The Everything Store: Jeff Bezos and the Age of Amazon (32 page)

Over coffee that day, the friends postulated that it might finally be possible to invent a computer for reading digital books. People had been talking about this for years, ever since Project Gutenberg, a nonprofit founded in the early 1970s in Champaign, Illinois, with a mission to digitize the world’s books and make them available on personal computers. Eberhard and Tarpenning had a different idea. They wanted something mobile, so people could take whole libraries of e-books with them in dedicated electronic-reading devices. That spring they started NuvoMedia and developed one of the world’s first portable e-readers, which they called the Rocket e-Book, or Rocketbook.

Eberhard had founded a computer-networking company in the 1980s and had been around the Silicon Valley block a few times. (Later he would cofound the electric-car company Tesla.) So he knew that he needed deep-pocketed investors as well as powerful allies to pave his way in the complex and cosseted world of the book-publishing business. Eberhard believed that he needed Jeff Bezos and Amazon.com.

In late 1997, the NuvoMedia founders and their lawyer took a Rocketbook prototype to Seattle and spent three weeks in negotiations with Bezos and his top executives. They stayed at a cheap hotel downtown and made regular trips to the old Columbia Building on Second Avenue to discuss the possibility of an Amazon investment in NuvoMedia. Bezos “was really intrigued by our device,” Eberhard says. “He understood that the display technology was finally good enough.”

The prototype itself was crude, with a painted surface and rudimentary software. But it worked, displaying such books as
Alice in Wonderland
and
A Tale of Two Cities
on its glowing transflective LCD screen. The device weighed a little over a pound, heavy by today’s standards, but it could be held with one hand, like a paperback book, and its battery lasted twenty hours with the backlight on, which compares favorably to today’s mobile devices.

Bezos seemed impressed but had some reservations. To download books, a customer needed to plug the e-reader into his computer. “We talked about wireless but it was crazily expensive at the time,” says Eberhard. “It would add an extra four hundred dollars to each unit and the data plans were insane.” The Rocketbook’s display wasn’t as easy on the eyes as modern e-readers, but Eberhard had checked out low-powered, low-glare alternatives, like E Ink, being developed in the MIT Media Lab, and e-paper, from Xerox, and found the technology was still unreliable and expensive.

After three weeks of intense negotiations, the companies hit a major roadblock. Bezos told Eberhard he was concerned that by backing NuvoMedia and helping it succeed, he might be creating an opportunity for Barnes & Noble to swoop in and buy the startup
later. So he demanded exclusivity provisions in any contract between the companies and wanted veto power over future investors. “If we made a bet on the future of reading, we’d want to help it succeed by introducing it to our customers in a big way,” says David Risher, Amazon’s former senior vice president of U.S. retail, who participated in the negotiations. “But the only way that’d have made sense is if it had been exclusive to us. Otherwise, we’d have been funneling our customers to a potential rival.”

Eberhard couldn’t bring himself to agree to limit his future fund-raising opportunities, so Bezos’s concerns became a self-fulfilling prophecy. Once it was evident that the companies were at an impasse, Eberhard and Tarpenning got on a plane and flew to New York to meet with Len and Stephen Riggio of Barnes & Noble. They shook hands on a deal within the week. The bookseller and the publishing giant Bertelsmann agreed to invest two million dollars each, and together they owned nearly half of NuvoMedia.

It later became fashionable to say that the Rocketbook and contemporaneous competitors like the SoftBook were ahead of their time and that the world was not yet ready to read digitally. But that is not quite the entire story. NuvoMedia sold twenty thousand units in its first year and was on track to double that in its second. It negotiated pioneering e-book contracts with all the major book publishers (the Authors Guild condemned the contracts as being unfavorable to authors
¹
), and in 1999, Cisco invested in NuvoMedia, giving the company more credibility and another strategic ally. The reviews of the device were generally favorable. Oprah Winfrey included the Rocketbook among her Ten Favorite Things in the inaugural issue of
O
magazine, and
Wired
wrote of the device, “It’s like an object that has tumbled out of the future.”
²

NuvoMedia had an aggressive road map for rapid development. Eberhard planned to exploit economies of scale and advances in technology to improve the Rocketbook’s screen quality and battery life while driving down its price. (Over the 1999 holiday season, the basic model cost $169.) “Within five years,” he told
Newsweek
’s
Steven Levy that December, “We’ll have front-surface technology that doesn’t require you to read behind glass.”
³
But NuvoMedia still needed fresh capital, and Eberhard was growing nervous about the unsustainable dot-com bubble and the deteriorating fund-raising climate. In February 2000, he sold NuvoMedia to a Burbank-based interactive TV-guide firm called Gemstar in a stock transaction worth about $187 million. Gemstar also snapped up SoftBook.

It was a terrible move. Gemstar’s main corporate objective, it turned out, was exploiting its patent portfolio through litigation. A few months after the sale, Eberhard and Tarpenning exited the firm in disappointment. Gemstar released successors to both Rocketbook and SoftBook, but after slow sales and given its own internal lack of enthusiasm, it pulled them from the market in 2003. Gemstar CEO Henry Yuen, who orchestrated the company’s e-book acquisitions, later fled to China amid accusations of accounting fraud.
⁴

The Gemstar debacle did more than just demolish the future prospects of the Rocketbook and SoftBook. It seemingly dampened all interest in the very idea of digital reading. BarnesandNoble.com stopped selling e-books altogether after the Rocketbook disappeared, and Palm sold its e-book business at around the same time.
⁵
E-books seemed like a technological dead-end and a hopeless medium—to almost everyone.

Bezos and Eberhard remained friendly during those years, and Bezos watched the rise and fall of the Rocketbook with more than passing interest. “I firmly believe that at some point the vast majority of books will be in electronic form,” he said in the late 1990s. “I also believe that is a long way in the future, many more than ten years in the future.”
⁶

Bezos was underestimating the potential, perhaps intentionally. In 2004, seeking a digital strategy for Amazon amid the gathering power of a revived Apple Computer, he started a secretive Silicon Valley skunkworks with the mysterious name Lab126. The hardware hackers at Lab126 were given a difficult job: they were to
disrupt Amazon’s own successful bookselling business with an e-book device while also meeting the impossibly high standards of Amazon’s designer in chief, Bezos himself. In order for Amazon to furnish its new digital library, the company’s liaisons to the book world were ordered to push publishers to embrace a seemingly dormant format. It was a nearly impossible mission, and it had to be executed on Amazon’s typical shoestring budget. Many mistakes were made, some of which continue to resonate today.

But in 2007, a few weeks after Amazon unveiled the result of all this effort, the first Kindle, Bezos called up Martin Eberhard at his home in Silicon Valley to ask him whether he thought Amazon had finally gotten it right.

Over his years at the helm of Apple, Steve Jobs usually reviled those former colleagues who had defected from his company and abandoned its righteous mission. Though Diego Piacentini left Apple for a startup that Jobs had incredulously dismissed as just a retailer, the two remained unusually cordial, perhaps because Piacentini had given Apple six months to find his replacement as head of European operations. Jobs would occasionally contact Piacentini when he needed something from Amazon, and in early 2003, Piacentini e-mailed his former boss with a request of his own. Amazon wanted to make Apple a proposal.

Piacentini brought Neil Roseman and H. B. Siegel, the technologist who’d started the company’s fledgling digital-media group, to the meeting that spring on Apple’s campus in Cupertino. The Amazon executives did not expect to meet with Jobs himself and were surprised when Apple’s cofounder greeted them personally and spent several hours with them that day.

At the time, Apple did not sell music; its iTunes software allowed users to organize and play their music collections on their PCs and transfer songs onto their iPods. Jobs wanted to get iTunes onto as many PCs as possible, and he floated the idea of Amazon distributing CDs to its customers that carried iTunes software. Piacentini
and his colleagues had another plan: they suggested creating a joint music store that would allow iPod owners to buy digital-music files from the Amazon website.

Neither proposal went anywhere. Jobs stood up to illustrate on the conference-room whiteboard his vision of how Apple itself would sell albums and single-tracks directly from iTunes. The Amazon executives countered that surely such a music store should exist on the Web, not inside a piece of clunky desktop software that needed to be regularly updated. But Jobs wanted a consistent, easy-to-use experience that stretched from the music store all the way to the portable media player and was so simple that even unsophisticated users could operate it. “It was clear that Jobs had disdain for selling on the Web and he didn’t think anyone cared about books,” Neil Roseman says. “He had this vision for a client-application version of the iTunes store and he let us know why it had to be an end-to-end experience.”

Jobs confidently predicted that Apple would quickly overtake Amazon in music sales, and he was right. In April 2003 Apple introduced the iTunes music store, and in just a few years Apple leapfrogged over, in quick succession, Amazon, Best Buy, and Walmart to become the top music retailer in the United States.

At the time of that humbling lesson, Amazon investors “needed a microscope to find the sales” from all of the company’s various digital initiatives, as Bezos later put it.
⁷
The company sold downloadable e-books in Microsoft’s and Adobe’s proprietary formats for reading on a PC screen, but the e-book store was well hidden on the Amazon website and yielded few sales. Look Inside the Book and Search Inside the Book were arguably digital-reading efforts, but their purpose was to improve the shopping experience and increase the sales of physical books. As the negotiations with NuvoMedia showed, Bezos was thinking early about the inevitable transition to digital media. But more pressing matters, like fixing the fulfillment centers and improving Amazon’s technology infrastructure, always seemed to take precedence.

Over the next few years Apple dominated the music business and helped send chains like Tower Records and Virgin Megastores into the retail dustbin (with a significant assist from Internet piracy). At first Bezos dismissed iTunes, noting that selling single-tracks for ninety-nine cents each wasn’t profitable and that Apple’s goal was only to increase sales of the iPod. This was true, but as the iPod became ubiquitous, Apple began to exploit iTunes to get into adjacent media such as video, and Amazon took a deeper look. “We talked a lot about what made the iPod successful in music when nothing else had been,” says Neil Roseman.

Amazon executives spent months considering various digital-music strategies and at one point explored the possibility of preloading iPods sold on Amazon with the music from CDs that customers had bought on the site. When it proved impossible to get the music labels to agree to that, Amazon settled on launching a digital-music service, similar to Rhapsody, which gave monthly subscribers unlimited access to a vast catalog of music. Amazon came close to launching that effort in 2005. It was going to use music encoded with Microsoft’s proprietary DRM (digital rights management) anticopying software Janus. But then several members of the team rebelled at what they viewed as a flawed approach, in part because the Janus-encoded music wouldn’t play on the iPod, which so many Amazon customers already owned. “I realized I’d rather die than launch that store,” says Erich Ringewald, a product manager who worked on the initiative. Bezos agreed to scrap the effort and start over. Meanwhile, Apple increased its lead in digital media. Amazon finally introduced the MP3 Store in 2007, featuring songs without DRM that users could freely copy. But Apple quickly negotiated the same agreements and Amazon remained a perennial straggler in music.

Bezos’s colleagues and friends often attribute Amazon’s tardiness in digital music to Bezos’s lack of interest in music of any kind. In high school, Bezos forced himself to memorize the call letters of local Miami radio stations in an effort to fake musical fluency in conversations with his peers.
⁸
Colleagues remember that on the
solemn road trip from Target’s offices in Minneapolis after 9/11, Bezos indiscriminately grabbed stacks of CDs from the bargain rack of a convenience store, as if they were all interchangeable.

Steve Jobs, on the other hand, lived and breathed music. He was a notoriously devoted fan of Bob Dylan and the Beatles and had once dated singer Joan Baez. Jobs’s personal interests guided Apple’s strategy. Bezos’s particular passions would have the same defining impact at Amazon. Bezos didn’t just love books—he fully imbibed them, methodically processing each detail. Stewart Brand, the author of
How Buildings Learn,
among other works, recalls being startled when Bezos showed him his personal copy of the 1995 book. Each page was filled with Bezos’s carefully scribbled notes.