Jeff Bezos and the great project

Why did it happen that Amazon’s founder bought The Washington Post, and not the other way around? In fact, understanding that’s the key to the entire media industry.

In 1994, at the age of 30, Jeff Bezos left the Wall Street hedge fund and broking firm DE Shaw, and drove to Seattle to start his own business, developing the business plan as he went.
He was a computer scientist and he wanted to start an e-commerce business. After narrowing it down to a few options, such as DVDs and computer software, he decided to go for books. He apparently wanted a name that started with A so it would appear early in alphabetical directories, and settled on Amazon.
He incorporated the company in 1994 and sold his first book –  Douglas Hofstadter's Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought – in 1995. In 1997 Amazon Inc debuted on Nasdaq at $18 a share, although it was still losing money.
That same year, The Washington Post made a profit of $US162.7 million, an increase of 28 per cent on the year before, and a profit margin of 20 per cent on revenue of $813 million. It also launched its first website, and felt, like most newspaper companies at the time, that it had a solid handle on this internet thingy. The future looked good.
In the latest year The Washington Post lost $US53.7 million on revenue of $US581.7 million, down from $US622.5 million the previous year.
The paper has now been sold to Jeff Bezos for $US250 million, about 1 per cent of his total wealth of $US26 billion. Amazon Inc is now worth $US137 billion; The Washington Post Company, now mainly an education business, is valued at a total of $US4 billion.
The media world is now swirling with speculation about whether Bezos is simply a philanthropic trophy buyer of the newspaper or whether he has the magic formula for making newspapers pay, or perhaps just survive. That’s important, and interesting, but perhaps more interesting is: what happened? How come he bought The Washington Post and not the other way around?
After all, The Washington Post Company seemed to be in a better position in 1997 to succeed in e-commerce than a single stockbroker driving from New York to Seattle. It owned great newspapers, magazines, TV stations and 637,000 cable TV subscribers, as well as a small education business.
The parallel stories of The Washington Post and Amazon have been repeated around the world in the decline of traditional publishers and the dizzying rise of digital businesses that have quickly created fortunes that are every bit as great as the old ones now being eroded.
Interestingly, the two companies are, at heart, word merchants. The Washington Post’s core product is the 500-1000 word article, at first only on newsprint once a day, for 125 years, now also digitally on computers and tablets; Amazon’s core product is the 50,000-100,000 word book, at first in print and then digital, via an electronic reader it invented.
I think the key to the difference between them – to what happened over the past 15 years – is contained in Jeff Bezos’s letter yesterday to his new employees at The Washington Post.
He wrote: “There is no map, and charting a path ahead will not be easy. We will need to invent, which means we will need to experiment. Our touchstone will be readers, understanding what they care about…”
And: “The paper’s duty will remain to its readers and not to the private interests of its owners.”
Newspaper companies have never known who their readers were: the customers were newsagents who then sold the products to their customers. It’s hard to care about people you don’t know, so newspaper executives and staff have tended to focus on themselves, and on serving society as a whole.
Also large companies labour under the tyranny of the Powerpoint: directors and owners want to be reassured that management know what the future holds, and require presentations showing five-year forecasts of revenue and profits, to which they may be held.
The internet requires constant invention and experimentation: it simply isn’t possible to know what’s going to happen. Forecasts beyond a few months are meaningless and the most important skill is coping with, and learning from, failure.
In 18 years Jeff Bezos made it up as he went along, and has grown Amazon from a small online bookstore to a giant global online retailer and computer services business that sells everything from fresh food to cloud computing, and of course, books, sold for an average of about $10 each.
He has now bought a retailer of articles, most of which are given away for free in the hope that an advertiser might want to try to catch the reader’s attention while reading them. For heavy users, the price is $180 a year. It’s losing $50 million a year.
Can he make this work as a business? Only by inventing and experimenting, and understanding the readers in same the way that Amazon understands its customers.
But there’s another thing that Bezos wrote to Washington Post staff that bears repeating:
“Journalism plays a critical role in a free society, and The Washington Post – as the hometown paper of the capital city of the United States – is especially important.
“I would highlight two kinds of courage the Grahams have shown as owners that I hope to channel. The first is the courage to say wait, be sure, slow down, get another source. Real people and their reputations, livelihoods and families are at stake. The second is the courage to say follow the story, no matter the cost. While I hope no one ever threatens to put one of my body parts through a wringer, if they do, thanks to Mrs Graham’s example, I’ll be ready.”
The great project in which everyone in daily publishing is now engaged is trying to make something that “plays a critical role in a free society” also profitable and therefore sustainable.
As Jeff Bezos says, it won’t be easy, and there’s no map.


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