AMERICA’S MOST INNOVATIVE—AND FEARED—BUSINESS LEADER IS COMING OFF A THREE-YEAR RUN THAT HAS MADE HIM THE RICHEST PERSON OF ALL TIME. NOW HE TELLS FORBES HE’S ONLY BEGUN TO GROW. BY RANDALL LANE BEZOJEFF BEZOS nlike America's ath- : adds the man whose company should certech giants, Am- = hit $210 billion in revenue this year. azon doesn’thave = “But we just don’t have that issue a traditional cam- fJeff Bezos is already the world’s us. The 45,0000 > most feared businessperson, the pros- soemployeesand = pectofhim “unconstrained” should executives in Seat- = sober every corporate leader. Yes, tle, out of 575.000: he's ruthless and a master of the long. worldwide, fan game, but Bezcs’ greatest strength, ‘cross numerous | horne out overthe past few years, has high-rises down: been his ability to shape-shift Ama- town and inthe | zon into adjacent businesses~some South Lake Union neighborhood. of which were adjacent only in retro- Amazon's “headquarters” defaults | spect—on a massive sale It's quan- to where Jeff Bezos,the company’s! table: Forbeshasbeen rankingin- | wants. econd, the scale that Ama- founder and CEO, happens tobe, cur- novative companies for eight years, £ zon needs fr growth practically de- rently Day 1 Tower, Its name comes and we recently worked with atrio of: mands aggressiveness. And, finally, by from a perpetual Bezos maxim: that, | management professors to try tode- | dominating retail and digital business relatively, we're stil at“day one” of: termine the country’s most innovative : services, both of which touch almost the internet—and, by extension, that; business leaders See p. 84). The four~ _; every other industry, he's now posi Amazon i just getting started, prong methodology— incorporating tioned to move adjacently into just ‘That's getting harder tosay with publicreputation and influence, val- about any business where he finds straight face, with sales profits and ye creationand the premium thatin- | added value. He's playing in the mul- the stock price al soaring, the latter up vestorsassign to the chief executive _thillions in at least four markets— 70% over three years and 103% inthe: places Bezos squarely atthe top. healthcare, entertainment, consum- past 2 months. Amazon is closingin “What JeffBezos hasdone and er electronics and advertising-that con Apple tobecome the world’s most isikelyto do is perhaps the most re- constitute many of the companies not valuable company, and Bezos, whose | markable achievement I've sei already terrified of Amazon, It's no personal net worth approaches $160 | Warren Buffetttold me lastyear after | coincidence that each of those four billion, has in the process become the asked him, open-ended, toname the | either hits or approaches the “trl- planet's richest person, by far. ‘mostimpressive business mind in his lions" potential Bezos alluded to. Nevertheless, Bezos talks about almost eight decades of market-watch- | __ While his pioneering peers ofthe Amazon like tsa giddy startup that ing. “Because he's taken two very ma- first dot-com era embraced and popt- just closed its Series A. *For all prac- jor industries, and simultaneously, and. larized the “open kimono,” Bezos has tical purposes, the market ize is un- __ sortofunderthe nose of competitors, _ always viewed stealthiness as an asset, constrained?’ says Bezos his olled-up | he'sbecome ineffect the leader and is masking new initiatives inside larg- “super-lucky” conflu- n far more ways. First, : refuses to discuss Donald Trump, who $78 $87 ss ie 7 sus sa i ie) ve ae mat Sen Year 08 959 Fersersoonant "102Jearning, pausing fora few seconds to underscore that he wasn't going there. Ditto questions about becoming a data company. “ve never really thought of Amazon in that way.” says the man ‘who runs as data-driven a company as any, before reverting to his stump speech. When it’s suggested that it's at leasta tool, Bezos quickly inter- jects: “One of many tools” Nevertheless, during the morning hhe spent with Forbes outlining how he channels innovation and chooses where to expand, a road map for Ama- zon's future emerged. Given Amazon's size, itmoves both vertically and hor- izontally, each direction portending alot more disruption. Even five years ago, Bezos seemed content merely to try to sell everything to everybods be- ‘coming the bane mostly of retailers and wholesalers. But this master inno- vation artist now has the ultimate pal- cette: ny industry he chooses. FOR THIS UNCONSTRAINED evs, the most important word at Amazon is yes. Bezos explains, correctly the tra- ditional corporate hierarchy "Let's say a junior executive comes up with anew idea that they want to try. They Ihave to convince their boss, their boss's boss, their boss's boss's boss and so on=any ‘no’ in that chain can kill the ‘whole idea." Thae’s why nimble start- ups so easily slaughter hidebound di- nosaurs: Even if19 venture capitalists say no, itjust takes a 20th to say yes to get a disruptive idea into business. Accordingly, Bezos has structured, Amazon around what he calls“multi- particularly regard- ing “two-way doors": decisions that are often based on incremental improve ments and can be reversed if they prove unwise, Hundreds of executives ‘can green-light an idea, which employ- ‘ees can shop around internally. “He knows and we know that you can't in- vent or experiment with- = saw that he could use those £ into music and DVDs, then toys ‘out some failure” says JefF Wilke, the longtime Bezos lieutenant who runs ‘Amazon's consumer and retail opera tions. “Those we sort of celebrate. In fact, we want them to oceurall over the place. Jeff doesn't need to review those. I don't need to review those” But regarding the larger ideas and verticals—ak., “one-way doors"— that change the direction of the com- pany, Bezos prides himself on playing “chief slowdown officer” He’s look- ing for three things. First, originalit “We have to have a differentiated idea. {ecan’t he ame too’ offering.” he says. = Second, scale. ‘We're gifted with some = very large businesses we've built over 5 time, and we can’t afford to put our en- § ergies into something that if it works, it’ still going to be small” And, final- ly,a Silicon Valley-worthy ROI. “Even at substantial scale, it has to have good 5 returns on capital” Ultimately; the ideas that hit that troika, Bezos says, emanate from cone of two models. Either by look- ing backward at customer needs—as in we've noticed people act a certain way, so let's try to serve them with 1 produet. Or peering forward—we know how to do something valuable, so ets find customers. ‘The Amazon juggernaut ultimate- ly stems from the later. Originally 3 niche player, Bez0s could have easily, focused just on becoming the world’s digital bookstore, the way crafts be- = long to Etsy and shoes to Zappos 5 (now owned by Amazon, naturally). But in mastering selling books, Bezos ‘to0ls—from inventory manage- ‘ment to recommendation en- sgines—to move adjacently: first and electronics, then TO INFINITY AND BEYOND JEFF BEZOS' NET WORTH AND RANK ‘ON THE FORBES 400 | 2916 2018JEFF BEZOS pretty much anything that can be sold at retail. And he again leveraged that knowledge audaciously (and successfully) in opening up Amazon asa platform for independent sellers, who were formerly competitors—e menting his legaey as a transforma- tive retailer, in the pantheon with the likes of Sam Walton, Aaron Mont- gomery Ward and Sears Roebuck’s Julius Rosenwald, ‘This is where the story should have ended. But as the Western world's dominant online retailer, Amazon was also solving huge technological and logistical problems, and rather than view those skills merely as accretive tothe core business, Bezos saw them as businesses unto themselves. An in- ternal need for part-time develop- ers ed to Mechanical Turk, one of the world’s first crowdsourcing gig mar- ketplaces. Building a staggeringly effi- cient delivery infrastructure led to the Fulfillment by Amazon service, and ‘mastering how io take money for each purchase led toAmazon Pay. Most im- portant, as Amazon began building {enormous eapabilities to store its data in the cloud, Bezos figured out that other businesses might want to store their data thereas well. In 2017, AWS had $175 billion in revenue. Even those customer-driven con cepts create skills-based dividends. ‘Take the Kindle reader, Amazon's first foray into hardware, back in 2007, Wilke, who came from Allied: ‘Signal, remembers protesting to the board. “I spoke up and said, ‘I don’t agree. I think we're likely to miss our planned delivery date. Our yields are gonna be too low. We're gonna under- produce, We're gonna frustrate cus- tomers. Hardware's hard, We're a software company: “Jeff said, Well, 'm willing to con- cede that ll those things will happen, and still think that the right visionTHE AGE OF AMAZON IN THE PAST 21 YEARS, AMAZON'S STOCK HAS RISEN A STAGGERING 96,000%—AS THE COMPANY pos.” for our company is to be really good at building hardware, so we need to get started learning” And so they did. Kin- dle isa romanticized product at Am- azon, both because of the hardware breakthrough and because it harks back to the company’s roots in books. It didn’t transform the company, though, and other hardware failure, like the disastrous Fire smartphone, followed. But Bezos’ decision also ‘eventually led to the Amazon Echo smart speaker, a true game-changer “We have alot of hardware expe- rience today, but back then we didn’t have those skills” says Bezos, laugh: iu have to be patient. I's not going to be just time to learn a skill. It ‘ight take time for the thing to real: ly flower.” In other words, if you study the skills Amazon is currently learn: ing, you'll have a fair idea of what it will soon be selling, And right now Bezos is learn- ing about healthcare. I's America’s biggest industry—1896 of GDP—and ‘one of its most inefficient. Last year, Bezos, along with Buffett and JPM ‘organ Chase CEO Jamie Dimon, an- nounced that their three companies ‘would pool their efforts, hiring high- profile CEO Atul Gawande to lead a nonprofit initiative to deliver better care ata lower cost for their own em- vento npesrice WENT FROM HUMBLE ONLINE BOOKSTORE TO 30 1 ‘SELLING EVERYTHING FROM APPLES TO VIDEOS, ployees, with the idea of creating a scalable, clonable model. It's no small thing: Those three companies employ 12 million. Add in their dependents, and it’ like running a pilot project for everyone in Oregon or Connecticut. Bezos is adamant about Amazon's intentions here. “This is a nonprofit initiative, as you guys know. It's very different.” he interjects, before even full question can be asked about it. Buffett, for his part, concurs, having explained to me a few months ago: We were deluged by people after the announcement who said, “We want to join in’ And we said, ‘You don’t have to join in. Steal everything we get, ifJEFF BEZOS we get anything’* The *ifwe get any- thing” is key. “Like Columbus leav- ing, we don't know where the hell we're going exacts” Buffett added. “Dut we hope there's another cont- nent out there and we don't go off shelf at some point.” But evenif they do sal off the arth, Bezos wins, as Amazon bur- nishes its skills accounting for around cone fifth of the domestic econo- my. While any breakthroughs devel- oped with Buffett and Dimon “would still be inside that nonprofit en ty," Bezos says, “each ofthe compa- nies can pursue their own initiatives” Bezos has already started. In June, Amazon agreed to pay almost $1 bil- lion for PillPack, a startup that deliv- ers pre-packaged daily prescription envelopes. I's everything that Ama- zon is good at fulfillment, customiza- tion and dependability. And i's an- other toe in the healthcare pool Bezos is also going to school in advertising, Amazon's most re- cent quarterly performance revealed a startling number: Amazon is on pace to exceed $8 billion in adverts- ing revenue this year—roughly dou- bile last year's total. And why not? Google might know what you're in- terested in buying, Facebook might be able to deduce what you'd be in- clined to buy, but Amazon knows what you've actually bought, o even whether you shoved intent to buy. ‘That raises all sorts of issues. Bezos talks exuberantly about his consumer obsession, but there are few customers who want tobe tar- geted with more ads. Bezos says the trust that Amazon has buile with its customers will ensure the compa- ny doesn’t cross aline—and that cus- tomers, in eur, wll give him the ben= efit of the doubt. “Tes very valuable, and so you would never do anything to jeopardize ithe says. “It's what al- Jows you to expand the business” If BBezos can walk that ling, it's easy to envision the Facebook- Google adver- tising “duopoly" gaining a third ma- jor entrant uaa nOte eg attle high-rises, the most interes building Amazon's neighborhood — ‘with apologies toa stunning new bio- Ail sphere designed to serve as something. of acompany commons is a food store that pokes out from the bottom of Day 1 Tower Amazon's $13 billion ‘Whole Foods purchase last year is only the second-most-interesting grocery initiative at Amazon; the first is Ama- zon Go, an 1800-square-foot experi- ‘ment in frictionless brick-and-mortar purchases that opened in January Go, a food store, might be the ‘most Amazonian thing at Amazon. Bezos has always stressed frugali ty, and here are his employees (and 2 few Seattle residents and tour- ists) shopping for their lunches, buy- ing them from Amazon and in do- ing so also providing the company ‘reams of data to hone its skills. More important, Go demonstrates what's possible when different aspects of ‘Amazon's myriad operations come together. Go encompasses know!- ‘edge gained from purchases at Whole Foods; from Amazon's increasingly sophisticated algorithmic and hard- ‘ware capabilites, in the form of AI, camera and seasor technologies, which combin» to figure out what's taken off the shelf (and put back) and who did the taking; and from Ama- zon Pay, which seamlessly handles the transaction once the company's apr registers the inputs. Grabbing a chocolate milk here on the way out feels like shoplifting—no checkout lines no scanning, no swip- ing. If healthcare and advertising represent huge expansion verticals ‘on Amazon's de facto vertical cam- pus, Go brings together what's possi- ble horizontally when Amazon puts all the pieces together. ‘The most important aspect oft allis Prime, Atits core, i's amarket- ing tool, a way o encourage buying— THE WORLD'S MOST INNOVATIVE What did Thomas Edison have that Nikola Tesla didn't? Well, the iat ter died penniless. And Edison had what professors Jeff Dyer of Brigham Young University and Nathan Furr of INSEAD business school call inno: vation capital. Dyer and Furr have ranked the leaders withthe greatest Innovation capital today by measuring four essential qualities: reputation for Innovation (looking at media coverage cover five years), socal connections fand networks (on Twitter and Linke- Gin), track record for value creation (oased on the market value growth of theie companies) and investor ex- pectations for future value creation (measured by the premium investors put on their companies’ stock). Here fre the ten top finishers: Forbes will Publish a ful lst of the 100 most in- hovative leaders in 2019. and generate recurring subscription revenue (an estimated $10 billion in 2017)=ina similar vein to warehouse clubs like Costco and By's Wholesale, Butasit grows, i's surged into a way to shower its 100 million-plus subscribers with perks and privileges. And those perks create endless new adjacen- cies and business lines. Prime explains ‘why Amazon has started to encroach ‘on Netflix and is expected to spend $5 billion on programming this year, in~ cluding the highly touted Marvelous Mrs, Maisel. In just three years, “Prime Day"—an annual 36 hours of special deals just for members, with partici- pants spending billions on more chan 100 million produets this July—has be- come a shopping holiday with a ma- nia surpassed only by Black Friday and Cyber Monday. Access to Prime is how Amazon gets its outside retailers to pay ‘more for Fulfillment by Amazon, rime also underpins Amazon's brick-and-mortar strategy. Prime's same-day deliveries and pickups re- quire more physical beachheads, which in turn help underwrite ex- pansion into all sorts of fields Ama- zon could never have justified, such as food, the kind of perishable prod- uct that doesn’t fit into the classic Am-EADERS ‘ 1 2 Jetrey Bezos Elon Musk Mark Zuckerberg RECA $450 BIL $48.81 $376 Bi, RE ORE 366% 8198 565% sounon tnt 728% 797% 70% 6 7) 8 Mare Beno Shantanu Narayen | Reed Hastings * saussroncecon ‘ADOBE SYSTERS| True ERR $5061 $688 $788 a CaN 143% 36% 1390 sion REALM 24%, 28% 715% ‘azon model. After yearsasabook- about machine learning as opposed to store killer, the company nowhas 16 __ alot of other technologies is just how permanent Amazon Books locations = horizontal it's going to be,” Bezos says. across I states. And Amazon recently “There's not a single category of busi ‘opened a second Go in Seattle.“They ness or government or anything, really, have to have something that's special = that can'timprove itselé” and nev" Bezos says. “And that’s what : Even the much ballyhooed “HQ2” ‘you're seeing if you're paying attention ! second headquarters bake-off, which to our physical-stores strategy.” ‘Amazon insiders continue to say will. Prime, in short, hasbecome Am- be finalized by year's end, speaks to azon’s central nervous system, con- | Amazon's horizontal outlook. (Forbes necting everything in the company— is betting on Washington, DC, where and giving Amazon a path to expand: Bezos already has abase and which co new markets while also juicing | has the talent, logistics and access to its core retail business—without re influencers; by shortlisting both the ally being it’s own thing. “Iecan'tbe _ Vinginia and the Maryland suburbs, as astand-tlone business because i's well as the District of Columbia, Bezos completely tied in to our consumer canalso play three governments with- offering” Bezos says. in one metropolitan area against each Similarly, as seen with Go, arti! other forthe best sweetheart deal.) In- cial intelligence will increasingly con- | creasingly, Bezos says, geography at rect what previously seemed like: Amazon is becoming irrelevant. When, parate product lines, from cloud to: separate teams need to work togeth- retail, Take the wildly successful Echo, = er, “what you wants those two groups which has made Jeff Wilke's existen- = to have infrequent meetings and set a tial question about Amazon—is ita: road map of the future” He adds: “IF hardware ora software company?— _:_you organize correctly, peaple do not ‘moot. It's an effective piece ofhard- = have to bein the same building or the ware empowered by AI-driven soft- same city or even the same time zone, ware, which drives Amazon's retail because you can work off a road map” sales, leverages Amazon's contentand | And make no mistake, that road so on. “The most interesting thing map is “pretty much all” that Bezos 4 5 ‘Timothy Cook Satye Nadella $360 8 S788 12% ae 2% 26% » 9 10 Jeff Weiner’ | Larry Page/Sergey Brin SI6EIL 491 96% 137% 60% 315% works on, delegating the day-to- day business operations. Long-term thinking has been Amazon's hall- ‘mark, and the cash spigot from AWS empowers Bezos to keep running the retail juggernaut with near-7e- ro margins and unassailable efficien- cies, as well as invest in far-flung ar- as. “I very rarely get pulled into the today.” Bezos says. “I get to work two or three years into the future, and ‘most of my leadership team has the same setup.” “Friends congratulate me after a quarterly-earnings announcement and say, Good job, great quarter} and Vilsay, ‘Thank you, but that quar- ter was baked three years ago’ I'm working on a quarter that'll happen in 2021 right now It's that mindset that has com- panies in dozens of industries run- ning seared. “I come up with ideas. We could sit here with an idea, and 1 could fill this whiteboard in an hour with 100 ideas” Bezos says. “IF have a week with no brainstorming, meetings, I complain to my office, 5 like ‘Come on, guys, help me here: Corporate America, take note—ei- 5 ther innovate or Jeff Bezos will do it 5 foryou.@