“Jeff [Bezos] always had a plan for this to be the company that we see today. “
Dana Mattioli is an investigative journalist at The Wall Street Journal and the author of The Everything War: Amazon’s Ruthless Quest to Own the World and Remake Corporate Power.
In this podcast, Motley Fool host Mary Long caught up with Mattioli for a conversation about:
- Amazon‘s early days and how it withstood years of sustained losses.
- How Amazon makes Wall Street look genteel.
- The lengths that the company went to to get information from competitors.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our beginner’s guide to investing in stocks. A full transcript follows the video.
This video was recorded on Sept. 14, 2024.
Dana Mattioli: A few of these NDAs that these entrepreneurs signed, I found something very strange called a residuals clause. It said, basically any company meeting with Amazon for deal talks or an investment, there’s a line that you sign that says anything retained in the memory of an Amazon executive in those talks could be used without any legal consequence to Amazon. As long as they remember your idea or your technology or something you told them, they could use it, and you can’t sue them.
Ricky Mulvey: I’m Ricky Mulvey, and that’s Dana Mattioli, an investigative journalist at the Wall Street Journal and the author of Everything War, Amazon’s ruthless quest to own the world and remake corporate power. On today’s show, we’re going inside the belly of the Beast. My colleague Mary Long caught up with Dana Mattioli to discuss how Amazon leverages data, its battle in Washington, and the culture that built a multi-trillion dollar company.
Mary Long: Dana the full title of your book is the Everything War. Amazon’s ruthless quest to own the world and remake corporate power. Amazon started as a bookshop. Was the plan always to own the world and remake corporate power?
Dana Mattioli: It’s hard to remember that in 2024, that this was a fledgling against a odd online bookstore when it launched in 1995. Most people at that time had never even been on the Worldwide Web. I think 3% of Americans had ever gone on the Internet. Jeff Bezos created this company predicated on them, not only going on the internet in droves but putting their credit card into it and shopping, which sounded crazy. The early employees at the time weren’t sure that it would survive, but Jeff always had a plan for this to be the company that we see today. There’s a scene in the book that I think really speaks to that 2006, Amazon is a $19 Billion company, and Jeff walks into this big retail gala that happens every year in Manhattan. That’s all of the top CEOs from Nordstrom and Saxth Avenue and Diane Van Furstenberg is there all these known entities, and everyone sort of looks at him, what’s this guy doing here? He sells books and widgets, and no one’s ever going to buy her clothes on Amazon. One of my sources bumped into Jeff at the bar and he said, what are you doing here? Jeff replied, well, your margin is my opportunity. [LAUGHTER] Which caught a lot of people by surprise. That’s exactly what happened. A lot of those companies in that room at that time are now bankrupt. Not only them. This has happened across industries that they’ve penetrated, and really everyone’s margin was Amazon’s opportunity.
Mary Long: Well, and that’s an especially crazy story to hear now because earlier this summer, Saxth Fifth Avenue bought Neiman Marcus, and Amazon helped them do it.
Dana Mattioli: I know. I was flabbergasted. That was like such a full circle moment because if you could think back to 2006, people would have bet their life that Amazon could never get near a prestige brand like that.
Mary Long: Here’s a question. Why does that deal make sense for Amazon? Or is that, after having read your book, perhaps I’m thinking a bit I’m too Machiavellian here. But is that a full circle, yes remember in 2006 when I showed up to that gala. Is that the point of the move or is there something deeper here that Amazon sees?
Dana Mattioli: It’s wild if you just take a step back and look at Amazon’s full scope. They can’t be contained to just one area of commerce or just even one area of industry, 40% of everything sold online in the US is on amazon.com. It’s the world’s largest cloud computing company. It delivers more packages than UPS and FedEx. UPS is a 100-year-old company. Amazon displaced it in the matter of 10 years. It’s a healthcare giant, it’s a logistics giant. It’s the sprawling octopus with all these different tentacles that are the number one, two, or three player in all those industries. There’s nothing like it. There’s no analog. Them getting into the luxury space make sense. They’ve got the world’s best fulfilment centers. This is higher margin than they normally would play in. It just seems like any area that they have set their mind on where people have said there’s high barriers of entry, or it’s complicated. They’ve tried to figure out, and sometimes not so honestly, the book gets into how they’ve lied, cheated, stolen their way to the top in some cases. There’s the question of that as well.
Mary Long: Let’s go back to those early days before Amazon was what we know it to be today. Again, in those early days, Bezos convinces Wall Street to pay more attention to growth rather than profits. That can sound like a simple, small shift in thinking. But your book highlights that that shift in focus was really essential to the company’s story. How did that happen?
Dana Mattioli: That is now common today, if you think of, the Ubers of the world and all these companies that file for IPOs without profits. That was so not the case in 1997, when Amazon filed its IPO. When you filed for IPO, you had profits. That’s how you were valued by Wall Street. Jeff brilliantly convinces Wall Street that we’re different that you are going to let us suffer losses so that we can grow, and you’re going to reward us for it. They had this crazy runway, years and years where they just posted loss after loss, and it created this have and have not scenario across retail first. One of the really fun parts of this book was speaking to the early retail CEOs who had to go ahead to head with Jeff Bezos, the people that underestimated him quite frankly. I spoke to some of them, and I remember speaking to the CEO of Linens and things from the 1990s and 2000, and they said, did you just not believe in online commerce? I said, no once Amazon came on the scene, we did, but they had a different, playing field than us. He said my shareholders would skewer me if I had one quarter of losses. If I had years of sustained losses, I’d be out of a job, the company would probably be bankrupt. That CEO actually went to his board early on and said, I need $100 million to build out our logistics center to do this.com thing, and they left him out of the room. They said our shareholders will kill us over that. You have 25 million. That played out in board room after board room in corporate America. The retailers could not get the buy in from their boards because their shareholders would have killed them for dedicating that much money to logistics. Some of them even relied on Amazon and said, you do it for us.
Mary Long: Borders, what example of that.
Dana Mattioli: Target and these other companies, some of them are not around anymore, and Amazon got all of their customer data. They got a commission. These companies are basically forced into the arms of what became their biggest competitor who profited all along.
Mary Long: When AWS launches in 2006, it’s Amazon’s first major expansion outside of this retail space. You write that, this is Bezos building Amazon into a conglomerate, but that there is an irony in this because similar to the shift in thinking about profit versus growth, you write the very idea of a conglomerate as a good business model had grown increasingly out of favor with Wall Street. Why had Wall Street soured on conglomerates and how did Amazon start to change that thinking?
Dana Mattioli: For many years, conglomerates were the name of the game. CEOs at places like General Electric (NYSE: GE) and Honeywell would do all these roll ups of disparate businesses that had nothing to do with each other, so GE, which makes appliances, but also make airplane turbines and curling irons and had a TV studio. For a while, for the ’80s and ’90s that worked, they were rewarded for that because their empires were growing, and they could offset losses in one area that wasn’t doing well with the gains somewhere else. It was a way to hedge their bets. As their empires grew, they got rewarded by the stock market. But then that really fell out of favor. These companies became bloated, Activist investors came on the scene, people like Carl Akon who said, what are you doing being in all these disparate businesses? There’s too much expense. You’re not doing any of them well, it’s a distraction. All of the esteemed corporate conglomerates that we grew up with got dismantled. The activist investor said, sell off everything but one or two business lines or spin them off and focus on the one thing you do all. At that very same time, that’s when Jeff started spinning up this conglomerate. Interestingly, they haven’t really had pressure from activists to dismantle it. I make the case in the book that that structure is really its secret sauce because they’re able to extort partners across business lines and get favorable terms and really crush their rivals, using those different tentacles of the octopus that they’re wrapped around some of their biggest rivals, but also small businesses that rely on them.
Mary Long: The story of the birth of AWS at Amazon is an interesting one to me, because I feel in a lot of business circles, it’s often lifted up as an example of what innovation ought to look like. This is a product that skyrockets profitability for the company, and it came about as a side of desk project, almost. It can be used to lift up in some ways, the corporate culture at Amazon. Look, this is a place where innovation thrives. This is what happens when you do that but your book turns that picture on its head from me and says, rather than the culture being this rosy thing, it’s actually quite toxic. What would you say the culture is at Amazon and how did it get to be that way?
Dana Mattioli: I’ve covered companies for 18 years at the Wall Street Journal, including Wall Street. I covered banking for a long time as an M&A reporter. Amazon makes Wall Street look genteel. This is the most cut throat culture of any of them I’ve ever covered. The amount of really brilliant Amazon workers I’ve spoken to over the years, who were just pushed to the brink to the point where they had to take leaves of absence for mental health. Some of them have tried to commit suicide because of the work environment there. These are white collar workers. There’s more to be said on the factory side of the business too. What I’ve learned in reporting out this book is that’s largely by design, not that they want people to commit suicide, but they want this culture that drives people to the edge to have output. Jeff early on, told his earliest employees that were more Hippie dippy, Seattle, 1990s, grunge people that were missionary based, that they didn’t have a killer mentality.
He wanted them to be cut throat. Jeff himself came from the world of hedge funds in New York, that gets lost in his origin story sometimes. He starts once the company goes public, and he gets the buy in from Wall Street not to have profits, the company’s stock price skyrockets and income all these NBAs that are cut from the same cloth as Jeff. He does a few things that create this culture. He adopts this HR mechanism called yank in rank or stack ranking. It was popularized by Jack Welch at GE. To this day, even though many other companies have abandoned this because it had pretty severe consequences in culture, Amazon cuts the bottom 6% of its workforce every year. It structures as compensation that white collar employees don’t really get the bulk of their pay until years three and four. At Amazon the problem with that is most white collar employees last a year and a half, because it’s a toxic culture and they leave or they get fired. When I spoke to people at Amazon, even some of the S team members, the highest levels of people reported to Jeff, some of them describe this hunger games scenario work where employees are competing with each other internally to keep their jobs. That has a really pressure cooker of environment that could affect people’s mental health, but it also it caused some of these people that maybe wouldn’t have done this elsewhere to do unethical, anti competitive or even illegal things to stay ahead.
Mary Long: You have so many examples of that exact thing happening and unfolding within the book. Bezos talks a lot about Amazon being customer obsessed rather than competitor-obsessed. This tied to the culture, your book is rife with examples of Amazon being, I would say, pretty competitor-obsessed. Just to pull out one example, what lengths of the company go to try and get information about best-selling products from Trader Joe’s?
Dana Mattioli: That example, which just floored me when I found it out. Amazon, like many other retailers has a private label arm, where they make their own goods to compete with other retailers. That’s standard, but the way they go about it is not. Amazon has a history of spying on its third party sellers on its website to reverse engineer these hits. But also, there’s a scene in the book, Jeff Bezos is obsessed with Trader Joe’s from what people around him have told me, and he thinks it’s a cool quirky store. The private label food team goes about making a new brand for Amazon called wickedly prime. In their pitch for this brand, they say that they want it to be like Trader Joe’s, and they want to copy the top 200 best selling items at Trader Joe’s. But Trader Joe’s is a very secretive company. They don’t have online shopping. You can’t really see what their best sellers are. They had to figure out what that was. They go about recruiting an executive from Trader Joe’s to join their team.
The executive is not really told much about what she’d be working on in her job interview, just that she’d be working on a food brand. She moves across the country. She starts at work her first week in Seattle, and she stumbles across this mysterious conference room that has brown paper covering the windows and the door, so no one could see inside of it. She walks in, and it’s teaming with boxes of Trader Joe’s items, almost a Trader Joe’s grocery store, and she’s like crap. [LAUGHTER] She starts piecing together. She’s there to try to copy her old employer. But it gets worse. Her new boss at Amazon starts pressuring her saying, give us all of the documents you retained from Trader Joe’s, which is actually illegal. The employee resists and says, I don’t feel ethically comfortable doing that, but the pressure ratchets up, and she finally to appease him, sends over a document with the top items sold at Trader Joe’s over a week to Amazon’s team so that they could start picking which ones to copy. But then he doesn’t stop there. He says, well, send us the data about the margins. This just causes the employee to crack. He starts crying in the middle of their office, and then someone reports the SHR. The people involved in pressuring the employee were let go. Amazon did the right thing there, but this story is just emblematic of the pressure that these employees are under and how that results in real anti-competitive behavior, how that helps them crush rivals or anyone that comes near them in terms of being a competitive threat.
Mary Long: Lots of companies have private labels, and they use data on those sales to boost their their own private labels. But Amazon as this Trader Joe’s story, not implies can proves.
Amazon really leverages that data differently and that’s become the piece of lots of investigations that you’ve put through. Nate Sutton a top lawyer at Amazon, testified in July 2019 that Amazon did not use individual data from third party sellers when making decisions about launching private brands. You broke a story that proved Sutton lied under oath when he made that claim. How do you prove that?
Dana Mattioli: It’s really interesting. When I took over the beat on covering Amazon in 2019, I was curious as to how Amazon used this data. Amazon collects more data maybe more than any company in the world. It just seemed given the culture and the pressure on these employees, it would be strange if they didn’t help themselves to data they’re not supposed to help themselves to. I found out they did, and it was really important for me in proving this out to get the receipts. When I started the beat I started speaking to lots of private label employees at Amazon. Current and former people. I learned that not only does Amazon regularly do this that some of them could provide me with a paper trail of how they do this, even though Amazon has on the record, denied doing this for years, even in front of congress as part of their testimony. I was able to get this treasure trove of documents from people that were on or had worked on the private label team showing that basically, Amazon is this giant online mall.
It has these third party sellers from all over the world, 60% of what’s sold on Amazon is these third party sellers. They rely on Amazon to get access to market. But when this mall was closed pretty much, the landlord Amazon was going into their shops and snooping in their books and getting behind the till and getting all their secrets, how many items they sold, what their margins were cost of goods, and getting all the best selling item data and reverse engineering those products intentionally and undercutting them on price. There’s a scene in the book I get that data, those documents and they sort of slide them across the table to a company that was ripped off. It’s company called Fordham, this small four person company in Brooklyn that was making car trunk organizers and I passed it across the two founders and they said, how did you get this? I told them what was going on, and they were my god. Because Amazon had just reverse engineered their best selling item. But that was just one of a set of examples of where this was happening?
Mary Long: When Amazon first launched its third party marketplace, it took about a 19% cut from sellers. Today that cuts closer to 50%. You’ve talked to a lot of these third party sellers, and a lot of them view Amazon as a necessary evil. How do those same sellers talk about other sites like eBay, Etsy, Shopify, Walmart? Because business is competitive. Lots of companies are again trying to gather information as best they can. But what is the feeling of sellers toward sites that aren’t Amazon?
Dana Mattioli: Largely sellers on Amazon describe it as a devil’s bargain. They need to be there because 40% of everything sold online, and the US is there, but it comes at a very steep cost. A lot of them have also tried other marketplaces and in any marketplace, you’re going to pay a fee or commission. They talk about the other marketplaces more friendly in terms of the economics. The problem is those other marketplaces don’t have the eyeballs, 40% of everything sold online is coming from Amazon, if you’re selling on other marketplaces, there’s not any single one that could match that. A lot of them have tried to get off of Amazon. They describe themselves as stuck on this what’s it called a Hamster wheel that they can’t get off of. As the margins compress, Amazon takes more more and more. Another problem is that for years, Amazon required that the lowest price a seller had was on amazon.com. If I was selling, there’s an example in the book actually, where a man takes over his dad’s family business. They sell industrial sized buckets.
He puts it on Amazon and the costs are so steep that this bucket that he gets $3.90. He has to sell for $30 each to offset all of Amazon’s fees. If he does that on Amazon, if his price is $30 to offset all of the fees, if he sells that in walmart.com or target.com Shopify, he has to also sell it for $30 otherwise, Amazon’s going to kick him off the site, even if the cost of business is less on those sites. The claim that the Federal Trade Commission makes in its lawsuit against Amazon where they call it a monopoly is that Amazon is raising prices on consumers, not just in amazon.com, but across the entire Internet because of that dynamic.
Mary Long: We’ve focused a lot on the seller relationship with Amazon thus far. But it’s not just sellers that report this copycatting of products. You talked to a lot of entrepreneurs, many of whom were connected with Amazon through the Alexa Fund, who also felt that they were this might be an understatement, but burned by the company. What is the Alexa fund? What can you tell us about that?
Dana Mattioli: The Alexa fund is Amazon’s internal venture capital fund. It’s really complicated because Amazon is the Number 1, 2 or 3 player in so many industries. If you are selling your company or looking for an investment, you have to talk to them because they might be the biggest player in your industry. It’s much more precarious for a founder than going to Sandhill Road, where the true VCs are, the pure play venture capitalists. Because if you pitch them they’re not going to copy your product. They don’t have businesses that go and copy it. But what I found in this book is that these entrepreneurs, these founders, the CEOs, allege that Amazon’s venture capital and its MNARM acted more like corporate espionage, that they would go in, share all of their secrets under the guise of Amazon either buying their companies or making an investment, and then Amazon would ghost them. Then months later, a year later, Amazon would launch the very same product with some of their technology and put them out of business.
Something interesting I found in the course of this book was I was able to get hundreds of pages of internal documents not from them at Amazon. In a few of these DAs that these entrepreneurs signed, I found something very strange called a residuals clause. It said, basically any company meeting with Amazon for deal talks or an investment there’s a line that you sign. That says, anything retained in the memory of an Amazon executive in those talks could be used without any legal consequence to Amazon. As long as they remember your idea or your technology or something you told them they could use it and you can’t sue them.
Mary Long: Wow. I want to pivot a bit and talk about voice technology. You’ve done some reporting that found out that 2017-2021, Amazon’s devices team, which to be fair includes more than just Alexa devices, but that that segment lost $25 billion. With that in mind why is this such a continued point of interest for the company?
Dana Mattioli: Think about that number. For those few years, it lost the entire market cap of like Tyson Foods. I think most companies cannot sustain a loss like that. There’s a few things going on. Amazon is very deliberately secretive about its internal financials. They don’t break different device business or other businesses out to Wall Street. It’s this black box as it relates to what goes on inside the company. For years they just saw voice technology in these devices as a land grab that they wanted them in everyone’s home. They thought that this would be like the Gillette model where you sell the razors for either a loss or for break even and then you sell the blades for a profit. But Amazon never found its blade with a lot of these devices. They sell them either at or below cost, and it’s haemorrhaging money. On the flip side, though, these devices. There’s 500 million Alexa enable devices in people’s homes. Just think about that. That’s a wild number are sopping up so much data. When I speak to people about the dollar losses, some of them are skeptical. They’re well, how much would you value that data?
Mary Long: A lot of your book talks about the relationship that Amazon is trying to build and ultimately does well, I guess they don’t really build it because it’s not a great relationship, but their relationship with Washington and how this plays out over the past several years. Not terribly long ago. Bezos made it pretty clear that he wanted to win over Washington. He bought a big house in this exclusive neighborhood. He buys the Washington Post and yet Amazon’s relationship with politicians is not very friendly. What went wrong?
Dana Mattioli: It’s the this strange dichotomy where Amazon was very late to getting into the lobbying game. It wasn’t until 2013 where Jeff’s board of directors tells him you need to start taking this seriously. He viewed Amazon as the David in the David versus Goliath scenario, because for so long he was. 2013, he was not. They were a $200 billion company, and people, companies around the world, CEOs were alleging wrongdoings and that this was eating their lunch. The board finally convinces him to start taking this seriously and from then on they start building up this massive lobbying team. They start spending serious money in the capital. They spend almost more money than any other company in lobbying these days. But even though they’re spending the money and they’ve built at the team, the DC team is often inhibited by Jeff himself or his lieutenants back in Seattle that don’t understand Washington. Based on the culture of this company, they’re not diplomatic.
This is very much a scorched earth. Jeff tells his team to punch back when it comes to reporter criticism or DC criticism. There was these weird funny scenarios where the DC team which is built of really smart people that understand that get things done in DC by scratching backs, people from the FTC, the DOJ, people who worked in congress. That team would go about what they called watering the flowers or making relationships on the hill really speaking Amazon’s points. Then with the single tweet or a nasty remark, the Seattle team, including Jeff, would tear down those relationships and anger people like Joe Biden. It has not been a successful venture as it relates to government relations.
Mary Long: It’s no secret that there’s a lot of political division in the country right now. There seems to be bipartisan agreement between Democrats and Republicans and Congress over the question of Amazon and its bigness. You had a front row seat to that. What has it been like to witness a moment of bipartisanship play out over this company?
Dana Mattioli: It’s so strange. It’s the one thing it seems both sides could agree on. You have people like Donald Trump and Joe Biden in agreement that Amazon is too big. You have people like Matt Gates and Elizabeth Warren who have similar views on antitrust reform and who are both backers of Lina Khan, the chair of the FTC. It’s one place where Amazon has seemed to be polarizing to both parties, and that has culminated in this historic lawsuit from the Federal Trade Commission, which is calling it a monopoly.
Mary Long: Let’s talk a little bit about Lina Khan and that the antitrust suit that’s out now. Lina Khan in and of herself is an interesting character and an interesting story line. How did she go from being a student at Yale Law School to chairing the FTC?
Dana Mattioli: It’s the most meteoric rise. In 2017, as a 27-year-old law student at Yale, she wrote Law Review article. Law Review articles don’t really go viral, if you’re lucky a few thousand people read them. This one just hit a nerve with society and millions of people read it. It might be the most read Law review article of all time. She says that Amazon is a monopoly, and that the antitrust laws, the way that they’re being interpreted cannot contain companies like Amazon, and something needs to give. Like I said, it hit a nerve, and it starts going viral. Reporters read it, politicians read it, CEOs read it, and she starts becoming someone people are talking about. That gets her placed on Congress’s investigation into Big Tech. She gets some academic roles after that. It culminates with her being named the youngest chairperson in the FTC’s 100 year history when Joe Biden named her as chair of the FTC. It was a gut kick to Amazon. Joe Biden was someone that they thought would be not a backer, but receptive to them. The head of public relations and government relations at the time was Jay Carney and Jay worked very closely with President Biden. He was his spokesperson when he was VP. He was also President Obama’s spokesperson. Then President Biden hand picks Amazon’s biggest nemesis to be the head of the agency regulating it.
Mary Long: Then that agencyof course goes on to sue Amazon. What is the basis of the FTC’s argument against Amazon right now?
Dana Mattioli: The FTC sued Amazon in 2023. The basis is that Amazon has monopoly power in online retailing and over its sellers on its website, that because sellers need to be on Amazon to reach all of us, 200 million prime members, and 40% of online retail it’s been able to ratchet up fees for those third party sellers from 19% a decade ago to $0.45 on the dollar for everything they sell today. Because of that, it’s become pay to play, and these sellers have had to raise their prices on shoppers.
Mary Long: I want to be cognizant of your time. We cater to an audience of investors here on Motley Fool Money. For all the bad that’s happened inside Amazon, there’s a lot of investors who think, yikes, but they’ve still done a really good job of rewarding shareholders. What do you think investors should pay more attention to at Amazon?
Dana Mattioli: Well, I think investors will love the book, because I was able to get the unvarnished financials for this book, the stuff that they don’t report to Wall Street. There’s some high popping figures in there. For instance they don’t really break out their advertising profits. I was able to find that their operating profits and advertising are 90%. There’s some gems like that that would really give you the full picture of what their financials look like. What I would say is that we also get into some of the losses that they don’t disclose, that if Amazon were to like jettison their devices business, for instance, it’d be probably a much more profitable company. That being said, there’s a scene in the book that I really think speaks to how Amazon thinks about its roadway and in the midst of this antitrust investigation, which could break Amazon up if the FTC is successful. Andy Jassy, the company’s current CEO, has told his team that Amazon could be a $10 trillion company. Clearly they think there’s a lot of runway left.
Mary Long: Dana, thank you so much for the time.
Dana Mattioli: Really appreciate.
Mary Long: All the insight that you’ve given us today, and all the insight that’s in your book. It’s an incredibly well sourced book and a really compelling, fascinating, frightening read.
Dana Mattioli: Thanks for having me.
Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about. The Motley Fool may have formal recommendations for or against. Buy or sell anything, based solely on what you hear. I’m Ricky Mulvey. Thanks for listening. We’ll be back tomorrow.
