Free The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone Page B

Bezos told the Riggios they would think about a partnership. Later Alberg and Bezos spoke on the phone and agreed that such a collaboration was unlikely to work. “Jeff was always a big believer that disruptive small companies could triumph,” Alberg says. “It wasn’t the end of the world. We knew we had a challenge.”
    Rebuffed, the Riggio brothers went home and started work on their own site. According to a person who worked at Barnes &Noble at the time, Len Riggio wanted to call the site the Book Predator but colleagues convinced him that was a bad idea. Barnes & Noble would take many months to back up its threat and spin up its own Web operation, and during that time, Bezos’s team accelerated the pace of innovation and expansion.
    Joy Covey considered both Morgan Stanley and Goldman Sachs for the role of lead underwriter on the Amazon IPO, but she settled on Deutsche Bank and the tall, mustached founder of its technology practice, Frank Quattrone. Quattrone’s lead analyst, a future venture capitalist named Bill Gurley, had covered Amazon for a year and presciently identified it as one of the “wave riders” that was exploiting the ascendance of the Internet.
    That spring, Bezos and Covey traveled the United States and Europe to pitch Amazon to potential investors. With three years of sales data, they now felt they had a unique story. Unlike traditional retailers, Amazon boasted what was called a negative operating cycle. Customers paid with their credit cards when their books shipped but Amazon settled its accounts with the book distributors only every few months. With every sale, Amazon put more cash in the bank, giving it a steady stream of capital to fund its operations and expansion. 14 The company could also lay claim to a uniquely high return on invested capital. Unlike brick-and-mortar retailers, whose inventories were spread out across hundreds or thousands of stores around the country, Amazon had one website and, at that time, a single warehouse and inventory. Amazon’s ratio of fixed costs to revenue was considerably more favorable than that of its offline competitors. In other words, Bezos and Covey argued, a dollar that was plugged into Amazon’s infrastructure could lead to exponentially greater returns than a dollar that went into the infrastructure of any other retailer in the world.
    At seemingly every stop, investors asked the pair about possible expansion into other categories. Bezos demurred and said he was focused only on books. To burnish their case, they compared their fundamentals to Dell, the high-flying PC maker at the time. But Bezos, characteristically secretive, divulged only the legal minimumand withheld some data, like what it cost Amazon to attract a new user and how much loyal customers typically spent on the site. He wanted capital from an IPO but didn’t want to give his rivals a road map to use to follow in his footsteps. “There was a lot of skepticism on the road show,” says Covey. “A lot of people said, you are going to fail, Barnes and Noble is going to kill you, and who do you think you are not to share this stuff?”
    The IPO process was painful in another way: During the seven-week SEC-mandated “quiet period,” Bezos was not permitted to talk to the press. “I can’t believe we have to delay our business by seven years,” he complained, equating weeks to years because he believed that the Internet was evolving at such an accelerated rate.
    Staying out of the press soon became even more difficult. Three days before Amazon’s IPO, Barnes & Noble filed a lawsuit against Amazon in federal court alleging that Amazon was falsely advertising itself to be the Earth’s Largest Bookstore. Riggio was appropriately worried about Amazon, but with the lawsuit he ended up giving his smaller competitor more attention. Later that month, the Riggios unveiled their own website, and many seemed ready to see Amazon crushed. The CEO of Forrester Research, a widely followed