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tv   The David Rubenstein Show Peer to Peer Conversations  Bloomberg  September 23, 2018 2:30pm-3:00pm EDT

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sell today, what would you like to see us sell? that answer came back lawn-tailed. they answer the question with whatever they were looking for at the moment. one of the answers was, i wish you sold windshield wiper blades because i really need new windshield wiper blades. i thought to myself we can sell anything this way. so we launched electronics, toys, and many other categories over time. you read the original business plan, it is just books. david: your stock went to $100, and then it went down to six dollars or something like that. jeff: at the peak of the internet bubble, our stock peaked at something like $113, and after the internet bubble busted open, our stock went down to six dollars. it went from $113 to six dollars in less than a year. my annual shareholder meeting started with a one-word sentence, the word "ouch."
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david: most of those internet companies of the dot com era are out of business. jeff: yeah. david: you survived, what made you survive and the rest of them are gone? jeff: the whole period is very interesting. the stock is not the company, and the company is not the stock. as i watched the stock fall, i was watching our internal business metrics, number of customers, profit per unit, everything you can imagine, defects, etc. every single thing about the business was getting better, and fast. as the stock price was going the wrong way, everything in the company is going the right way. so we didn't need to go to capital markets. we didn't need more money. the only reason a financial bust like the internet bubble bursting makes it hard to raise money, but we already had the money we needed, so we just needed to continue to progress. david: wall street kept saying
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amazon is not making any money. they are just getting customers. where are the profits? where are the profits? wall street kept beating you up on that. your response was, i don't really care what you think? jeff: amazon was, people always accused us of selling dollar bills for $.90. look, anybody can do that and grow revenue. that is not what we were doing. we always had positive gross margins. it is a fixed cost business. what i could see from the internal metrics was at a certain volume level, we would cover our fixed costs and the company would be profitable. david: who came up with the idea of prime? prime seems to be a great way of getting money in advance of services. jeff: it is very interesting. like many inventions inside of a in team, team inventing is my favorite thing, so i tap dance into the office. i love amazon, blue origin, "the washington post," but amazon is my full-time job. i get to live two to three years
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in the future. most of the invention is somebody has an idea and other people improve the idea and come up with objections why it could never work, then we solve those objections. it is a very fun process. then, actually a junior software engineer came up with this idea, not as a loyalty program, but we could offer people kind of an all-you-can-eat buffet of fast, free shipping, and when we modeled that, the finance team went and modeled that idea, and the results were horrifying. we would offer unlimited shipping -- shipping is expensive, and customers love free shipping, but we could see, again, back to that, you have to use heart and intuition. there has to be risk-taking, you have to have instinct and all
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good decisions have to be made that way. you do it with a group, you do it with great humility. , getting it wrong is not bad, that is the other thing. when we make mistakes, and we have made doozies like the fire phone, and it just didn't work out. we do not have enough time for me to list all of our failed experiments. but the big winners pay for thousands of failed experiments. you try something like prime. it was very expensive at the beginning. it cost us a lot of money. what happens when you offer of free, all-you-can-eat buffet? who shows up to the buffet first? the heavy eaters. it is scary. like, oh my god, did i really say as many prawns as you can eat? [laughter] jeff: so that is what happened, but we could see the trendlines, all kinds of customers were coming and they appreciated that service. david: you sit around with your team, but you don't like meetings before 10:00 a.m., you like to get eight hours of sleep, and don't like power
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points. explain all of that. why is that? jeff: i go to bed early, get up early, i like to putter in the mornings. i like to read the newspaper. i like to have coffee and have breakfast with my kids before they go to school, so i have my puttering time, it is very important to me. that's why i set my first meeting for 10:00. i like to do my high iq meetings before lunch. anything that is going to be really mentally challenging is a 10:00 meeting. by 5:00 p.m., i can't think about this today. let's try this again tomorrow at 10:00 a.m. then on sleep, i get eight hours of sleep. i prioritize it. unless i am traveling in different time zones. sometimes it is impossible, i am very focused on it. for me, i need eight hours of sleep. i think better. i have more energy. my mood is better. all of these things. think about it. as a senior executive, what do
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you really get paid to do? as a senior executive you get paid to make a small number of high-quality decisions. your job is not to make thousands of decisions every day. is that really worth it if the quality of decisions might be lower because you are tired, or grouchy, or any number of things? it is different if it is a startup company. when amazon was 100 people, that is a different story, but amazon is not a startup company, and all our senior executives work the way i do. they work and live in the future. none of the people who report to me should be focused on the current quarter. i always tell people, sometimes we have a good quarterly conference call or something, and wall street will like our quarterly results, and people will stop me and say congratulations on your quarter. i will say, thank you, but what i am thinking is that quarter was big three years ago. right now, i am working on a
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quarter that is going to reveal itself in 2021 some time. that is what you need to be doing. you need to be two to three years in advance. why do i need to make 100 decisions today? if i make three good decisions, that is enough, and they should be as high quality as i can make them. david: one of the other companies you started within your company was aws. jeff: a business miracle happen. this never happens. this is the greatest piece of business luck in the history of business so far as i know. we faced no like-minded competition for seven years. ♪
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♪ david: when you buy over the internet, amazon, do you ever get the wrong order? is anything ever wrong? do you call up and complain or you don't have any problems? jeff: i am a customer of amazon. hopefully like everyone in this room. david: so one person services your account? jeff: if anyone in this room is not an amazon customer, see me afterwards. i will walk you through it. i have problems sometimes. i treat them like the same way i treat a problem i would get from a customer. my email address is famous and i keep it. i read it. i don't see every email i get anymore because i get too many. i see a lot of them. i use my curiosity to pick out certain emails. i will get one from a customer and there is a defect, and we have done something wrong. usually people are writing us because we have screwed up their order somehow. and so i'm looking at this, and
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for some reason, something seems odd about that one. i will ask the team to do a case study and find real root cause or causes. it is usually causes. real root causes, then real root fixes. so that when you are fixing it, you are not fixing it for that one customer, you are fixing it for every customer. that process is a gigantic part of what we do, so if i have a failed order or some bad customer experience and i would treat it just like that. david: you have revolutionized retail, but now you are in the bricks and mortar business. you bought whole foods. what was the theory behind buying something that doesn't sell over the internet? david: we are interested in physical stores. i have been asked for years would we ever open physical stores. literally 20 years i have been asked that question, and i always say yes, but only when we have a differentiated offering, something that is not me too, because physical stores are so well served. if we offer a me too product offering, it will not work. we are not very good at that.
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whenever we have tried dabbling in something that is a me too service, we tend to get beaten. it doesn't work. our culture is better at pioneering, inventing, so we have to have something that is different and that is what amazon go is. it is completely different. the amazon bookstore, completely different. we have ideas about how to merge prime and whole foods. those are still rolling out. you haven't seen them yet. to use amazon prime to make whole foods a very differentiated experience. and so what we will be able to do is take some of our resources, some of our technological know-how, and expand the whole foods mission. they have a great mission, which is to bring nourishing food to everybody, organic nourishing food to everybody, but we have a lot to bring to that table in terms of resources, operational excellent, technology know-how. david: one other company you started within your company is amazon web services.
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where did the idea come from? jeff: aws. we started it a long time ago now, 15 years ago. we worked on it behind the scenes for a long time, then finally launched it. it has become a very large company. at aws, we completely reinvented the way that companies buy computation. then a business miracle happened. this never happens. this is like the greatest piece of business luck in the history of business so far as i know. we faced no like-minded competition for seven years. it is unbelievable. i will give you, like, when i launched amazon.com in 1995, barnes & noble launched their website in 1997, two years, very typical if you invent something new. we launched kindle. barnes & noble launched their reader two years later.
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we launched echo, google launched theirs two years later. when you pioneer, if you are lucky come you get a two-year head start. no one gets a seven year head start. so that was incredible because, i think it was a whole confluence of things. i think the big, established enterprise software companies did not see amazon as a credible enterprise software company, and so we had this long runway to build this incredible, feature-rich, and it is so far ahead of all the other products and services today. david: were you worried the u.s. government might come along, or the european government, some regulatory thing could come in and impair your business? jeff: i get asked this question frequently. david: i thought it was an original question. jeff: no, sorry. you do do that sometimes, but that was not one of them. [laughter] jeff: my view on this is very simple. all big institutions of any kind and all kinds are going to be, and should be, examined, scrutinized, and inspected.
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governments should be inspected. government institutions, big educational edge institutions, big companies, they are going to get scrutiny. it is not personal. it is what we as a society want to have happen. that is one thing. i remind people internally don't take this personally. that is a lot of wasted energy. this is normal, healthy, good. and then the second thing is that we are so inventive that whatever regulations are promulgated or however it works, that will not stop us from serving customers. to really, you know, under all, we have kind of, regulatory
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frameworks that i can imagine, customers will still want low prices. they will still want fast delivery. they will still want big selection. it is really important that politicians and others, they need to understand the value of the big companies and not demonize or vilify business in general especially, well, you should not vilify big companies and business in general for sure, and the reason is simple. there are certain things only big companies can do. i love garage entrepreneurs. i invest in a lot of their companies and i know many of them, but nobody in their garage is in going to build and all carbon fiber, fuel-efficient boeing 787. [applause] jeff: it is not going to happen. you need boeing to do that. this world would be bad without boeing, apple, and samsung. david: one of your passions is not just amazon, but is outer space and space travel.
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jeff: there are all sorts of problems that we are about to face because for the first time in our civilizational history going back thousands of years, we are now big compared to the size of the planet. we can fix that problem in exactly one way, by moving out into the solar system. ♪
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♪ david: one of your passions is not just amazon, but outer space and space travel, blue origin. you started blue origin in secret, then made it public. you are putting $1 billion of your own capital in every year. jeff: next year it will be more for the first time.
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david: what are you going to get out of it? are we going to have people going to space? what is the preface? jeff: this is the most important work i am doing. i have great conviction about that. it is a simple argument. this is the best planet. we have now sent robotic probes to every planet in the solar system. believe me, this is the good one. my friends who say they want to move to mars, i say, look, do me a favor. move to the top of mount everest for a year first, because that is a garden paradise compared to mars. this gem of a planet, we are finally as a species, big enough to impact it. for thousands and thousands of years, earth was big and humanity was small. that is not true anymore. so we face a choice as we move forward. we will have to decide whether we want a civilization of stasis, which we could do. that is a legitimate choice.
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what does it mean? we will have to cap population, we will have to cap energy usage per capita. people don't think about how much energy they use. it takes a lot of energy, so do you want that to continue for your grandchildren, and your grandchildren's grandchildren? in other words, i want my grandchildren's grandchildren to be using way more energy per capital than i am, and i would like to see to not have a population cap. i wish there were one trillion humans in the solar system and then there would be 1000 einsteins, 1000 mozarts. but we do not have that long so there is all sorts of problems we are about to face because for the first time in our civilizational history going back thousands of years, we are now big compared to the size of the planet. we can fix that problem, but in exactly one way, by moving out into the solar system.
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and so, my part, my role in that is i want to build reusable space vehicles. that is the heavy lifting. amazon was able to get started with only $1 million in capital. and because i got to ride on the back of the credit card system, ride on the back of the pre-existing transportation network that could deliver packages, the pre-existing telecommunications network that could allow people to connect to our servers, all of that would have been hundreds of billions of dollars in capex, but it was all in place. that is what allowed facebook, think about it -- two kids in a dorm room made this company in less than two decades. that is unbelievable. but that can't happen in space. there is no way two kids in a dorm room can start a space company of any significance, because the price of admission is so high. i want to build space infrastructure so that the next
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generations of people can use that infrastructure the same way i used ups, fedex, and so on to build amazon. and so that is what blue origin is all about. david: so do you ultimately want that to be your legacy, or amazon? what would you like to have as your legacy? jeff: world's oldest man. [laughter] jeff: that is a famous line i like. the real thing is, it will be whatever it is going to be. i will be proud of the things -- i live my life in such a way that when i am in a quiet moment of reflection thinking about on -- thinking back on my life, i have as few regrets as possible. what will my legacy be? i have no idea. i do not even want to spend a lot of time thinking about it. david: do you intend to give away the bulk of your fortune at and some point in your life? jeff: i don't know how much i will give away. i will give away a lot of money in a nonprofit model, but i will also invest a lot of money in
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something that any rational investor would say is a really bad investment, which is blue origin, but i think it is super important. if i cannot make blue origin a for-profit, maybe i will convert it to a nonprofit at some point in the future, but i would not want that. i would want it to be a thriving ecosystem like ups and fedex. david: let's close with your wife. we have not mentioned her. jeff: we met in new york city where we worked. we got engaged. we dated for three months, were engaged three months, then got married. the whole dating and engagement period was only six months long. i also, i would like to take a moment to talk about my parents, if that is ok. you did not ask me, but i would like to. they are here in the audience. [applause] jeff: thank you, guys. [applause]
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jeff: you know, you get different gifts in life. one of the great gifts i got is my mom and dad. it is amazing, my highest admiration is withheld for those people, and we all know some of them -- i know several of them -- who had terrible parents. maybe they were abusive or what ever it is. those people who so admirably break that cycle, pull out, and make that work, i did not have that situation. i was always loved. my parents loved me unconditionally. by the way, it was pretty tough for them. she does not talk about it that much, but my mom had me when she was 17 years old. she was a high school student in albuquerque, new mexico. you can ask her, but i'm pretty sure that wasn't cool in 1964 to be a pregnant mom in high school in albuquerque, new mexico. in fact, my grandfather who is another incredibly important figure in my life, went to bat
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for her, and the high school wanted to kick her out. you were not allowed to be pregnant in high school there. my grandfather said, you can't kick her out. it is a public school. she gets to go to school. then they negotiated for a while. the principal said she can stay and finish high school, but can't do extracurricular activities and can't have a locker. i know. my grandfather being a very wise man, he was like, done. we will take that deal. she finished high school. she had me, then she married my dad. my dad is my real dad, not my biological dad. his name is mike. he was a cuban immigrant. he got a scholarship to college in albuquerque, which is where he met my mom. i have kind of a fairytale story. my grandfather, possibly, i am pretty sure because my parents were so young, starting at age
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four, he would take me every summer on his ranch, and it was the most spectacular, from age four to 16, i spent every summer working alongside him on the ranch. he was the most resourceful man. he did all his own veterinary work. he would make his own needles, he would pound the wire with the oxyacetylene torch and drill a hole in it and make a suture, a needle he could suture the cattle with. some of the cattle even survived. [laughter] jeff: he was a remarkable man and a huge part of all of our lives, but you don't realize, you know, you look back and if you don't have these parents, you know, it is so important, so it is just a really big deal, and my grandfather too, like a second set of parents for me. ♪
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♪ emma: coming up on "bloomberg best," the stories that shaped the week in business and around the world. more tariff trauma as the u.s. and china escalate their trade spat. >> if these tariffs go forward, we are hearing china will not engage. >> we are playing truth or dare between donald trump and china. >> nafta talks resume but there are no breakthroughs. north and south korea hold nuclear negotiations and the boj on stimulus. the doj opens a probe into tesla. >> the doj would be looking at whether any criminal fraud laws were broken. emma: the brexit summit produces little progress. the ceo of ubs says his bank is planning for the worst. >> you don't know what is going to happen, how can you invest?

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