How Did Amazon Prime Start? A Q&A with Eugene Wei
When it comes to e-commerce shipping, today’s customer expectations are fueled by Amazon Prime. Now, fast and free shipping are paramount to our shopping experience. Yet, there was a time before Amazon Prime when we expected to pay top dollar for shipping. How did Amazon know that shipping costs were an invisible asymptote, limiting the growth it was capable of? How did Amazon Prime come to be?
Enter Eugene Wei. Eugene joined Amazon in 1997 when it had about 300 employees and exclusively sold books. He was on the team responsible for introducing Amazon Prime as a way to overcome consumer aversion to shipping costs.
Eugene recently sat down with the Shippo team for a fireside chat to discuss his experience working for the retail giant. Here are a few highlights from the Q&A (edited for brevity).
How Did Your Team Come Up with Amazon Prime?
EUGENE: I had to build this forward-looking revenue model for the company. You can model revenue any number of ways, so we projected all sorts of things. People buy books at a predictable, regular frequency. The hard part was getting all the people that weren’t buying from us. We were trying to understand why they weren’t so that we can flip those people.
If you placed an order in Amazon, you would be asked a one question survey asking why you don’t buy from Amazon more often. We also hired a market research firm to access people who don’t shop at Amazon. The responses converged on one thing: shipping fees.
Our shipping fees were putting a cap on how much business we can do. Our first attempt to alleviate this was to use logic. We’d look at their geo based on their IP address and explain the cost savings since they didn’t have to drive to the store or pay sales tax. Customers didn’t care.
Then, we set up a threshold. If you order $25 or more of qualifying items, you’d get free shipping. It worked, sort of, but had an alternative side effect. People would let their shopping cart build up and then they’d buy once it was over $25. This proved people care about paying for shipping, but it made the model less predictable.
That’s when we launched Prime—all thanks to Jeff for having the courage to pull the trigger.
What Else Did You Learn During Your Experience at Amazon?
EUGENE: Back then, everyone needed to work in the warehouse at Amazon. For the first four Christmases, I would work at the warehouse with everyone else. My first Christmas was the most grueling, because we were so busy. Most of us had to keep the site up and running during the day, and could only help during the graveyard shift. We’d leave our day job and there would be shuttles and carpools to the distribution center. Even Jeff was picking and packing boxes with us.
There were a couple things I learned that are fun. First, we got a weird intimacy with customers around the world. It became like a zeitgeist of what everyone is ordering. Second, we would send around an email for everyone in office jobs for things we could improve for our distribution center employees. It was great to have a diverse set of thinkers all observing a problem. For example, it’s hard to stoop down to pick this up, let’s move it up higher on a shelf.
How Did it Feel at Amazon Day to Day?
EUGENE: I don’t want to give the impression that it was easy. We had a ton of failures and didn’t always know what we were doing. For example, Amazon tried to go into Auctions to compete with eBay, and we were trounced by them. Amazon Web Services has been through so many failures and iterations before it became the successful, famous version we see today.
The key is to separate the strategy from the results. Be able to say that you’ve thought the problem through and really believe in something. Then, decide if the idea is wrong or the execution wrong.
Jeff is comfortable with the tradeoff between speed and execution. If we had conviction around a broad thesis, we could debate forever, but there’s a cost: time wasted. At some point, Jeff decided we need to make decisions more quickly, so he encouraged us to take risks. Otherwise, nobody in the company will take a risk because they might get blamed.
When we got to be five thousand people, there were a ton of decisions to be made that were getting held up because they were waiting for Jeff to weigh in. He had to figure out how to not slow them down. One lever he used was culture. It’s like the operator game. When you say one thing, the manager interprets it another, and it becomes totally different as it trickles down the line.
Jeff realized we needed to have some rituals. He gave out Just Do It awards. Someone would come up an idea on their own that they thought would improve the company. They don’t have to ask for permission and it doesn’t have to work. It’s just important that they took the initiative to solve a problem.
A big thanks to Eugene for coming to Shippo to chat with us! If you liked this article, you might also like our recent Q&A with Shippo customer Mini Materials.