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What was the last thing you bought on Amazon? This is a company that almost everyone has bought something from. But how much do we really know about Amazon today? My name is Jason Del Rey. As a reporter, I cover Amazon, but I also use Amazon a lot. For many of us, buying stuff on Amazon feels like a crucial part of everyday life. How crucial? Let's just start with my own order history.
So I'm here in our Vox studios with our producer, Rebecca. Hey, Rebecca. Hi, Jason. Who's forced me to do something that might be very painful, which is look back at
at how the Del Rey family became so dependent on Amazon. So my son was born in April 2013. It looks like I signed up for Amazon Prime in May. That's a big month for you. It's a big month and I think it's not a coincidence. It feels like my parents' generation could sort of chart their life history based on things like scrapbooks and photo albums.
And my guess is, as we go a little further, like my life's biggest milestones chart pretty identically with my Amazon Prime order history. I'm like laughing a little bit, but that's also a little cringy. So my first order of that year, May 9th, 2013. Baby monitor coupled with what's called a nasal aspirator. Do you know what that is? Other side.
It's a battery-powered snot sucker. Yep. Yep. So what else? Pacifiers, Aveeno baby wash and shampoo. I mean, this is when Amazon Prime got us. Welcome to Land of the Giants, a podcast about the biggest tech companies of our time. The first season's called The Rise of Amazon. I've been covering Amazon for the last six years.
And that's about the same amount of time that I've been a member of Prime, which is Amazon's subscription service. And one thing I've learned about the company is that Prime is the key to understanding Amazon's power.
There are over 100 million Prime members today globally. 100 million. Prime members pay Amazon an annual fee, and then they end up spending more on Amazon than people who aren't Prime members. Prime is the engine of the Amazon machine. So if you want to understand this incredibly powerful company, you gotta start with Prime. In this episode, we'll explain why Prime is so good at capturing new Prime customers and then locking them in. People like you and me. And we'll hear the origin story,
how Prime started as an experiment that easily could have failed. When I joined Prime six years ago, the membership fee was $79 a year.
But that price has been going up. Now it costs $119 a year. And it's still a no-brainer for me. I'm locked in. They are so sophisticated and so psychologically brilliant at understanding what consumers need and want and how they buy that what they do typically works. And so your experience is in no way the exception. This is Kit Yarrow. She's the author of Decoding the New Consumer Mind.
I have a PhD in clinical psychology, and I use that to understand why people buy what they buy. I'm looking at usually the deeper motivation. Yarrow's been researching how Amazon, and Prime in particular, have changed how and why we shop, maybe forever.
So even if they're really, really fantastic and positive life transitions, like having a baby, like getting married, like going to college, like graduating, like starting a job, like moving, you know, all these things, they're wonderful, but people tend to be more anxious and seek control more during those periods. And for many people, one of the ways they get a handle around it is by anticipating the shopping things that they'll need, the things that will make that transition easier for them. Amazon knows this.
And that's why it makes the shopping experience so easy for us. Part of me thinks, this is brilliant. The other part of me thinks, man, how scary is that?
And I'm not alone in being nervous about this dependency. We just don't want to be the United States of Amazon. We just really don't. So I guess that's kind of my fear is that they grow so quickly, they touch everything, and they do such a great job at it. But we still need competition. I don't think we're going to have it. Whatever they tend to touch, they dominate ultimately. We'll get to Amazon's impact on competition in a future episode.
But for now, I want to stay on this idea of Amazon Prime and what it does really, really well today. A lot of consumers may even feel like irresponsible if they don't sign up, right? Like, why would you pay for shipping? This is Andrea Lay. She worked for Amazon for 10 years, starting in 2005. That's the same year Prime launched. Like, it's smarter. It feels like now subscriptions, I think, make us feel more responsible. Lay helped run Prime in Canada.
I told her about my shopping history and how my entire family buys stuff through Prime without even really thinking about it.
Well, I think what feels icky about it is at no point did you price check that product anywhere else, right? That's the part that makes us a little bit less responsible as Prime members. I mean, I think that's kind of what Amazon's banking on, right? That you're just so locked in that you're not even going to go to any other sites because, I mean, I don't. And this is what Amazon and Prime specifically does a really great job at, allowing us to buy stuff without even thinking about it.
Or, if we do think about it, Amazon wants us to feel really lucky to be a member of the Prime Club. We're standing now in front of the fresh fish section looking at some whole red snapper faces, some whole bronzini heads, and some big Prime discount signs. I went to a Whole Foods in Manhattan to check out a whole new category of perks for Prime members.
Amazon bought Whole Foods two years ago. And while I was standing there inside the Whole Foods, I could see blue tags with the Prime logo all over the store. The blue price tags are special deals just for Prime members. So if you're a Prime member, you get your own deals. If you're a Prime member, you also get 10% off of all sales in the store, period. And then if you have a Prime Visa card, you get 5% on top of that.
I'm so in this and I follow the company so closely that I'm like, of course there are Prime stickers next to fresh fish in a Whole Foods store. If you would have told anyone, including me, even three years ago, that Amazon would be infiltrating the bougie Whole Foods experience, I would have said something with a curse word that was like, get the heck out. It makes you think like, what?
This is just an all-out blitz by Amazon. I should be clear, the company's doing the Whole Foods thing because groceries are one of the few big categories where Amazon has struggled and it wants as much of your wallet as it could possibly get.
But unlike batteries or diapers or my snot sucker, selling something like Red Snapper on the internet is just a harder proposition. So Amazon went and bought its own grocery store chain, and then it deployed its not-so-secret weapon: the discounts and deals of Prime. Just to show you how this works on customers, allow me to introduce Kaitlyn Austin. We met her outside the Whole Foods in Manhattan.
Austin's a college student studying public health, and she's also a new Amazon Prime member. Well, at least for now. I am, but only because I'm a student. So I get it free for like, I think maybe five months. But if I didn't, I will probably cancel it. You will? Yeah, I probably will. Did you buy anything today that was... Yeah, I did. Like everything I bought was on sale.
I did like scan the Prime thing and it does take off like a buck or two. And why did you say once the free trial is over, you won't either renew or sign up? I don't know. I just feel like because I have that free Prime right now, I'm like using Amazon a little bit more, buying things online and I don't really want to because of that free delivery thing. It's very easy to do it. Yeah. So they've got you for now at least. For now. Yeah.
For the record, her free trial lasts six months. And I don't think she's going anywhere. As you already know about me, my family basically lives off of Amazon Prime. We're pretty locked in. And that, that's not an accident. The thing I remember very distinctly is this phrase. They said, you know, I want to draw a moat around our best customers. We're not going to take our best customers for granted.
That's Vijay Ravindran. Back in 2005, he was a key member of the team that made Amazon Prime. And he was in the room when Jeff Bezos first announced the idea internally. But this didn't happen in an office. It happened inside the CEO's own boathouse. On a Saturday morning at that, during the crazy holiday shopping season. We're going to take a quick break. When we get back, we're going to hear the origin story of Amazon Prime.
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On September 28th, the Global Citizen Festival will gather thousands of people who took action to end extreme poverty. Watch Post Malone, Doja Cat, Lisa, Jelly Roll, and Raul Alejandro as they take the stage with world leaders and activists to defeat poverty, defend the planet, and demand equity. Download the Global Citizen app to watch live. Learn more at globalcitizen.org.
When most people think about Amazon Prime, they think of free shipping. The brown boxes plastered with Prime packing tape arriving on their doorsteps. It all feels so easy. But back in 2004, getting Prime up and running was anything but easy. Vijay Ravindran was in charge of much of that operation. There was a lot of pushback. Very prominent people who are at Amazon today and in high positions told me, like,
You shouldn't be allowing Jeff to do this, that this is setting a bad example for the company. At the time, Ravindran's job title on Amazon was Director of Ordering. He ran 20 teams, all working on the website. And before he had ever heard of the idea of Prime, he was already really busy.
It was the holiday shopping season, and the site was his biggest problem. Team is working around the clock. That Christmas in particular, Amazon had had some major stability problems that had gotten some pretty big primetime coverage. Basically, the site kept crashing again and again. The peak day was the last Monday before Super Saver Shipping's window ended.
where you could still get your package in before Christmas. Super saver shipping. Remember that? Back then, you could only get free shipping if you bought $25 worth of products. And still, you might have to wait as long as 10 business days for your delivery. And so it was the week before peak.
It's early December and in retail that was the busiest time of the year. And Ravindran and his team were in firefighting mode, just trying to keep the site running. It was Thursday night and Jeff Bezos sent a note to my immediate supervisor at the time, who was the SVP for consumer. And he said, hey, I want to get people from ordering together. We need to meet tomorrow. So that was the first hint.
This was not standard operating procedure at Amazon. To present to Jeff would be maybe a once every six month type thing for someone at my level. And for an impromptu request to meet that didn't have weeks of preparation prior was very rare. And there were no clues that would tell Ravindran what this meeting was really about. Remember, he was already overwhelmed with work and now he's being pulled away for some unknown project.
The meeting was scheduled for Friday afternoon. Friday morning rolls around and the website has a multi-hour crash. Obviously, this was terrible timing. And after Revingeran's team gets the site back up and running, their work still wasn't done. Postmortems are an important part of Amazon's culture. This basically means whenever anything big goes wrong, you have to quickly meet as a team to figure out what went wrong.
And so I don't know how many other people have done this at my level at Amazon, but we canceled the meeting with Jeff from our side. And so then kind of the legend of Prime kind of starts because his response was, of course, I understand, but this is so important. You have to come over to my house on Saturday morning. So the Friday meeting is canceled, but he says essentially it can't wait another day. That's right. You have to come in Saturday and you have to come to my house to this meeting.
Had you ever been to his house before that? I had not. Okay, and so what do you think when you hear, "Come to my house on a Saturday"? I mean, it's so hard to even think about what it could be. And I think part of the back of my mind is, surely whatever this is, he's not going to create an incredible workload on the team while we're basically firefighting, keeping the site up during Christmas.
And so then we arrive at his house. We actually are sent to his boathouse. I still have not been in his house per se. I've been in his boathouse. So the setting for this crucial meeting was Saturday morning with a small group of Amazon staff. I mean, the boathouse was larger than my condo and had a fully enclosed parking space for his boat. So it was pretty cool. And then he joins us and leads with...
This is the most important project I think we're going to be doing in a while, that this is a really big idea. I need a team that's going to treat this with high urgency. And then we get into the conversation about what it is. What it was, or what it turned out to be, was Amazon Prime. Codename inside Amazon? Futurama. It would become the biggest retail innovation of the internet age.
Jeff Bezos wanted to create a subscription service around Amazon's best customers, and he wanted it ASAP. This is all about getting people into a mode where they thought about Amazon first, they bought on Amazon because it was convenient, that they knew that they were getting a reasonably good deal, but that they were getting out of this mentality of penny-pinching. This is the idea we heard earlier of building a moat around customers. To be clear, it's not about keeping people out.
It's about keeping the best customers locked in. And part of the idea is that Prime members would pay for that luxury. Ravindran remembers that Bezos felt strongly about what it should cost customers. Jeff was really clear on his instinct here, which was that the price needed to be high enough that people thought about it on an ongoing basis rather than something trivial that they didn't think about.
but it needed to be low enough that they would want to try it out. And by the way, the price they actually chose when Prime launched was $79 a year. For the nerds inside of Amazon, it was happily a Prime number.
But back to the crazy days before that launch. For Ravindran, the idea was exciting, but the timing certainly was not. At the boathouse meeting, Bezos told the group he wanted to have Prime ready for the company's next earnings call with Wall Street investors. The problem was that call was just a little more than a month away in January of 2005. So the group told Bezos that his timeline was almost impossible.
Bezos, in turn, gave them a little more time. He moved back the earnings call by a week or two, and he gave them the power to pull in any staff member from any division of Amazon. Because this was complicated work. They had to figure out how to make Prime function on the website, then how to describe it to customers, and then how to get customers to sign up. And they had to pull all-nighters and steal employees from other departments just to make it happen.
It was ugly work. It was the kind of work that you don't want to have to do. And the reaction from people? It was very mixed. I think some people, because it was a Jeff project and they hadn't been on one, were extremely excited. Others, not so much. There was a lot of angst. One engineer told an executive he was scared that Prime would even take down the company. One of the things that also is just hard to imagine back then is that
You know, there wasn't blind faith that every Jeff idea was going to be a home run. You know, I don't know that anyone sat down and said, Prime membership is going to be like our winner. That's Andrea Lay. She's the one who helped run Prime in Canada.
She says in those days, Amazon was basically an ideas factory. And many of those ideas, eh, they weren't good. I mean, Amazon was throwing all kinds of stuff at the wall to see what sticks. They still do. I mean, I've worked on projects there where we had two or three teams working on kind of different variations of it just to see what would stick. So Prime was a huge bet for Bezos. And it was mostly instinct. It's hard to put ourselves back in that year, but...
But at that time, we did not know the form of e-commerce that was going to take off. And remember, the world looked really, really different back then. Amazon's biggest competition? Well, there was eBay, which actually at that point was worth almost twice as much as Amazon.
And then there were the physical stores. Barnes and Noble and Borders and Best Buy and Babies R Us and Toys R Us. And so the idea was how do we get consumers' products faster? How do we actually compete with the amount of time that it would take you to get in your car and go over to a store? So the speed of Prime shipping was crucial, but... We also had this problem with toilets. It's not that easy to just ship anything. Toilets often ship into boxes.
So sometimes customers would get like half of a toilet and then it would be broken because they're really easy to break unless you do a lot of work to make sure that they don't break. So toilets were always kind of a little bit of a joke internally. The point is Amazon couldn't create Prime if it couldn't solve all these mundane problems like how to ship a toilet reliably and quickly to make customers happy. I think it represents just this relentless
customer focus and doing whatever you had to do to delight the customer. Customer focus and customer delight. Whenever I talk to former or current Amazon employees, this is a central idea that comes up. In fact, the number one Amazon leadership principle is something called, quote, customer obsession. And it all springs directly from the mind of Jeff Bezos.
The first thing I know is that you need to obsess over customers. I can tell you that we have been doing this from the very beginning and it's the only reason that Amazon.com exists today in any form. When we talk about Earth's most customer-centric company, we have a similar
idea in mind. We want other companies to look at Amazon and see us as a standard bearer for obsessive focus on the customer as opposed to obsessive focus on the competitor. I know what you might be thinking. Doesn't every company say stuff like this? It's true. They do. But Jeff Bezos really walks the walk, no matter the consequences. So back to the story of Amazon Prime. There's this other essential piece of the Prime puzzle that I haven't told you about yet.
and the foundation for it was quietly being laid for three years before the boathouse meeting. It was happening inside Amazon's warehouses, which the company calls fulfillment centers.
The way these fulfillment centers are designed is key to making Prime work. It's the legacy of a man named Jeff Wilkie. I was fascinated to walk into our fulfillment centers and have all of the language be kind of the language of retail, warehousing, and distribution, which I didn't really understand, but I saw a factory. Wilkie came to Amazon in 1999 from the manufacturing world. So all these things that I had been doing in manufacturing had clear analogies in this world.
We just didn't call it the same thing. And there were some techniques that hadn't yet been applied in the retail world that we had been applying for decades in manufacturing. And fortunately, when we started to apply them, a lot of them worked. In the early 2000s, Jeff Wilkie was Amazon's senior vice president of worldwide operations. Basically, his teams oversaw all the work involved from the time you click purchase until a package landed at your front door.
Today, he's probably the second most important person at Amazon. If Jeff Bezos were to ever step aside, many insiders believe Jeff Wilkie would be the one to replace him. Back when Wilkie arrived at Amazon, he was responsible for innovating inside Amazon's fulfillment centers to speed things up, a project he called FastTrack.
Previously, Amazon's goal was to ship a customer order within 24 hours. That means 24 hours between the time you buy something and the time it leaves the warehouse. With FastTrack, that window needed to shrink. We began to change the processes in the fulfillment centers using some of these techniques that I knew of from the manufacturing world. Wilkie oversaw changes like rewriting Amazon's warehouse software.
and redesigning the layout of the warehouses to cut down on the time needed to get an order on the truck. And the whole idea was to shrink the cycle time to process orders, to take waste out, and to make them more efficient. All driven by...
serving the customer faster. And Wilkie pulled it off. That 24-hour window it took to process orders, it decreased to three hours. In 2002, Amazon started to use this new method for customers who had paid for faster shipping. But they did it quietly. So we said, instead of usually ships in 24 hours, let's take advantage of these new cycle times and ship in three hours.
and do it for all of the shipments where people are paying. But let's not tell anybody we're going to do it. Let's just practice for a while. They practiced for a year, and then... In 2003, we began to message customers with a sentence that said, want it delivered tomorrow, order in the next, say, three hours and 42 minutes. And that precision was only possible because we had redesigned everything to be able to process in a very short window. So we could make a precise decision
estimate based on the time we had to get it to a truck to pull away and promise that to customers directly. And Jeff Wilkie kept really close tabs on how it was going. I would have the managers of the facilities at the end of each day send me an email to describe why we missed each shipment that missed, every single one of them. We did that for almost a year to make sure that the processes worked, and then we were confident launching it externally.
Can we just stop to acknowledge that this email thing is pretty insane? An email for every single missed delivery. But isn't it also kind of brilliant? Anyway, the point of all of this is to show the years of work, tedious, often unsexy work, that it took before Prime was even ready to launch. So we've now arrived at the day in 2005 when Jeff Bezos is going to announce Prime.
All the dots are connecting back end to front end. Well, most of them. Oh yeah, I mean it was chaos. There was a lot of bugs. A lot of bugs. Bezos announced Prime on a call with Amazon investors. And then, customers started signing up. But like a lot of inventions at Amazon, Prime wasn't an overnight success. For the first few years, progress was relatively slow and steady.
But there were two key developments that took Prime from slow and steady to the force it is today. The first one launched in 2006. It's a program called Fulfillment by Amazon, or FBA. FBA lets sellers pay Amazon to store their goods in Amazon warehouses and then ship those goods to customers for them. Here's Jeff Wilkie again. One of the things that inspired me from the beginning was this idea that there were people running small businesses that
struggled to find enough hours in the day to run their shop, sell online, and take vacation. For some of them, this was a way to actually have more selection available to customers, 24/7 service. So they would send the inventory to us, we would take care of kind of the heavy lifting, they would be great at adding selection, and everybody would win, including customers. And that seemed to be a great model from the beginning.
FBA makes money for Amazon. A lot of money. Amazon now takes as much as a 30% cut from those sellers. FBA also allows Amazon to make a wider selection of stuff eligible for Prime shipping. More selection makes Prime more valuable, and that makes it a more attractive club to customers. So attractive that the Federal Trade Commission has been looking into whether certain aspects of Prime make Amazon anti-competitive.
After FBA, the other key development came in 2011. That's when Amazon decided to make some of its online video catalog free for Prime members. Today, this is called Prime Video.
Here's longtime Amazon executive Andrea Lay. I would even say, and I don't have any data in front of me, nor if I did, could I share it, but I would even say until they bundled one of the prime benefits as some of the digital video, it didn't really take off. This plan has been super expensive. Amazon has spent billions buying rights to movies and TV shows and even creating its own. But Jeff Bezos wouldn't be doing it if he didn't see the payoff.
We get to monetize that content in a very unusual way because when we win a Golden Globe, it helps us sell more shoes. Over the years, Amazon continued to add perks to Prime as the annual membership crept up. There's Prime Music and Photos, Prime Reading and Twitch Prime, and Prime Day, a massive sales event exclusively for Prime members.
There are also those blue discount tags at Whole Foods. And this past April, Amazon announced a plan that it was moving from free two-day Prime shipping to free one-day shipping. What does each new perk do? It attracts new Prime members,
but also makes us current Prime members feel even more locked in. Amazon Prime is the moat that Jeff Bezos wanted to draw around his best customers. Last year, we finally learned just how successful that program really is. 13 years post Prime launch, Bezos finally giving us a number that is 100 million Prime subscribers globally. And still, no other retailer has even come close to matching Prime's success.
It does surprise me that other retailers haven't figured out how to do it. But then I think about the years of slog that we worked through to try to get delivery costs as low as possible. And it was really hard work. Celebrating success, though, is not a big part of Amazon's DNA. We don't spend a lot of time on kind of, you know, victory laps, you know, after any one particular success inside. We spend most of our time
If you're an Amazon shareholder or a leadership guru, what Wilkie just said is exactly what you want to hear.
But I can't help being a little bit creeped out at the same time because Amazon has more than 100 million people like me and many of you already locked in. And that's not satisfying to Amazon whatsoever. They already own large pieces of our wallet. But what do they want next? Here's one thing. They want to change our lives inside our homes. That's on the next episode of Land of the Giants.
Audio clips of Jeff Bezos come from Amazon press conferences, CNBC's Closing Bell, The Charlie Rose Show, and the Internet Association's 2017 Annual Charity Gala. Rebecca Sinanis is our show's producer. Allison McAdam is our editor. Brandon McFarlane is our engineer, and he also composed our theme.
Golda Arthur is the show's senior producer, and Art Chung is our showrunner. Nishat Kerwa is the show's executive producer. I'm Jason Del Rey, and I'm back next week with a new episode. In the meantime, subscribe and listen on Apple Podcasts or on your favorite podcast app.
and let us know what you think. Our email address is landofthegiants at voxmedia.com. You can also talk to us on Twitter. We're at Recode. Land of the Giants is a production of Recode and the Vox Media Podcast Network.