Amazon's 'Everything War' with Dana Mattioli

Barry Ritholtz speaks with Dana Mattioli, an investigative reporter covering Amazon for the Wall Street Journal. Since starting at the Journal in 2006 Dana has produced a string of front-page articles on everything from the troubles at Kodak and J. C. Penney to Pfizer's $150 billion deal to buy Allergan. She was a recipient of the 2021 Gerald Loeb Award for Beat Reporting as well as the 2021 WERT Prize from the Women’s Economic Round Table. Additionally, she was part of a 2016 Gerald Loeb Award team win in the breaking news category and a Pulitzer Prize finalist in 2020 for her team's investigation into Amazon. She is the author of the book "The Everything War: Amazon’s Ruthless Quest to Own the World and Remake Corporate Power." On this episode, Barry and Dana discuss her path into journalism, the current era of antitrust enforcement, and Amazon's growth into the powerhouse it is today. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.

• 0:30Speaker 01

  When you're a business owner interested in expanding to new markets, there's a lot to consider and countless questions to answer before making the call. The most important one being, are you ready? That's where ChatGPT comes in. Give it a goal, add your files, and ask chat to help you map out different scenarios for the future of your business. So when growth is on the table, you've got an expansion plan ready to implement. Get started at ChatGPT.com.

• 0:58Speaker 01

  Bloomberg Audio Studios. Podcasts, radio, news.

• 1:05Speaker 02

  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 1:12Barry Ritholtz?

  This week on the podcast, I have another extra special guest. Dana Mattioli is the Amazon reporter for the Wall Street Journal. In addition to covering Amazon, she is an award-winning reporter who has deep roots in both M&A and retail. Her new book is really quite fascinating. The Everything War: Amazon's Ruthless Quest to Own the World and Remake Corporate Power just came out a few months ago. I thought this was a really interesting book. I read a lot of stuff for interviews, and this is a book that I would have just plowed through regardless. It was really fascinating.

• 1:51Barry Ritholtz?

  And, you know, a lot of the things you suspect about Amazon, you think about, you know, how they flex their corporate muscles, you have like a loose idea. Hey, they really seem to be the 800-pound gorilla. I had no idea. You know, as I'm reading the book, I'm just genuinely shocked. And by the way, it's deeply investigated and researched. She did hundreds of interviews with former employees and executives and partners and like just everybody who was affiliated with this. And these are not nice people. These are ethically compromised executives who are just hell-bent on increasing profits

• 2:35Barry Ritholtz?

  by any means necessary. And she paints a not very pretty picture of the company, its culture, its tactics. Like, I thought I knew Amazon, and it turns out, I really didn't know Amazon. Fascinating book, and a really fascinating conversation that I think you'll enjoy. With no further ado, my discussion with The Wall Street Journal's Dana Mattioli. Welcome to Bloomberg.

• 3:04Speaker 04

  Thanks for having me.

• 3:05Barry Ritholtz?

  So, we've been trying to get this scheduled for quite some time. We've been ships in the night, and I'm glad we finally did this. Before we get into the book, I just have to go over your background, which is really fascinating. You started the Journal in 2006. Tell us a little bit about how you got there.

• 3:21Speaker 04

  Oh, I'd say I snuck through the back door. I started a week after graduating from college.

• 3:27Barry Ritholtz?

  Amazing.

• 3:28Speaker 04

  As a journalism major and an English major. I had some freelance clips while I was in college. I would go and take my articles that I wrote for class and sell them to the local newspapers in Washington DC.

• 3:39Barry Ritholtz?

  Right.

• 3:40Speaker 04

  Sometimes just give them away to get a byline. And that's sort of how I got hired at the Journal and just really learned as a grunt at that point and, you know, rose up the ranks.

• 3:50Barry Ritholtz?

  It's kind of fascinating that you're the Amazon reporter now, because you began covering retail companies like JCPenney's. I don't know if it's called Kodak Retail, or they had a retail arm. Tell us a little bit about some of the companies you covered and some of the front-page scoops you got.

• 4:06Speaker 04

  Yeah, so for a while, I was the retail reporter at The Wall Street Journal. I loved that job. I basically covered 30 different publicly traded retailers from Gap, to Macy's, to Nordstrom, and got to know a lot of those CEOs very well. People like Mickey Drexler over at J. Crew, right? Like legends. And that was a really good education for me, actually, in writing this book because I saw firsthand through their lens of how they had to react to a young Jeff Bezos and how that was decimating their businesses.

• 4:34Barry Ritholtz?

  Right. You started in '06. At that point, Amazon is what? A decade old, just about?

• 4:39Speaker 04

  Yeah.

• 4:40Barry Ritholtz?

  And had already begun to damage traditional retailers. You go from retail to doing large M&A deals. You covered the Pfizer-Allogent deal and a bunch of other M&A. Tell us how you went from retail to mergers and acquisitions.

• 4:56Speaker 04

  Yeah, there was a stop before that. Actually, I covered Kodak, like you said. That was my first corporate gig. And then retail. And then I was the M&A reporter with another reporter named Dana Simulka, who's a good friend of mine. And our whole job was to break what companies are buying other companies. And it was a really exciting job. You'd get these giant tips, $100 billion deals, and you'd put the headlines out and you'd see the stock prices just go through the roof, right? It was like this kind of adrenaline rush of a beat. So I did that for six years, which is a very long time to cover that beat because it's fairly all-on. You know, you work every Sunday because deals get announced on Monday. But also, a through line on that beat was, the beginning of that beat, when I started in 2013, the retail companies, the consumer companies, were worried about Amazon.

• 5:39Speaker 04

  By the time I left that beat in 2019, every single corporate boardroom I spoke to, every CEO, every banker in industrials, healthcare, every industry was worried about Amazon.

• 5:50Barry Ritholtz?

  Huh. And just to wrap up the M&A, you won another Loeb Award in 2016, covering the Dow-Dupont merger. That was a giant merger. Tell us a little bit about that story.

• 6:01Speaker 04

  Yeah, that was. This was a time when there was a lot of industrial M&A. A lot of these corporate giants that, you know, had been esteemed companies were hitting a rough patch. And we started to see a lot of deals in the chemicals space and the industrial space. I broke that with my colleagues Dana Simulka and Dave Benoit. And that was one of the biggest years for M&A that I was on the beat.

• 6:23Barry Ritholtz?

  So retail, M&A. How do you end up not just back in the online retail space with Amazon, but making that your sole beat? How did you become Amazon only as a reporter?

• 6:35Speaker 04

  So after six years on the M and A beat, you know, writing probably hundreds of articles. It's very competitive beat. Compete with Bloomberg pretty fiercely. It was time for me to take a step back from that type of reporting. You get fairly burnt out.

• 6:49Barry Ritholtz?

  It's a grind, right?

• 6:50Speaker 04

  It is, it's a grind. You know, I was reporting stories out from my friends weddings, from christenings, from family birthday parties. You're never off. So I wanted to take a step back and do a bigger like investigatory beat. And the only thing that really excited me at the time was Amazon. I'd seen them be this major player on the retail beat. On the M and A beat, I saw stupid M and A happening because of Amazon. I remember I broke this deal when CVS was buying Aetna. This is the a bet the farm sort of M and A deal. Sixty nine billion dollars where CVS, this pharmacy, was buying an insurance company. And I learned that the CEO of CVS was terrified of Amazon. Every board meeting he had with his board, they had Amazon proofing plans put in place. And I started seeing that in other boardrooms too,

• 7:35Speaker 04

  that these dumb deals were happening because people were trying to Amazon proof their businesses. And I started to think about how, how little people knew about how Amazon always seemed to win, how they seemed to have their finger on the scale in a lot of ways. So I pitched this investigatory Amazon beat to my bosses at the Wall Street Journal, and they, they were into it. They said, if you think you could get inside this black box, then do it.

• 7:56Barry Ritholtz?

  What, what year was that?

• 7:58Speaker 04

  That was 2019.

• 8:00Barry Ritholtz?

  All right. So by then I'm trying to remember how big Amazon had become. I mean, they obviously blew up after the pandemic, but I want to say Scott Galloway's book, The Four, had already come out. Brad Stone's book, The Everything Store. I don't know if that had come out yet.

• 8:17Speaker 04

  That did, that came out, I want to say. Maybe 2015?

• 8:21Barry Ritholtz?

  And both of those books sold very well and drew a lot of attention. Amazon, it doesn't sound like it was a tough argument to get the editors of the Wall Street Journal to say, hey, these guys are a behemoth. We need a dedicated person covering just this one company.

• 8:35Speaker 04

  Yeah, and they were excited that I raised my hand. I had a, you know, a history of being very scoopy, getting inside companies.

• 8:41Barry Ritholtz?

  Award winning, right?

• 8:43Speaker 04

  And, and, you know, Amazon's such a big company, you know, they're $2 trillion today. And they're kind of like a giant, they're not kind of, they're a giant conglomerate. They're like 15 different publicly traded companies in one company. So I had, I wanted to do this in a way that I picked my spots. If you just cover Amazon news day in, day out, you could just write wire stories all day. There's a million stories about them. I wanted to be deliberate and investigate.

• 9:05Barry Ritholtz?

  So, um, let's talk a little bit about that deliberate investigation. The book covers Amazon's quest to own the world and remake corporate power. What does that mean?

• 9:18Speaker 04

  Well, Amazon, you know, they started as this against all odds garage startup, right? But what we've seen in more recent years is that they've become the number one or two player by size in about eight different industries, you know, from retail, which we already know, 40% of everything bought online in the U.S. is Amazon, to cloud computing, where they are the biggest cloud computing company in the world.

• 9:40Barry Ritholtz?

  By far.

• 9:40Speaker 04

  Exactly. In the U.S., they deliver more parcels than UPS or FedEx, and it goes on and on and on.

• 9:45Barry Ritholtz?

  Say that again, they deliver more parcels than UPS or FedEx?

• 9:49Speaker 04

  Yes, they are the number one parcels.

• 9:51Barry Ritholtz?

  That's astonishing.

• 9:52Speaker 04

  And guess what? It's, they're only their own product. They're not even delivering it really for other people. That's just Amazon goods.

• 9:59Barry Ritholtz?

  Wow.

• 10:00Speaker 04

  They've taken over industry after industry, and that's forced bankruptcies, it's forced lack of innovation. And beyond that, you know, my book gets into how they have this pattern of lying, cheating, copying their way to the top, and using their leverage in all these different industries to crush competition.

• 10:18Barry Ritholtz?

  Oh, we're going to get into the details of that for sure. I just want to go through the eight areas where they're number one or two. So, online retail, um, cloud computing.

• 10:29Barry Ritholtz?

  Package delivery, what are the other four or five where they're dominant?

• 10:33Speaker 04

  Yeah, voice assistant devices.

• 10:35Barry Ritholtz?

  Yeah, nobody comes close to that.

• 10:36Speaker 04

  Right. In online advertising, they're number three, actually. I have a whole chart of this.

• 10:42Barry Ritholtz?

  Which, by the way, the online advertising is, has become so ubiquitous throughout the site. So it's Google, Facebook, Amazon.

• 10:52Speaker 04

  Exactly.

• 10:52Barry Ritholtz?

  Amazing. Give us the other two or three.

• 10:55Speaker 04

  E-books.

• 10:56Barry Ritholtz?

  E-books, and that's before we get to other gadgets.

• 10:59Speaker 04

  Yeah.

• 11:00Barry Ritholtz?

  I mean, the Kindle, does Barnes and Noble still make the Nook?

• 11:03Speaker 04

  They do, and it's kind of a paltry experience. And I'll tell you, 90% of my e-books for this book have been sold on Amazon, which just tells you.

• 11:11Barry Ritholtz?

  Right.

• 11:12Speaker 04

  How much of a dominant marketplace.

• 11:14Barry Ritholtz?

  I'll tell you something fascinating, that when you Google search your book, the first link that comes up is Amazon.

• 11:21Speaker 04

  Not too bad.

• 11:21Barry Ritholtz?

  And that's true on so much stuff. I mean, on Google, I don't mean on the Amazon site.

• 11:27Speaker 04

  Yeah, I know, I believe that.

• 11:28Barry Ritholtz?

  But on eight verticals, most of which they are either number one or number two.

• 11:33Speaker 04

  And they're, and they're keeping, you know, they're gonna keep growing. They, um, they're getting into space with this Project Kuiper. They're...

• 11:41Barry Ritholtz?

  Now, that's separate from Bezos's Blue Origins company? You're talking about a wholly different pursuit coming from Amazon proper?

• 11:51Speaker 04

  Within their own company, yes.

• 11:52Barry Ritholtz?

  And what do they want to do in space?

• 11:54Speaker 04

  They're gonna go head to head with Elon Musk's Starlink.

• 11:57Barry Ritholtz?

  Uh-huh.

• 11:57Speaker 04

  With this, these satellites, these orbital satellites. And that should launch in the next year, so they're ever-growing. And they have a lot of bandwidth to do that in ways that other publicly traded companies really don't.

• 12:08Barry Ritholtz?

  Why on earth does Amazon want to be in the satellite business? Out of curiosity, is this related at all to Blue Origins and what Bezos is doing with that?

• 12:21Speaker 04

  Well, it's a question for Bezos, I would say. You know, Starlink, which is Elon Musk's venture, is considered one of his crown jewels. Okay, so there's like definitely an appeal there. The way that Elon has it structured, it does fit into his space exploration company SpaceX. So some people posit that should this be part of Blue Origin rather than Amazon?

• 12:40Barry Ritholtz?

  Sure.

• 12:41Speaker 04

  But as of right now, it is part of Amazon.

• 12:43Barry Ritholtz?

  Is the, I guess the thinking must be, hey, if we have more people with access to the internet.

• 12:48Speaker 04

  More shopping.

• 12:48Barry Ritholtz?

  More people will shop online and we'll capture 40% of it or whatever their pricing market shares.

• 12:54Speaker 04

  They'll boost those 200 million Prime subscribers could grow exponentially.

• 12:58Barry Ritholtz?

  Right. How do you define Amazon Prime as a vertical? Is it just part of their delivery process that comes with a lot of other things? Where do you put Amazon Prime into this?

• 13:10Speaker 04

  I mean, it's one of the biggest membership programs there is at any company.

• 13:14Barry Ritholtz?

  It's amazing, right?

• 13:15Speaker 04

  People pay for the privilege to shop with this company.

• 13:17Barry Ritholtz?

  Well, you theoretically pay for two-day delivery, although if you've been an Amazon user for any length of time, that turns out to be BS because they do everything they can to dissuade you from next day or two-day or same-day delivery. Hey, ship on Wednesdays with even fewer boxes, create less ecological waste. Ship next Thursday, here's a 99% digital coupon. Ooh, that's great. I'm going to rent a new vehicle. I'll save 99 cents. But obviously it works because the more they can spread out their shipping, the...

• 13:57Barry Ritholtz?

  My experience has been the shipping timeliness has decreased dramatically.

• 14:03Speaker 04

  I hear that from a lot of shoppers.

• 14:04Barry Ritholtz?

  Right. I mean, so I've been an Amazon member since I got a gift certificate from my college roommate. I want to say it was 98, 1998.

• 14:15Speaker 04

  Wow, early member.

• 14:16Barry Ritholtz?

  And I had a college long before that, but, um, but early member. Like I, I used to just search and click whatever comment came up first and it was always the right thing. I ordered lithium batteries with a, like for a key fob on your car. It's a very specific model number. Wouldn't that exact model number come up first? So I was, and I went back and I redid it and figured out, oh, that's a sponsored link that has nothing to do with what I requested, other than it's roughly a... Lithium ion battery. So I went to return it and every now and then Amazon will say, yeah, don't bother. Just, just, uh,

• 14:54Speaker 04

  Keep it.

• 14:55Barry Ritholtz?

  Right. And we'll credit you because it's more expensive to send it back than the product is worth. Um, so the search has been terrible. The pages are just festooned with advertising. The whole experience is much worse. And then there's the other two issues. The prices are no longer the lowest. And the interesting thing about the pandemic is when they were frequently out of things, it sent you searching. So I think everybody has a Target account, a Walmart account, which may not have been true in 2019, pre pandemic. So the whole experience is much less delightful than it was. I kind of think since Bezos left, the

• 15:37Barry Ritholtz?

  people who were there are just focused on how do we max out profitability and the hell with the user experience, which wasn't what it felt like under Bezos, or am I wildly overstating that?

• 15:49Speaker 04

  Well, there's a large part of my book gets into this toxic culture at Amazon, where employees are in this Hunger Games like scenario where they're competing with their other, you know, employees to keep their jobs because 6% get cut.

• 16:02Barry Ritholtz?

  We're talking about the 6%.

• 16:03Speaker 04

  Yeah, they get cut at the end of the year.

• 16:05Barry Ritholtz?

  Plus forced ranking, that whole, like everything they said they weren't doing, they actually were doing.

• 16:09Speaker 04

  They're doing, big time. I have all the documents.

• 16:10Barry Ritholtz?

  Right. GE used to cut the bottom 10%.

• 16:13Speaker 04

  Yep. Intel did this too.

• 16:14Barry Ritholtz?

  Amazon is only 6%. And then where did the forced ranking come from?

• 16:17Speaker 04

  Um, Jeff liked that Intel did this.

• 16:20Barry Ritholtz?

  Right.

• 16:20Speaker 04

  And that's why he said to his, um, his leadership team, like, let's do this because we have to get rid of the bottom performers. But that has unintended consequences.

• 16:27Barry Ritholtz?

  Sure.

• 16:27Speaker 04

  It means that everyone at Amazon on the white collar side is driven to work in a way that just benefits their numbers, benefits their bottom lines, even if it's not good for you as the customer, even if it means it's unsafe for the customer. As long as it's expanding selection and increasing profits, that often is the name of the game.

• 16:45Barry Ritholtz?

  Unsafe for the customer? How is it unsafe?

• 16:47Speaker 04

  Yeah. So I have anecdotes in the book where there are well-meaning people on the child marketplace team that are, where they're, they're selling clothes for children.

• 16:56Barry Ritholtz?

  Right.

• 16:57Speaker 04

  There's a mandate from Bezos to expand selection and get more sellers into amazon.com because the more sellers you have, the more sales you get, the more sellers come on.

• 17:06Barry Ritholtz?

  Exactly.

• 17:07Speaker 04

  And they make changes to the signup process for sellers to onboard to amazon.com. They want to make it easy as possible. Sign up and you could be selling within a day. Okay?

• 17:17Barry Ritholtz?

  Right.

• 17:18Speaker 04

  So not really vetting these sellers.

• 17:19Barry Ritholtz?

  So in other words, Chinese junk with, that's not fireproof, that's not well made.

• 17:25Speaker 04

  Exactly. So then the Chinese junk comes in within a day and some of these parents on the team are horrified. There are children's pajamas that smell like gas.

• 17:32Barry Ritholtz?

  Formaldehyde, right.

• 17:33Speaker 04

  Formaldehyde and gas. There are hoodies that have strings around the neck, which are a strangulation hazard that are banned from being sold in the US. Because it could strangle a toddler. There are all these.

• 17:42Barry Ritholtz?

  Listen, if a few kids have to die in order for our profit margin to expand, that's just a little collateral damage. Who can complain as long as our profits are going up? I mean, you know, it's a tough world out there. Toughen up.

• 17:56Speaker 04

  So they flagged this to, actually they take it upon themselves to add some of the friction back into the process to sign up.

• 18:01Barry Ritholtz?

  Okay.

• 18:01Speaker 04

  And their boss yells at them and says, "Take that off." And they said, "Well, we're trying to protect the consumer. Ostensibly, we are a customer obsessed organization," which is what they say.

• 18:09Barry Ritholtz?

  Right.

• 18:10Speaker 04

  And he said, "Well, if that's what Bezos wants, there's other people that will handle that." So they reluctantly do that and all the goods flood back in.

• 18:17Barry Ritholtz?

  Right.

• 18:17Speaker 04

  And ironically, their boss who told them not to do that is now the VP of Customer Safety and Trust. But my book found other examples. Amazon was selling carbon monoxide detectors that don't detect carbon monoxide.

• 18:28Barry Ritholtz?

  Well, you know, that's extra. If you want it to actually work.

• 18:32Speaker 04

  There's a fee.

• 18:33Barry Ritholtz?

  Yeah, that's a different, that's carbon monoxide prime. You know, you can't just order. Early, you know, in the 2000s and 2010s, it felt like the reason people were terrified of Amazon is huge selection, fairly high quality products, and the prices were almost always the cheapest. I don't find any of those things. Now the selection is sort of a.

• 19:01Barry Ritholtz?

  It paradoxically, there's so much garbage on it. Like when this, when they first started Marketplace, my immediate reaction was, hey, if I wanted products from a garage sale, I know where eBay is. I can click over there. Why are you making this worse? But I guess, you know, it's worked out for them.

• 19:19Speaker 04

  Well, there's a reason for that. You know, Amazon has been sued for being an illegal monopoly.

• 19:24Barry Ritholtz?

  Uh huh.

• 19:24Speaker 04

  And the idea here is that, you know, when, when a company is building monopoly, they have to have the best experience because they have to steal market share from their competitors. So when Amazon was coming up, when you liked the experience, it was fast shipping. The quality was much better. The prices were low because they were using predatory pricing to undercut their rivals, to steal market share, get people to sign up for Prime and put companies out of business. You know, when's the last time you saw Circuit City?

• 19:48Barry Ritholtz?

  Right. Circuit City, Linens and Things, Toys R Us.

• 19:51Speaker 04

  It goes on and on and on. And I spoke to all those CEOs for this book and they, they lived it firsthand. Amazon was undercutting them on price to steal their customers and put them out of business. What happens to a monopoly, once they become a monopoly, is that there's less competition.

• 20:05Barry Ritholtz?

  Now you could raise prices.

• 20:06Speaker 04

  Where are you gonna go? So they could raise prices, they could flood the feed with advertisements that are annoying to you. They could do all these things to make it a lesser experience, but have you canceled your Prime account?

• 20:16Barry Ritholtz?

  I haven't canceled my Prime account, but I will tell you that I have dramatically reduced the products I buy on Amazon. And very often, in the old days, it's like, oh, it's on Amazon. Remember one-click buying?

• 20:30Speaker 04

  Yes.

• 20:30Barry Ritholtz?

  There is no more one-click buying because when you see something, especially if it's something you're not familiar with the price, you have to quickly Google Walmart, Target and Google Shopping to see, because every now and then, a third-party seller will have a product that's double or, you know, 50% more than what it should be. I just bought something from Target the other day that was $22. It was $34 on Amazon and it wasn't being sold by Amazon, but it was by Marketplace.

• 20:58Speaker 04

  Well, that's why. Also part of this building the monopoly situation is that Amazon's third-party sellers, 60% of what's sold on Amazon is these third-party sellers. They are so reliant on Amazon because 40% of everything sold online is there. They have to be there and it's this weird love-hate relationship.

• 21:15Barry Ritholtz?

  We're going to go into the details on some of the really dubious things that that they did.

• 21:19Speaker 04

  On the price raises, okay.

• 21:20Barry Ritholtz?

  Just across the board, we'll talk about, I mean, the book is kind of horrifying. As you, I don't know if that was your intention, but as you're walking, working through it, it's like, oh, this company has some ethical compromises and some just culture that seems to be really toxic, not just for the customers, but the employees as well and the partners. It seems across the board, it's win at all costs and you don't often stop and think what that means, but it means a lot of really bad things, according to your book.

• 21:51Speaker 04

  It does.

• 21:52Speaker 00

  At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.

• 22:23Speaker 01

  With ChatGPT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at chatgpt.com.

• 23:00Barry Ritholtz?

  Let's talk a little bit about how Amazon's culture got to where It is today, going back to its origin story. Bezos works at hedge fund quant shop D E Shaw. And he is given the task, along with three other employees, of investigating this newfangled internet thingy and what the possible areas for growth and disruption might come out of it. Three or four different analysts were given different sections. Bezos was tasked with looking into the impact of the internet on retail directly by David Shaw. Tell us a little bit about that project.

• 23:42Barry Ritholtz?

  How long on D E Shaw's dime was Bezos researching the internet?

• 23:47Speaker 04

  Months. And he liked what he saw. At the time, the idea that this would take off was really farfetched. 3%

• 23:55Barry Ritholtz?

  93, 94, something like that?

• 23:56Speaker 04

  This was 93, and 3% of Americans had ever been on the world wide web. So think of it, and, you know, and David Shaw was the nerdy programmer type of person who could see the potential for it. So he thinks, let's have my, you know, my star associates and VPs look into the commercial uses for the internet. One looks into banking, and Jeff looks into retail. And the idea is if they think it's worthwhile, that D E Shaw will open up these verticals. And they do it with the other areas. The people that research the other areas for David start businesses for him that make money.

• 24:33Barry Ritholtz?

  Why didn't David Shaw invest in Bezos and Amazon when he left for Seattle?

• 24:39Speaker 04

  Well, so then Bezos likes what he sees. All on D E Shaw's dime, he does his research reports, sees that there's legs for this, thinks that books could be the first area of selling online. And he goes on this walk with David in Central Park and says, hey, I think I'm going to quit and start an online bookshop. And David said, you know, I think that's, you already have a really good job, I think that's a good idea for someone else, and by the way, you know, that was my idea, we might go head to head with you and compete with you on this. And Bezos basically says, I'll take the risk, and moves out to Seattle.

• 25:10Barry Ritholtz?

  Kind of surprised that Shaw went that way, instead of saying, you know... You know, sort of, let us seed you, let us, let us participate in this like it was a little adversarial as opposed to cooperative.

• 25:24Speaker 04

  Yeah, and, and actually, Bezos had a really hard time fundraising this idea. Because it was so wild. You know, it took him a really long time to get his first million dollars. Most of his investments trickled in in fifty thousand dollar increments.

• 25:37Barry Ritholtz?

  Right, literally friends and family.

• 25:39Speaker 04

  Oh, yeah, big time.

• 25:40Barry Ritholtz?

  Until eventually, right. Who was the first VC to put money into?

• 25:43Speaker 04

  I believe it was Kleiner.

• 25:45Barry Ritholtz?

  Kleiner Perkins.

• 25:46Speaker 04

  They were on the board.

• 25:47Barry Ritholtz?

  Uh huh. Oh, that's right, John Doerr was on the board for forever, that's okay. So, so really kind of interesting that he missed it, but the whole thing, just the way I learned about it, it's kind of shady, isn't it?

• 25:59Speaker 04

  I mean, it's copycat mentality that continues to this day at Amazon. Oh, that's a good idea, be a shame if someone took it.

• 26:07Barry Ritholtz?

  So, Amazon is not only custer-obsessed, as Bezos once said, but it's also competitor-obsessed. Where does that come from, and how does it manifest itself?

• 26:19Speaker 04

  Oh, they're the most competitor-obsessed company I've ever covered, and I've covered companies for eighteen years. Part of it is the culture, because they have to be performing at all times to justify their existence to not get cut. It's this pressure cooker of an environment that people that I've spoken to that might have worked at other companies wouldn't be tempted to do illegal things, unethical things, anti-competitive things, are sort of forced to their breaking point at Amazon. And I could give you an example if you like. There's a scene in the book that has resonated with a lot of people where Amazon, at Jeff's behest, wanted to create like a Trader Joe's-like product line of food. He liked that Trader Joe's was quirky and cool, so the, the team at Amazon writes this six-pager,

• 27:00Speaker 04

  that's how they come up with ideas, and it says, "We want to copy the top two hundred best-selling items at Trader Joe's." And they get the green light from management to do that. But Trader Joe's is a really secretive company. They don't do online shopping. It's hard to figure out what the bestsellers are.

• 27:15Barry Ritholtz?

  Literally got to walk through the store and see what's doing well.

• 27:18Speaker 04

  And people love to do it, it's like a really delightful experience, right? So, the head of the team goes about hiring the senior executive from Trader Joe's. She doesn't really know what her job's going to be, moves out to Seattle, and her first week in Seattle stumbles across this really secretive room.

• 27:36Speaker 04

  Conference room. It has paper over the doors and the walls, brown paper, so you can't see inside. And she goes inside and it's filled with Trader Joe's boxes of foods. And she has this lightbulb moment like, oh crap, I've been hired to replicate my former employer. From there, her boss starts hounding her, saying, give me any documents you retained from your time at Trader Joe's, which is clearly like-

• 27:58Barry Ritholtz?

  And the correct answer is, I have no documents. They made me turn everything in, as per my prior employment agreement.

• 28:06Speaker 04

  Or if I do, I cannot give them over to you, because that's actually illegal.

• 28:09Barry Ritholtz?

  Right.

• 28:10Speaker 04

  Okay, so she says, no. The boss keeps hounding her, hounding her. And like, it becomes this really tense experience. Then she emails him, the top selling items from Trader Joe's from one whole week in the US.

• 28:21Barry Ritholtz?

  Uh huh.

• 28:22Speaker 04

  Ranked by products, you know, that were sold. And they start to disseminate that within the team. They have their blueprint to copy the top 200 items at Trader Joe's. And then he doesn't stop there. He says, now send me all the margins.

• 28:32Barry Ritholtz?

  Really?

• 28:33Speaker 04

  And she says, no, I'm not doing that. And he screams at her in the middle of the Seattle office. She starts crying. And someone reports it to HR, because it was just like such a clear violation. And Amazon actually fired those people because it went up to HR.

• 28:44Barry Ritholtz?

  Uh huh.

• 28:45Speaker 04

  But that sort of scenario plays out at Amazon every single team.

• 28:49Barry Ritholtz?

  I want to stay with the idea of some of the earlier advantages that Amazon had, and how it resulted in their growth. We'll get to diapers.com, we'll get to some of the other competitors. Let's talk about the state tax advantage. So, talk about arbitrage. Bezos specifically picks Washington State, because there's so few shoppers in the state that by locating there and shipping to the rest of the country, he doesn't believe he has to collect state sales tax because of an old Supreme Court case, maybe it even involved a catalog. It wasn't Sears, was it?

• 29:33Speaker 04

  It was a catalog, it wasn't Sears.

• 29:34Barry Ritholtz?

  Um, that said, hey, you only collect, interstate commerce is not taxable, therefore, you don't have to collect it. It's only, unless you have a nexus to that state. So- Immediately, they're at a 6, 7, 8% advantage over everybody else in most states. Tell us how they pushed the envelope with state sales tax.

• 29:57Speaker 04

  Oh, this was simultaneously brilliant, but horrifying for the rest of retail. He comes up with this idea that his warehouses don't count as physical locations for Amazon.

• 30:07Barry Ritholtz?

  Which is kind of bizarre, because of course it is.

• 30:10Speaker 04

  Right.

• 30:11Barry Ritholtz?

  I mean, if you locate a warehouse in New York, you now have a nexus with New York.

• 30:15Speaker 04

  But they tried to carve that out as a separate entity, and up until 2017, Amazon was not collecting sales tax in some states.

• 30:23Barry Ritholtz?

  So they had a 20-year head start.

• 30:25Speaker 04

  Exactly, and up to 10% in some of these states. And that just had ripple effects, because people, once the advent of online shopping came about, people became really price-conscious. You know, people would do comparison shopping. And I spoke to, you know, one of the presidents of Sears, who had to deal with this head-on. And he said, you know, "Amazon and him would be selling the same Sony television. Let's say it's $500, market the price. Amazon, from many states, could sell that for $500 flat. Sears would have to charge 8% sales tax in New York. So what would Sears do? They would cut the price of their TV by 8% in order to go head-to-head with Amazon, and they would just completely destroy their margins.

• 31:06Speaker 04

  And it created this race to the bottom on electronics prices, because they had to try to compete, but at a loss. And this happened in so many companies, where they either couldn't compete and they lost the sale to Amazon, or they cut their prices and they destroyed their margins. And that's like a very easy way to go bankrupt.

• 31:24Barry Ritholtz?

  So with the benefit of hindsight, you look at, they have this advantage for 20 years, which is a long time. I'm kind of shocked that states didn't stand up and say, "Not only are we losing jobs in our states, but we're losing tens of millions or hundreds of millions in tax revenue. Why did the various states tolerate this for as long as they did?"

• 31:48Speaker 04

  That's a really good question. I spoke to someone in Amazon's public policy office that worked on this, and he said like, "This was our secret sauce." And Amazon fought tooth and nail to preserve it, to not get rid of this advantage they had. And so they, you know, they'd go to court, they would go before Congress and make their case, and some states did come knocking.

• 32:06Barry Ritholtz?

  Wherever there is a state income tax, there's usually a state sales tax.

• 32:10Speaker 04

  Tennessee.

• 32:11Barry Ritholtz?

  Right. So if you open a warehouse there, and the state is losing a lot of revenue, why wouldn't they just sue Amazon and say, "Hey, we figured out you sold this many goods in our state, and you owe sales tax here because you have a nexus."

• 32:25Speaker 04

  Well, part of what I found is that many of these legislators in the states were very short-sighted. They wanted to put out press releases that, "Oh, we got an Amazon warehouse with all of these temporary jobs." And there's this horrible scene in the book where Jerry Storch, who's the CEO of Toys R Us at the time, which is one of New Jersey's largest employers, okay?

• 32:43Barry Ritholtz?

  Right. Speaks to Chris Christie.

• 32:44Speaker 04

  He speaks to Chris Christie, and he says, "You guys are killing me. Why are you not making Amazon collect sales tax in New Jersey? You're putting Toys R Us out of business. You're going to put Main Street out of business." And Chris Christie sort of yeah, yeah, yeahs him. And then a year later, they announced this big Amazon warehouse in Robbinsville, New Jersey. They give Amazon all these tax credits for it, and Chris Christie gets to put out the press release that they're bringing hundreds of jobs to New Jersey. But Jerry's whole point was, "Okay, you're getting hundreds of jobs there. You're going to lose thousands of jobs just from my one company."

• 33:13Barry Ritholtz?

  Right.

• 33:13Speaker 04

  So that's really short-sighted. And that's what happened. You know, Toys R Us went out of business.

• 33:17Barry Ritholtz?

  It's amazing how effective they were manipulating so many self-interested politicians who were so short-sighted. But we saw that time and time again. It was fascinating that the Amazon 2 HQ was slated for New York, and a lot of people in New York said, "This is a money-losing deal. This isn't... It's a wealthy company. Why do we have to give them tax breaks? They have to compete with everybody else." And they said, "Screw you. We're going to DC."

• 33:43Speaker 04

  And New York was one of the rare cities to really call them out on that. Just think about the frenzy around hundreds of different cities.

• 33:52Speaker 04

  Lobbied and put in these very intensive applications for the pleasure of having these warehouse jobs and the second headquarters there. And that just shows how politicians are, you know, really just want the jobs.

• 34:02Barry Ritholtz?

  Right, that's right. And so it was kind of interesting that when you ran the numbers, as people in New York did, it wasn't a good deal. And they ended up sort of splitting it. It's kind of part in Virginia. And where did the rest of the Amazon headquarters end up going?

• 34:19Speaker 04

  Oh, it's in Virginia, but they have been broken ground on a lot of it.

• 34:22Barry Ritholtz?

  Oh, really?

• 34:23Speaker 04

  Yeah.

• 34:24Barry Ritholtz?

  So that was years ago. I mean, after all those crazy contests and RFPs and submissions, they got like 200 cities applying for this. They still haven't broken ground. That's amazing.

• 34:36Speaker 04

  They have one building up for sure, but the whole plan has not come to fruition.

• 34:39Barry Ritholtz?

  Ironically, if you take the Long Island Expressway out past Jericho-Siocet, you'll see this immense warehouse that they built that used to just be like an empty parking lot. I don't know what was there. For years, it was rumored that something was coming. And what a perfect location right off the highway. Why do you need to give, you know, that gives them access to 40 million people or 50 million people on Long Island. Why would you have to give them a tax break for that? That's where the customers are. Shouldn't their business model be able to accommodate building a warehouse?

• 35:16Speaker 04

  I mean, they have something like $6.5 billion in subsidies on taxes from different jurisdictions around the US. It's pretty staggering.

• 35:24Barry Ritholtz?

  Yeah, that's really, that's really amazing. The other thing that was so disruptive was how Amazon changed how Wall Street itself viewed retailers, both in terms of profit versus growth and startups versus established retailers. Talk a little bit about the impact Amazon had on how Wall Street thought about other companies.

• 35:46Speaker 04

  Yeah, this was huge. There probably wouldn't be an Amazon today if Jeff did not convince Wall Street that we don't have to make profits.

• 35:52Barry Ritholtz?

  Right. His initial shareholder letter was, hey, don't expect profits for the next 10 or 20 years.

• 35:58Speaker 04

  Exactly. And that just was not the norm back then. It is today, but that was- Was definitely not the norm. And this just gave him a tremendous roadway to reinvest in his business and grow and steal share and cut on prices to get customers.

• 36:10Barry Ritholtz?

  And not pay federal taxes because if you're not profitable, no taxes.

• 36:14Speaker 04

  That's a great point, low tax rate. And that that really destroyed his competitors because they couldn't catch up with him on online shopping. I spoke to a lot of these CEOs who went head to head with Amazon in the 1990s and 2000s. One of them was the CEO of Linens and Things. And I said, you know, why were you all so late to online shopping? Did you not believe in it? And he said, Dana, we believed in it, but my boardroom, my board of directors laughed me out of the room when I asked for a hundred million dollars to get our e-commerce and logistics up and running because that would have tanked our earnings, that would have tanked our share price.

• 36:47Barry Ritholtz?

  There's a little bit of short termism there because, and again, we have the benefit of hindsight, but he obviously saw what was coming. Why can't you say to the board, look, here's the trade off. Either we spend a hundred million dollars now and be able to compete with them or we and lose some stock price for a couple of quarters or years, or we're dead. Those are your choices. You want you want a little bit of a pullback now or you just want to go bankrupt? But there's nothing in between.

• 37:18Speaker 04

  Retail is a notoriously hard business. It could be low margin and they have to manage to Wall Street quarter after quarter, quarter to quarter. And they couldn't, you know, the CEO told me, we couldn't miss one quarter of earnings, let alone years of them like Bezos did. I'd be out of a job, I would be fired, the company could go bankrupt. And that was exactly what was going on in every company that was trying to compete with them to the point where so many of them had to outsource their logistics to Amazon, which was their main competitor.

• 37:43Barry Ritholtz?

  Go through the list. Toys R Us, Linens and Things, Target. Why on earth would Target, which is a giant company, outsource its e-commerce to Amazon?

• 37:54Speaker 04

  Well, Jerry Storch, who was the CEO of Toys R Us, first worked at Target on dot com. And he told me a story that he got yelled at by senior leaders for spending $10,000 on buying the domain name Target stores.com.

• 38:06Barry Ritholtz?

  That's an amazing story in the book, which is like $10,000 for a domain like that is a ramp.

• 38:11Speaker 04

  Have to be so careful with their money because it's a hard business, right? And so, yeah, Target, Borders, Toys R Us. And they, they had to outsource it, which meant Amazon kept their customer data. They paid Amazon a fee for shipping it. They paid Amazon a fee for listing it. They paid Amazon all these fees and Amazon had all the upside.

• 38:32Barry Ritholtz?

  And they figured out, you write in the book, they figured out that if they were losing sixty-five, seventy million dollars a year on their site, hey, we could charge them fifty million and it's a cost saving for them.

• 38:42Speaker 04

  Yeah, they just came up with an arbitrary number below that threshold.

• 38:45Barry Ritholtz?

  Just, just astonishing. So let's stay with books for a minute. I'm fascinated that Barnes and Noble tries to respond very aggressively to Amazon. And they figure we're going to take over wholesaler Ingram in order to get a little more bulk, be able to withstand Amazon, which at that point had become a substantial market share of the book selling world. And Amazon gets the takeover stopped on antitrust grounds. How ironic. Explain what happened there.

• 39:17Speaker 04

  Yeah, so Barnes and Noble, in order to stay competitive, tries to buy Ingram, this book distributor that Amazon also used. And Amazon cried foul and said this should be an antitrust violation. And basically, Amazon, even today, sometimes has this mentality that they are the David going up against Goliath, even though that has not been true for a very, very long time, including in that anecdote. Amazon by market value was way bigger than Barnes and Noble at that time. And Len Riggio, the CEO of Barnes and Noble at the time, calls them out on it. He says, you're, you're crying foul and pretending like this is going to hurt this little player, but you are the behemoth here. You know, the regulators do turn it down.

• 39:52Speaker 01

  With ChatGPT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious and ChatGPT can help you do it with confidence. Get started at ChatGPT.com.

• 40:29Barry Ritholtz?

  So we were talking earlier about Amazon's lack of profitability for the first couple of years. It's kind of interesting how Bezos's initial shareholder letter, I want to say 96, something like that?

• 40:44Speaker 04

  Seven, I believe.

• 40:45Barry Ritholtz?

  97, the same year as the IPO, warned investors not to expect profits for years to come. We're going to spend a billion dollars building out our website. Not only did this not have a negative impact, Wall Street applauded the profitless growth. Tell us a little bit about what an advantage and how prescient that shareholder letter from Bezos was.

• 41:09Speaker 04

  I mean, he trained his shareholders essentially to not expect anything, and he was very clear communicating that. But it also just gave them roadway to take all their money and say, you know, books are not the be all end all. We're going to use this as a test case. We're going to make some money, and then we're going to take all that money and put it into expanding our verticals. Let's open this up to toys. Let's open this up to electronics. It allowed them to build the everything store. And then it allowed them to put this money toward other areas of growth beyond retail and really create this Amazon octopus.

• 41:38Barry Ritholtz?

  To say the very least. Let's talk about Amazon Web Services. I love the part of the book where you describe how this became a thing. Every time they would stand up a new vertical or open a new division, and people forget what it was like in the 90s and early 2000s before there was an AWS. You ought to go out and buy a couple hundred servers and a lot of software engineers to put this together and to manage it, and then you had to build, like you were reinventing the wheel every time there was a new startup. Tell us about how Andy Jassy kind of looked at this and said, hey, why don't we just do this once and scale it for ourselves, and maybe someone else will want to buy the excess from us.

• 42:22Speaker 04

  Yeah, so Andy Jassy, who's the CEO today, started at Amazon a few, like, a little bit before the IPO. So he's been there from the early days. Amazon's retail business was expanding so rapidly, and they had so much data, and they needed so much computing power, that they were continuously adding that to their own business. And they got good at it. Jeff and Andy and a few other people started figuring out, like, hey, yeah, we're a retail company, but we're also good at this technology stuff. If we need this... Other companies probably also need this as they explore expanding online. So they productized it. They created a company called Amazon Web Services. It was very iffy as to whether this would take off. They didn't dedicate a ton of resources to it at the beginning. Andy remembers sheepishly asking for like a few dozen employees to work on it with him and thought that was like a big deal.

• 43:06Speaker 04

  Standalone, if this were to be split off from Amazon, would be one of the biggest tech companies in the world on its own.

• 43:11Barry Ritholtz?

  Right, and the one of the biggest sources of profits for Amazon as well.

• 43:15Speaker 04

  An enormous source of profits.

• 43:17Barry Ritholtz?

  So they they start out with storage, they start out, they add computes. They had a number of different services that just allow anybody. You don't have to go buy a bunch of servers and and that really led to an enormous adoption cycle by a lot of tech startups, a lot of small companies that, hey, you don't need a hundred million dollars worth of junk. It's two guys and a laptop and you can launch a business.

• 43:41Speaker 04

  Exactly, and also a lot of their competitors, a lot of their fiercest competitors, Netflix, Apple, use AWS. The CIA uses AWS, right? So this is a really entrenched business product for them. And it's very sticky. Once you're on it, you don't really leave.

• 43:54Barry Ritholtz?

  So it's kind of interesting what happens in other areas of Amazon where there's supposed to be a Chinese wall between you as a customer of their corporate services and the rest of their business, but you described time and time again in the book how that Chinese wall really doesn't exist. Anybody has access to everything throughout the company. Let's talk a little bit about Marketplace, alright? So originally, Amazon chased eBay, launched an auction site, it actually failed, and the pivot was to Marketplace. Hey, let's bring in third-party sellers of stuff rather than auctions, just selling it at standard prices. That's now more than half of the the business?

• 44:35Speaker 04

  It's more than 60% of their retail sales.

• 44:37Barry Ritholtz?

  That's amazing. So that becomes wildly successful. But all of these small businesses that sell in Marketplace, they haven't been very happy with how Marketplace works. Tell us what's going on.

• 44:51Speaker 04

  Yeah, they have this uncomfortable situation of selling on Marketplace, relying on it for their income. But then also seeing a lot of their products that they've gone to great lengths to use R and D to create showing up in very similar versions in Amazon's private label side of the business called Amazon Basics or Amazon Essentials. And for years, they've alleged that Amazon stole my idea. And Amazon has always very vocally refuted that notion. They say, you know, this is there's firewalls. We would never copy our own sellers. And they've they've disputed that. And I was able to get documentation and find the receipts that they've been doing this for a very long time.

• 45:28Barry Ritholtz?

  So let's put a little flesh on that. So Amazon is both the platform to these third-party sellers as well as a original competitor, not merely selling other people's products, but creating their own. Anything that's a hot seller on Amazon, they are aware of through their own data. And they look at it, they look at the margin, they figure out how cheaply can we make this? And how how much do we want to go after this? They've been pretty aggressive about that, haven't they?

• 45:56Speaker 04

  They have. I mean, the documents that I was given shows how they reverse engineer these bestselling products. And they have everything from the number of items sold to the cost to sell them, to the number of returns, to the margins. There's 25 different fields that the employees on the private label side of the company, who have been told, you probably shouldn't be doing this, that there's policies in place at Amazon that are essentially not enforced.

• 46:19Barry Ritholtz?

  Right.

• 46:19Speaker 04

  And because they're afraid of losing their jobs and not hitting their numbers, they've often resorted to looking over the fence and taking this type of data to reverse engineer bestselling hits because it makes them look good and it keeps their jobs. And Amazon even on under oath, told Congress that they were not doing this.

• 46:36Barry Ritholtz?

  Really?

• 46:37Speaker 04

  Yes.

• 46:37Barry Ritholtz?

  Under oath? And yet, it's pretty obvious they've been doing this and doing it for a long time. Let's talk a little bit about Alexa and and how they set up a venture fund that was very different than the typical venture fund. Tell us a little bit about what's going on with voice and Alexa inside of Amazon.

• 46:55Speaker 04

  Yeah, Amazon was one of the pioneers of this voice technology and, you know, these voice assisted robots. And as such, they set up this VC arm called the Alexa Fund. And what I learned was that there a pattern played out. They'd have all of these CEOs and founders pitch them on getting money and seed investments for their companies. And under the auspices of either getting an investment or being bought by Amazon's M&A arm, they'd share all of their proprietary data, things like, you know, their patents, their technologies, all the stuff that companies go to great lengths to keep secret because they think they're getting an investment. And time and time again, Amazon would take that information, bring the heads of different Amazon businesses to these meetings to learn from it, and then ghost them and introduce the same exact product from an Amazon brand months later.

• 47:40Barry Ritholtz?

  You talk about the firewalls and the VCs and one entrepreneur is in a meeting with a bunch of people, "Hey, who are those guys? I know who you are, I know who you are. Who are these guys?" And it turns out, they're the product heads that are going to be making the

• 47:57Speaker 04

  Competing products.

• 47:58Barry Ritholtz?

  Competing product. It's really, I like the VC quote, "Amazon is a wolf in wolf's clothing."

• 48:06Speaker 04

  Exactly.

• 48:07Barry Ritholtz?

  Like, there's a very, really not even a big attempt to hide it, a different part of the book describes an entrepreneur where there are people in the room with their arms closed, looking bored, and like, not usual venture capital behavior, if you're really interested in this technology, they eventually figure out, "This is just a espionage."

• 48:30Speaker 04

  Fishing expedition. Yeah.

• 48:31Barry Ritholtz?

  Yeah.

• 48:32Speaker 04

  Fishing is too kind. You call it specifically VC espionage. Yeah.

• 48:39Barry Ritholtz?

  Talk a little bit about how misleading even the NDAs were, the non-disclosure guys.

• 48:44Speaker 04

  Oh my God, this was galling to me, as a deal geek who covered M&A. I asked some of these founders I spoke to for the book to send me all the documents that Amazon gave them prior to these meetings. And I read them very thoroughly and found something called a residuals clause buried in the legalese. And it basically said that anything retained in the memories of Amazon executives at these meetings where proprietary stuff is being disclosed, could be used by Amazon and their own business without any legal repercussions. So it's a license to steal.

• 49:13Barry Ritholtz?

  So essentially, and I keep coming back to this from the original D E Shaw issue, the culture at Amazon, they hired senior lawyers from some of the best firms. It seems like ethics is completely irrelevant. It seems like this is a group of rogue capitalists who are just rapacious in their greed, regardless of ethics and business standards. They're just operating in a gray zone of legality, but in a very black and white zone of ethics. These are bad people doing bad things.

• 49:48Speaker 04

  The interesting thing is, so many of my sources for this book are the people doing the bad things, because once they take a step back from Amazon and they realize how this company pushed them to their breaking point, that it made them do things that they would have not have done at a company that was not so cutthroat, they feel bad.

• 50:05Barry Ritholtz?

  They should. They have a guilty conscience because they did really bad things for the money. They could feel bad about it after the fact. But let's be blunt, they had big stock options and reasonable pay packages. And if you're coming over from a top 20 law firm where you're giving up a seven-figure job, you're doing it because you have the chance to make 10 figures in your stock options. So I feel bad that they feel bad. Not really. They did bad things because they were in for the money and they realized the trade-off wasn't worth it. Sell your soul for a few bucks, you still made a deal with the devil.

• 50:41Speaker 04

  I would agree with you. And that's the one thing I wanted to depict in this book is the human toll of that. I mean, when I was reporting out that chapter you're just describing, the founders that would cry to me on the phone about what happened to their companies, how Amazon just decimated them, it was really hard reporting, just as a journalist, like internalize a lot of that, that this company that didn't need to do these things to win, chose to.

• 51:02Barry Ritholtz?

  Right.

• 51:02Speaker 04

  And it cost people their jobs, their livelihoods, their technologies, at what cost?

• 51:07Barry Ritholtz?

  Let's talk a little bit about diapers.com and what was the parent company, Quizy?

• 51:11Speaker 04

  Quizy.

• 51:12Barry Ritholtz?

  Quizy. So this is kind of interesting. Amazon can't figure out how to ship diapers quickly, right? And moms are a giant demographic in retail.

• 51:23Barry Ritholtz?

  I think the book says they make eighty-four percent of the consumer spending.

• 51:26Speaker 04

  They control the wallet.

• 51:27Barry Ritholtz?

  Decisions in the household, like you win the moms, you win retail. And these guys have figured out how to have diapers arrive next day, like they figured out how to reach moms. And Amazon decides to go after them.

• 51:40Speaker 04

  Yeah.

• 51:41Barry Ritholtz?

  And they they start predatory pricing, selling diapers twenty percent below cost. Which one would think is illegal, isn't that?

• 51:52Speaker 04

  Yeah, it's the definition of predatory pricing. It's twenty ten, Jeff Bezos becomes laser focused on Quidsy, which is started by these two entrepreneurs that are like the first people in their in their families to even go to college, right? These are homegrown talent, Mark Lorrie and Vinit Barara, right? And he puts together a team to essentially spy on them and figure out how they do it. And Amazon starts to really cut the prices of their own diapers, thirty percent. They cut the price of their diapers so much that they start losing two hundred million dollars a month just on diapers, according to internal documents I retained.

• 52:24Barry Ritholtz?

  That's two point two billion a year on diapers alone.

• 52:27Speaker 04

  Because they were so threatened by this little startup in New Jersey, okay?

• 52:29Barry Ritholtz?

  Right.

• 52:30Speaker 04

  And Amazon eventually makes a buyout offer to this firm, but they don't want to do it because they're doing so well. They think they could IPO one day.

• 52:37Barry Ritholtz?

  Right.

• 52:38Speaker 04

  So they turn them down. So then Amazon ratchets up the heat, cuts price of diapers more, creates this loyalty program to incentivize moms to shop with Amazon, not Quidsy. And it becomes the point where it's untenable for the Quidsy people. They start missing their internal numbers. They have to start considering a sale, unfortunately. They're really crestfallen about that. Amazon's one of the biggest players in the space. They even have to consider an offer from the person that did this to them, okay? So they're at this private dinner with Amazon executives discussing this offer. They don't want to sell to Amazon and Mark Lorrie's BlackBerry at the time gets an email pop up and it's an offer from Walmart. And they're excited, so they.

• 53:16Barry Ritholtz?

  For like a hundred million dollars more than the five and change.

• 53:19Speaker 04

  Exactly.

• 53:19Barry Ritholtz?

  Five fifty Amazon had offered.

• 53:21Speaker 04

  It's a higher offer and it's not the company that's destroyed them. So they go in the hallway, they discuss it and they say, let's take this Walmart offer. They go back into the room with the Amazon executives. They say, hey, just want to let you know, we got this offer. It's better for our shareholders. We're going to go in this direction. And they're told by a senior Amazon executive, okay. You go ahead and do that and we're gonna cut the price of our diapers to zero.

• 53:42Barry Ritholtz?

  That seems legal, right? We're gonna give our diapers away to put you out of business and prevent you from selling to our competitor, Walmart.

• 53:48Speaker 04

  Right, and the people in that room knew that if Walmart had decided to acquire Quidsy and Amazon put them out of, you know, created this pricing war that they were selling diapers for either zero or like a dollar.

• 54:00Barry Ritholtz?

  Material change in fact, elements that would lead to the deal falling apart.

• 54:05Speaker 04

  Walmart could back away from the deal scot-free. So they were forced to sell to their main competitor who put them in this position. And this created, you know, generational wealth for those two men who didn't even go to for a drink to celebrate because they were so upset.

• 54:18Barry Ritholtz?

  Now, what did they end up doing in the future post that purchase?

• 54:23Speaker 04

  Oh, they shut it down. They shut down Quidsy.

• 54:26Barry Ritholtz?

  They just took all the clients, they took the list and then eventually was folded in. The two guys who created Quidsy, did they do anything else in the future?

• 54:35Speaker 04

  Yeah, Mark Laurie went on to start a company called Jet.com.

• 54:38Barry Ritholtz?

  Which gets why?

• 54:39Speaker 04

  Walmart buys it for a very significant sum.

• 54:42Barry Ritholtz?

  Couple of billion bucks.

• 54:43Speaker 04

  He now owns, if you live in New York, there's a place called Wonder, this restaurant company, that's his. I actually really like Wonder. So he's doing that now. So I mean, he's gone on to do really big things.

• 54:52Barry Ritholtz?

  So the fascinating thing is after being forced to sell the diapers.com company to Amazon, Jet.com became essentially the back end of all of Walmart online retailing. So I want to say he got a little bit of payback. Whether or not he, you know, put as much pain to Amazon as Amazon put to him is arguable. But it was pretty obvious, and you make it clear in the book, he was, imagine getting bought for $550 million and leaving dejected.

• 55:28Speaker 04

  I know.

• 55:28Barry Ritholtz?

  It's kind of amazing.

• 55:30Speaker 04

  It is, it really is. I mean, I just, I think it speaks to like the pain and suffering they went through with this M&A battle.

• 55:36Barry Ritholtz?

  One of the things that kind of shocked me, you mentioned what a difficult place to work. Amazon is, they even backload their stock options. Your stock options are like, if you work at Google or somewhere else, you get stock options and they'll vest in three years and you could start selling, or at least that's what it used to be, I don't know what it is these days, but they backloaded it's 5.15, year three is 40% of your stock options, year four is 40%, you really have to stick it out, don't you?

• 56:07Speaker 04

  Yeah, and that creates this pernicious cycle. The average white collar employee at Amazon lasts a year and a half.

• 56:13Barry Ritholtz?

  That's amazing.

• 56:14Speaker 04

  Because of the culture, so most of them leave their stock options on the table. But if you want to get your full payout, you have to survive, you have to not be part of that bottom 6%, and that creates that pressure cooker of an environment that I talk about.

• 56:25Barry Ritholtz?

  So, so let's ask the question about, the big question, is Amazon a monopoly? Have they remade corporate power in their own image? And what sort of anti-trust enforcement might we expect in the future?

• 56:39Speaker 04

  Well, governments around the world, including our government, have said it is a monopoly. The Federal Trade Commission filed a lawsuit last year saying it's an illegal monopoly, and the lawsuit says it could be broken up.

• 56:50Barry Ritholtz?

  What about Europe? They, they've been pretty strict about Amazon as well.

• 56:53Speaker 04

  The EU was way ahead of us on policing our own giants. Margrethe Vestager was looking into Amazon, Facebook, Google, and Apple years ago, and people thought she was crazy.

• 57:03Barry Ritholtz?

  Right. So we're recording this a week before the election, we don't know what the outcome is going to be, but it appears that no matter who wins, Amazon's going to stay in the FTC's crosshairs because Lina Khan works for the Biden-Harris administration. The assumption is if Harris wins, she continues, and Trump really dislikes Bezos because of his ownership of the Washington Post, and has said Amazon should be broken up. What's it like inside the lobbying arm of Amazon heading into this election?

• 57:39Speaker 04

  You know, it's really fascinating. I don't know which administration they would want to win. They, you know, they had a really painful four years under Trump where he was just berating them online every day alleging that Jeff Bezos was using the Washington Post as a political tool to attack him.

• 57:54Barry Ritholtz?

  The Amazon Washington Post.

• 57:56Speaker 04

  The Amazon Washington Post, that should be a lobbyist, according to him.

• 58:01Speaker 04

  So that was like super painful, but then the Biden administration came in where they had good connections and that was even more painful in some ways. You know, Biden chooses Lena Kahn to be the head of the FTC. She brings forward the lawsuit against Amazon for being a monopoly. So either way, it's not like a really great outcome for that company.

• 58:18Barry Ritholtz?

  You know, the interesting thing about the antitrust enforcement against Microsoft in the 90s was just having that enforcement hanging over their head was enough to allow all these small companies to get out from under. You know, every startup had to deal with the question, every software startup, hey, what's going to prevent Microsoft from just building these features into Office or into Windows? And it was really challenging. The antitrust enforcement seemed to have forced them to behave better and that, you know, that was the Cambrian explosion of dot coms.

• 58:55Barry Ritholtz?

  Might we see something similar with Amazon? Might online retail expand from the 40% market share Amazon has elsewhere if this antitrust work is enforced?

• 59:06Speaker 04

  You know, the big question is, will this FTC suit have a chilling effect on the way Amazon behaves? I would say they have more competition these days. Timu and Shein are, you know, these low cost Chinese marketplaces. But I don't see any changes to the way Amazon is operating. You know, Andy Jassy, there's a scoop in the book, he's telling his deputies. You know, around the same time that they have this historic lawsuit against them for being too big, that they should be so much bigger. He tells them we should be a $10 trillion company. Okay, so how do you get to $10 trillion when you're $2 trillion? It's competing the way you've been competing.

• 59:41Barry Ritholtz?

  Supersizing it. And since we're talking about antitrust enforcement, it's kind of fascinating that the entire, we've had 40 years of lax antitrust enforcement dating back to the Reagan administration and Judge Bork, who was one of the big advocates of moving away from historical antitrust enforcement. You describe in the book, Lina Khan is a 27 year old law student at Yale. She writes a law review paper on how much Amazon is a monopoly. And when was the last time a law review paper went viral like this? This completely upended

• 1:00:25Barry Ritholtz?

  what was going on. Tell us a little bit about Lina Khan.

• 1:00:27Speaker 04

  Yeah, she was this law school student at Yale where actually Bork had been a professor. And she writes this seminal law review article saying that the antitrust laws, the way that they're being interpreted, partially because of Bork, are failing customers and consumers in the US. And that Amazon's the prime example of this. That Amazon is a monopoly, and it's allowed to be monopoly because we're not enforcing our antitrust laws the way that they were first derived. And this might be the only time that a law review article goes viral. Millions of people read this thing, including legislators, CEOs. It gets picked up by the New York Times, right? It becomes this like zeitgeist type of movement. It's the first time that people start equating this company with the smile on the box with

• 1:01:09Speaker 04

  potentially being a monopoly. And she starts to, with this other band of trustbusters, start to reshape this moment in time about whether antitrust laws are failing Americans.

• 1:01:20Barry Ritholtz?

  She makes the point that the way Amazon has become a monopoly and abuses its platform power is very reminiscent of what we saw under Standard Oil and Rockefeller. Tell us a little bit about some of the abusive uses of their power. Power that that manifests in their growth.

• 1:01:39Speaker 04

  Yeah, so she she points to predatory pricing that Amazon was undercutting the market in those early days in order to steal share from rivals and put them out of business. She also says they're like a utility, that this isn't a company that you might want to work with. You sort of have to work with them if you want to reach shoppers. And that has power over the sellers on their website where they could, you know, jack up fees. It has power over lots of different competitors that feel like they're forced to work with their main rival in order to access markets.

• 1:02:07Barry Ritholtz?

  Share a lot of data, a lot of information they would rather not, as well as buy advertising from them.

• 1:02:12Speaker 04

  Advertising is another area.

• 1:02:13Barry Ritholtz?

  In the book, you talk about how when Amazon enters into the marketplace with a competitive product, they shut off their competitors' ability to advertise that product.

• 1:02:24Speaker 04

  They do, and that's, you know, advertising has become so core to being successful as a seller on amazon.com because there's millions of other sellers that flywheel, that if you don't buy advertising, you're not showing up in search. And what did Amazon do? Roku, which makes a competing device for them for streaming TV. All of a sudden, they can't buy ads anymore. You know, this happened across the devices space.

• 1:02:44Barry Ritholtz?

  And so the antitrust law is, hey, if you want to be a platform, you could be a platform. If you want to be a retailer, you could be a retailer, but you can't tie your platform advertising into reducing the competitiveness of your products versus other people.

• 1:02:59Speaker 04

  Well, that's what the Congress was alleging, that if you can't own the world's biggest online platform and also compete on it, that it has to be one or the other.

• 1:03:05Barry Ritholtz?

  Spin out that separate business and do that.

• 1:03:09Speaker 04

  FTC lawsuit's a little bit different. She alleges that actually, in this current forum, Amazon's become the monopoly. They don't have to do predatory pricing anymore. They could actually exert their power on their sellers. You know, a decade ago, the average seller on Amazon gave 19 cents on the dollar back to Amazon in fees. Today, that's 45 cents on the dollar.

• 1:03:27Barry Ritholtz?

  That's unbelievable.

• 1:03:28Speaker 04

  And that means those sellers have had to raise the price of their goods to cover Amazon's margin.

• 1:03:32Barry Ritholtz?

  Or reduce their own margin, or both.

• 1:03:34Speaker 04

  Their own margin. And FTC lawsuit says, because Amazon's so big, and they require those sellers to also have the lowest price on Amazon, that they have to raise the price on target.com and walmart.com and on and on and on. And it's created higher prices for all of us.

• 1:03:48Barry Ritholtz?

  Huh, so are you an Amazon Prime member? Do you use Amazon?

• 1:03:52Speaker 04

  We have a Prime account because my husband watches football and they have Thursday night football. We don't really shop on it, though.

• 1:03:58Barry Ritholtz?

  You don't?

• 1:03:59Speaker 04

  Very rarely.

• 1:04:00Barry Ritholtz?

  Huh, that's really interesting. All right, let's jump to our favorite questions we ask all of our guests, starting with, so what are you streaming these days? What are you either listening to on Audible? What are you watching on Amazon Prime or Netflix or Apple Plus? What's keeping you entertained besides Thursday night football?

• 1:04:17Speaker 04

  I watched Nobody Wants This. That was very good.

• 1:04:20Barry Ritholtz?

  Charming.

• 1:04:21Speaker 04

  Really, really good. I listened to my favorite Murder. It's a true crime podcast. I'm a murderino, they call it.

• 1:04:26Barry Ritholtz?

  Tell us about your early mentors who helped shape your career.

• 1:04:30Speaker 04

  Oh, gosh, I have so many of them. Joanne Lublin, who was this dynamo at the Wall Street Journal, Dana Simulka, my former boss at the Wall Street Journal on M&A, Jamie Heller, who's now the CEO of Business Insider, Dennis Berman, who is an amazing M&A reporter at the Journal, and Drew Dowell, I would say, who he's now oversees for us.

• 1:04:49Barry Ritholtz?

  Let's talk about books. What are your favorites? What are you reading right now?

• 1:04:53Speaker 04

  So some of my favorites are The Moonstone by Wilkie Collins. It's like one of the first Victorian detective mysteries. I love The Brontes and Jane Austen. I know that's like pretty trite. I'm reading some just fun Halloween type of books right now. This book called Lucy Foley called The Midnight Feast. That's been really fun. And I love Sally Rooney. I have her new book ready to read after this one.

• 1:05:16Barry Ritholtz?

  All right, our final two questions. What sort of advice would you give to a recent college grad interested in a career in either journalism, M&A, retail? What's your advice?

• 1:05:28Speaker 04

  Journalism, it's, I mean, you have to hustle. I would say it's to get as many bylines as you can, even if it's not at one of the prestige newspapers at first. I fully believe the way I got hired at the Journal was freelancing my college papers, my college, you know, articles to other places to get a byline in places, in tiny newspapers that probably don't exist anymore. And you just have to be reporting around you all the time, making sources wherever you are, keeping a great Rolodex. So I think that's the most important thing you could do.

• 1:05:58Barry Ritholtz?

  And what do you know about the world of journalism today you wish you knew 20 years or so ago when you were first starting out?

• 1:06:07Speaker 04

  Oh my gosh, when I first started out, dot com was like not even that much of a thing, right? You know, the WJ dot com was this like bastard stepchild, right? And that's, that's what I was put on, actually. I, I think I, I wish I knew that you just have to be so resilient in this profession, that if you're doing your job well, it means a lot of rejection, that you're going to cold call people and they're going to hang up on you, and that's fine. Cold call the next one, you just get up again and get up again, because so much of journalism is a numbers game.

• 1:06:39Barry Ritholtz?

  Huh, really, really interesting. Thank you Dana for being so generous with your time. We have been speaking with Dana Mattioli. She covers Amazon for the Wall Street Journal and is the author of the book, The Everything War: Amazon's Ruthless Quest to Own the World and Remake Corporate Power. If you enjoy this conversation, well, be sure and check out any of the 500 or so previous discussions we've had over the past 10 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcasts. And be sure and check out my new short form podcast, At the Money, short conversations with experts about single topics that affect your money, earning it, spending it, and

• 1:07:24Barry Ritholtz?

  most importantly, investing it, at the money in the Masters in Business feed, or wherever you find your favorite podcast. I would be remiss if I did not thank the crack team that helps us put these conversations together each week. Sarah Livesey is my audio engineer. Sean Russo is my head of research. Anna Luke is my producer. Sage Baumann is the head of podcasts at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

• 1:08:00Speaker 05

  About helping you invest well so you can go out and live a little. And their free Empower Personal Dashboard shows you your full financial life in one place. You'll be able to see your net worth, monitor budgets, analyze your portfolio, set retirement goals, and more. Whether you're saving for something big, want to treat yourself, friends, or family, or meet long-term goals, Empower helps you see where you stand. You've worked hard for your money, and Empower can help you make the most of it. Download the Empower Personal Dashboard or visit empower.com. Not an Empower client, paid or sponsored.

• 1:08:31Speaker 06

  With ChatGPT, you can do more than get answers. You can get things done. Whether you're leading a big project, planning an elaborate trip, or trying to balance work and life, ChatGPT can help. Give it a goal, plus things like files, notes, or project plans, develop a trip itinerary with daily updates, or create a prioritized schedule. So you can spend less energy sorting out the details and more on bringing your biggest ideas to life. Get started at chatgpt.com.