does that give Amazon advantages that other retailers don't have? Okay, 0:17:00.160 --> 0:17:02.520 just a little bit of background here. Twenty five years ago, 0:17:02.600 --> 0:17:05.439 the typical newspaper made one hundred and ten percent of 0:17:05.440 --> 0:17:08.840 its profit from classified ads. But people didn't think of 0:17:08.840 --> 0:17:13.240 the newspaper as the classifies with some bonuses. Right well, 0:17:13.359 --> 0:17:18.080 AWS is the invisible cloud in the sky that runs many, 0:17:18.280 --> 0:17:22.000 many websites. And the brilliance that Jeff brought to the 0:17:22.000 --> 0:17:24.959 table was this. He said, I'm going to need something 0:17:25.040 --> 0:17:27.440 like this. If I'm going to need something like this, 0:17:27.520 --> 0:17:29.920 I bet my competitors are going to need something like this. 0:17:30.600 --> 0:17:34.040 And if I'm willing to lose money building it to scale, 0:17:34.640 --> 0:17:38.640 I can erect a moat, so my competitors will need 0:17:38.680 --> 0:17:42.680 to use mine because it's so much cheaper. I want 0:17:42.680 --> 0:17:44.840 to jump in and blow your mind. We all think 0:17:44.880 --> 0:17:47.480 of Amazon as the boxes that show up at our doorstops, 0:17:47.640 --> 0:17:50.360 but that's just the Amazon. We can see the Amazon 0:17:50.400 --> 0:17:53.520 that sells more batteries than drursa more diapers than Pampers. 0:17:53.880 --> 0:17:57.240 CNN famously said Amazon is building an army of brands, 0:17:57.520 --> 0:18:01.200 and their private label sales reach seven point billion last year. 0:18:01.840 --> 0:18:04.440 There are more than one hundred million Americans paying more 0:18:04.480 --> 0:18:06.560 than one hundred dollars a year for the service of 0:18:06.600 --> 0:18:10.320 Amazon Prime, and Amazon commands half of the US e 0:18:10.400 --> 0:18:13.359 commerce market. But the rest of it, the Amazon you 0:18:13.440 --> 0:18:17.560 don't see, is even more staggering. There's Amazon Web Services 0:18:17.640 --> 0:18:20.800 or AWS, which accounted for fifty percent of the company's 0:18:20.840 --> 0:18:25.000 operating and come last year. There's Amazon Video, Amazon Studios, 0:18:25.080 --> 0:18:30.200 Amazon Go, Amazon Fresh, Amazon restaurants, They own whole Foods, 0:18:30.320 --> 0:18:34.080 They acquired an online pharmacy. They are leaders in AI 0:18:34.320 --> 0:18:37.960 and deep learning. Their revenue across all business segments total 0:18:38.080 --> 0:18:41.800 two hundred and thirty two point eight nine billion, that's 0:18:41.920 --> 0:18:45.639 billion with a B last year, up thirty one percent 0:18:45.760 --> 0:18:48.119 from the year before, and there are no signs of 0:18:48.119 --> 0:18:52.840 a slowdown in twenty nineteen. I understand the concept of 0:18:53.040 --> 0:18:57.679 Amazon selling everything and and not selling anything in particular, 0:18:58.119 --> 0:19:00.520 but the question for me is when can they changed 0:19:00.560 --> 0:19:03.040 that dial. And if you look a little bit closer 0:19:03.080 --> 0:19:06.879 into the publishing world, right, Amazon just originally sold books, 0:19:06.920 --> 0:19:09.840 and they didn't sell a particular book. They sold books 0:19:10.160 --> 0:19:13.720 and everybody loved it. But now Amazon is also the publisher, 0:19:13.840 --> 0:19:16.640 the creator, publishing its own books within its own system. 0:19:16.680 --> 0:19:18.480 And so I was struck by this Wall Street Journal 0:19:18.520 --> 0:19:20.720 story that begins with its great anecdote about a guy 0:19:20.800 --> 0:19:23.920 named Mark Sullivan in his book Beneath a Scarlet Sky. 0:19:24.560 --> 0:19:28.440 Amazon published it and effectively used Amazon's tools to make 0:19:28.480 --> 0:19:32.200 it into a best seller. And so what happens if 0:19:32.240 --> 0:19:36.480 Amazon starts working that dial? Okay, so I can talk 0:19:36.480 --> 0:19:38.720 about the book thing from personal experience, because it was 0:19:38.760 --> 0:19:42.360 my idea. I met with Jeff in nineteen ninety five 0:19:42.560 --> 0:19:45.639 and I said, you're already doing the hard part. You 0:19:45.680 --> 0:19:48.680 should do the part about publishing. And he laughed and said, 0:19:48.960 --> 0:19:52.200 not too soon. Five years later I went back. Five 0:19:52.280 --> 0:19:54.520 years later, I went back and about I don't know, 0:19:54.560 --> 0:19:56.160 eight years ago, they called me up and they said, okay, 0:19:56.200 --> 0:19:58.679 we're ready. Now it's time. Now it's time. Now what 0:19:58.720 --> 0:20:01.000 do I mean by the hard part? The hard part 0:20:01.119 --> 0:20:03.480 is they know who the readers are, and they know 0:20:03.520 --> 0:20:06.440 what the readers want. No one in New York has 0:20:06.480 --> 0:20:08.840 ever done that. Random House doesn't know who the readers are. 0:20:09.240 --> 0:20:13.600 Penguin doesn't know what the readers want. There's this disconnect, right. 0:20:13.600 --> 0:20:18.359 Amazon's created a knowledge in exactly. So they ought to 0:20:18.400 --> 0:20:21.320 be able to go to the author and say, based 0:20:21.320 --> 0:20:24.840 on what we know, we can find books for our 0:20:24.880 --> 0:20:28.480 readers instead of you trying to find readers for the books. 0:20:28.520 --> 0:20:31.960 That's a game changer. That's magnificent. They can upend the 0:20:32.080 --> 0:20:34.879 entire system exactly. And this is where that everything and 0:20:34.960 --> 0:20:39.640 anything thing kicks in because guess what Amazon has done. 0:20:39.840 --> 0:20:43.080 Many many books like Sullivan's book, But they're pointing to 0:20:43.080 --> 0:20:45.920 the Sullivan book because it turns out they didn't pick 0:20:46.000 --> 0:20:49.680 his book to be a bestseller. They're playing a portfolio theory. 0:20:50.040 --> 0:20:53.080 Lots of books went through the system and Amazon has 0:20:53.160 --> 0:20:56.000 failed to act as a merchant and say we pick 0:20:56.160 --> 0:20:59.960 this book that in fact, it's a super level playing field. 0:21:00.400 --> 0:21:03.320 They don't promote their books that much more than other 0:21:03.359 --> 0:21:05.880 people's the way a real merchant would do it. They 0:21:05.880 --> 0:21:09.640 don't make other people's books harder to find, the way 0:21:09.640 --> 0:21:12.800 a real merchant would. It's still back to this idea 0:21:12.840 --> 0:21:17.720 of everything. So the egalitarian and me says terrific. Now 0:21:17.760 --> 0:21:20.199 you don't have to look or sound like an author 0:21:20.520 --> 0:21:22.760 to get new York to pick you. You can go 0:21:22.880 --> 0:21:25.520 straight to the Kindle and get twenty of your friends 0:21:25.560 --> 0:21:27.560 to buy your book, and a twenty of your friends 0:21:27.600 --> 0:21:29.919 buy your book on the Kindle and it's amazing, and 0:21:30.000 --> 0:21:32.080 now four million of your friends have bought the book 0:21:32.240 --> 0:21:35.440 and you're a best selling author. But what happens if 0:21:35.480 --> 0:21:39.000 Amazon becomes not just the everything store but the only store? 0:21:40.480 --> 0:21:43.000 Then can't they start to work that lever? Why wouldn't 0:21:43.000 --> 0:21:47.680 they work those levers eventually? Well, everything in their algorithm, 0:21:47.720 --> 0:21:51.880 in their DNA, in their setup is don't work that lever. 0:21:52.320 --> 0:21:56.280 That the entire mindset is the system will figure out 0:21:56.320 --> 0:21:58.919 what's going to be sold. They don't think like direct 0:21:59.000 --> 0:22:04.080 marketers or as marketers. They think like algorithm marketers. Put 0:22:04.119 --> 0:22:07.800 it in tag it properly, see what happens because it 0:22:07.840 --> 0:22:10.920 doesn't cost them anything. Because they know something's going to work, 0:22:11.119 --> 0:22:15.600 doesn't matter to them which one works. That's brand new thinking. 0:22:16.040 --> 0:22:20.119 I am not anti Amazon. I am anti letting an 0:22:20.160 --> 0:22:25.280 algorithm run wild forever. At some point I want human 0:22:25.320 --> 0:22:27.960 beings to stand up and say, we understand the algorithm. 0:22:27.960 --> 0:22:31.200 We're proud of the algorithm. We change the algorithm, and 0:22:31.240 --> 0:22:33.840 this is the problem. We have with Facebook and Google, 0:22:33.840 --> 0:22:37.920 you'd vote for man not machine. Google famously says it's 0:22:37.920 --> 0:22:40.640 not up to us. The algorithm decided to put this 0:22:40.680 --> 0:22:43.560 as the first match. This is nonsense. There are more 0:22:43.600 --> 0:22:46.040 than three thousand people at Google who do nothing but 0:22:46.160 --> 0:22:49.639 tweak the algorithm, but they don't want to accept responsibility 0:22:49.760 --> 0:22:52.320 for the fact that they do that. There are thousands 0:22:52.359 --> 0:22:54.960 of people at Amazon who are working on their search algorithm. 0:22:55.280 --> 0:22:57.639 There are thousands of people Amazon who are figuring out 0:22:57.680 --> 0:23:01.520 what clues and signals you can put next to something 0:23:01.600 --> 0:23:03.960 to move it up or move it down. There are 0:23:04.080 --> 0:23:07.119 lots of things that are built by hand that become 0:23:07.240 --> 0:23:13.359 the rules in the algorithm that shift how entire industries operate. 0:23:14.119 --> 0:23:17.560 Because the algorithm is in just a bunch of code, 0:23:17.880 --> 0:23:20.320 it's a series of principles. Well, then, let me push 0:23:20.359 --> 0:23:23.200 back on your point that there's something non merchant like 0:23:23.400 --> 0:23:26.440