Jeff Bezos’s Failure

Jeff Bezos, founder and CEO of Amazon.com, can hardly be considered a failure.
One of the three richest people in the world, he has been named “Person of the
Year” by Time magazine and “Businessperson of the Year” by Fortune. His
company made $232B in revenue last year and has a market cap hovering around
$900B valuation, making it the most valuable public company in the world.

At a minimum, he made more expensive mistakes than any of the rest of us,
adding up to hundreds of millions of dollars in what he has characterized as “bad
choices.”

When he was at Princeton he couldn't handle honors physics courses and that's
why he switched his major to computer science. While technically not a failure,
it's still something that he wanted to accomplish but couldn't.

In 1998, the fledgling Amazon.com sold books, music, and movies, and quickly
became an online leader in those categories. The company attracted significant
venture capital, and Bezos had dreams of turning Amazon into the “everything
store.” After considerable market research, he decided to branch into the toy
market. But toys were very different from Amazon’s previous offerings because
there were no major distributors. Amazon had to actually buy the toys from
various manufacturers, store them in inventory, and then hope they sold. This
went against Amazon’s core business model but Bezos could not be dissuaded.
Bezos insisted on spending $120M to buy toys, against the advice of every other
Amazon executive, even the head of the toy department. Bezos wouldn’t budge,
remarking, “If I have to, I will drive to the landfill myself.” That comment proved
to be prescient. After Christmas Amazon had $50M in toys leftover, and with
nowhere to keep them and no guarantee there would ever be a market for them,
the easiest option was to dump the toys. Amazon ended up giving toys to various
children’s charities and selling the rest to exporters for a fraction of the value.
In the same year, Bezos also started Amazon Auctions, which he felt could
overtake eBay. He called the project EBS for “Earth’s Biggest Selection,” but other
insiders were calling it “eBay by Spring.” He spent $175M acquiring the payment
company Accept.com to facilitate transactions between buyers and sellers. But it
was a bigger failure than toys for Amazon. eBay was just too well known; it enjoyed
first-mover advantage and a sizeable network effect. There was no room for
another auction site, especially not one with fewer buyers, fewer sellers, fewer
items for sale, and no competitive advantage.

Accept.com wasn’t Amazon’s only acquisition that year. Another 1998 purchase
was Junglee, a search site that compared prices of products across the web.
Comparison shopping was hot and so was search, with companies like Google,
Yahoo, PriceGrabber, and Bizrate all commanding huge valuations. Bezos spent
$170M on Junglee, but the Amazon Board of Directors hated it because it sent
customers away from Amazon to other sites. It was disbanded in a matter of
months.

Not only did Bezos dream of Amazon selling everything in the world, but he also
wanted to own businesses across the web. Bezos went on a huge shopping spree
in 1998 and 1999, buying companies including movie site IMDb, social networking
company PlanetAll, data company Alexa, a British bookstore, and a German
bookstore. He also invested heavily in Drugstore.com, Pets.com, Gear.com,
WineShopper, Greenlight, and HomeGrocery. But as reported in the 2013
book The Everything Store, by journalist Brad Stone, “almost all of them went
down in flames.” Bezos and his team simply did not have the capacity to work
with all of those different companies.

Books, movies, and music had worked. But by the turn of the century, almost
every other effort Amazon had made to grow failed. However, these failures
weren’t in vain. To the contrary, looking back at a letter Bezos wrote to
shareholders in 1998, it seems that these mistakes were part of a grander plan:
“We will make bold rather than timid investment decisions where we see a
sufficient probability of gaining market leadership advantages. Some of these
investments will pay off, others will not, and we will have learned another valuable
lesson in either case.”
Bezos made an embarrassing number of bad investments, which is true of all
investors. But look at some of his other investments and you quickly see a very
different story: Google, Airbnb, and Uber are all part of Bezos’ personal portfolio.
It is fair to say that, over time, Bezos’ wins have more than made up for his losses.
As for the companies Amazon has acquired, some failed but many more have
been huge successes, like Zappos, Shopbop, and Diapers.com.

Bezos had close to a billion dollars in failures in the early years of Amazon. These
were painful learning experiences that required reflection, but he more than
recovered. His mistakes came mainly when he steered away from the core path
Amazon was paving. Bezos learned his lessons, adapted, and significantly changed
course by late 2000. In lieu of unadulterated growth, he looked inward and
focused on the company’s basic principles and tenets of success. He paused
acquisitions and focused on strengthening Amazon’s core business and
increasing customer satisfaction. He learned from the toys mistake and
partnered with Toys “R” Us to sell its products online without having to buy
inventory. He did the same with electronics, partnering with Circuit City rather
than going it alone and taking inventory risk. He transitioned Amazon Auctions to
zShops where sellers could have their own Amazon shop. zShops was not aligned
with Amazon’s core and unsurprisingly failed, but that failure morphed into
Amazon Marketplace, which became hugely successful.

A company the size of Amazon affects the lives of millions of people, and with
great success comes great numbers of people weighing in. In the last few years
Amazon has come under fire for many issues, including employee wages,
environmental practices, facial recognition software, federal tax payments, and
even the location of its new headquarters. While it can be argued that Bezos has
made missteps, it is clear that his early failures prepared him for his future
successes. Bezos has repeatedly shown that he can withstand controversy and
ultimately prevail.
Bezos’ early words and actions showed that he knew the value of failure from the
beginning. He was not naive enough to believe that all his investments would pay
off, nor was he ignorant enough to assume his company could thrive without taking
risk. He learned to take calculated risks, even if that meant a risk of embarrassment.

We can be sure that Amazon will dominate many more news cycles in the future.
We can also be sure that Bezos will make decisions that others disagree with, and
maybe even some that become mistakes. But Bezos has proven that he can learn,
adapt, and grow—and that always ultimately leads to success.

 His words about failure:

Amazon CEO Jeff Bezos says multibillion-dollar failures are actually a good thing:
'If the size of your failures isn’t growing, you’re not going to be inventing at a size
that can actually move the needle'

- He cited Amazon's infamous Fire phone as an example of a failure —

but pointed out that work on the Fire phone assisted in the
development of Amazon's Echo smart speakers and the Alexa digital
assistant.
- This philosophy — that it's better to have failed than to never have
tried in the first place — is core to how Bezos looks at his own life.
- I was not going to regret trying to participate in this thing called the
Internet that I thought was going to be a really big deal. I knew that if I
failed, I wouldn't regret that. But I knew the one thing I might regret is
not ever having tried. I knew that that would haunt me every day."