College administrators: Why are there so many rich white and Asian people buying our $300,000 product?

One of the perks of being an expert witness in software patent lawsuits is that I get to eat where law firm partners eat. At O Ya, for example, I enjoyed the $285/person “grand omakase” menu (would have been another $100+ for the wine pairing, I think). At L’Espalier it was only about $200 per person, including wine. At no time did the restaurateurs come out, scan the dining room, and say “I can’t understand why it is mostly rich white and Asian people who eat here.”

Yet give a person a PhD in Higher Education Administration and he or she can be reliably counted on to wonder “Why don’t we have more racial diversity here on our gold-plated campus?” Following the Supreme Court’s decision in Schuette v. BAMN, upholding Michigan’s ban on sorting applicants to public colleges by race, university administrators are scratching their heads once again, unable to figure out why a $300,000 undergraduate degree is appealing primarily to white and Asian Americans.

I’m wondering if it would make sense for a college that was interested in having a more diverse student population simply to cut prices so that a degree cost less than, say, a lightly used Rolls-Royce. There is a lot more racial diversity in a restaurant that charges $20 for a meal than in a restaurant that charges $200. Why wouldn’t we expect to find the same in higher education?

Full post, including comments

Hugo Chavez: Great politician; poor administrator

I have finished Rory Carroll’s Comandante: Hugo Chávez’s Venezuela. The book has a flawed structure, jumping back and forth across the 14-year period during which Chavez served as Venezuela’s elected president. There is also some redundancy that a good editor could have eliminated. However, the details, gathered by an Irish journalist who was the Guardian’s correspondent in Venezuela for about six years, make it a worthwhile effort.

Chavez seems to have been perhaps the most able politician of our times. According to Carroll, he managed to (1) rewrite history so that previous leaders seemed terrible by comparison, (2) take credit for anything that was going well, (3) duck responsibility for anything that was going badly, (4) continue to get elected in reasonably fair elections. Here are some samples relating to Chavez’s political skill:

Every government leader uses the media to justify and persuade, project and burnish, but none like Chávez. He was on television almost every day for hours at a time, invariably live, with no script or teleprompter, mulling, musing, deciding, ordering. … On days off you could leave your apartment, take the metro across town, pay utility bills, meet a friend for coffee, buy groceries, pick up laundry, come home, and find him still talking.

Chávez and his scholars were even bolder in rearranging the twentieth century. Traditionally, Venezuelans were taught that the uprising against Marcos Pérez Jiménez in 1958 ended the reign of dictators (so rushed was his flight to exile he left $2 million in a suitcase on the runway) and ushered in multiparty democracy. Chávez needed to reverse this sequence of virtue; otherwise how could he be the nation’s savior? Thus he half rehabilitated a U.S.-backed brute who murdered and jailed thousands, repeatedly praising his public works, his discipline, his patriotism. “I think General Pérez Jiménez was the best president Venezuela had in a long time,” he declared. “He was much better than Rómulo Betancourt [an elected president], much better than all of those others. They hated him because he was a soldier.” The democracy that followed the dictator was cast as the true villain: an electoral charade to dupe the people while oligarchs looted the country. Chávez’s family history was reordered to fit the new official truth. His father had been a proud member of COPEI, one of the “putrid” ruling parties, and despite his modest teacher’s salary all six of his children went on to college education and decent careers. The state provided subsidized housing (Chávez lived in one with his grandmother) and free, rickety education and health care, making Venezuela South America’s richest country until populism and corruption rotted the system in the 1980s. All this became heresy. The comandante, the nation was told a thousand times, was born in extreme poverty, a mud hut, and grew up in a venal, vicious system. “It punished the poor. Spat on the poor.” Thus his 1992 coup against Carlos Andrés Pérez was not a military conspiracy but the cry of an oppressed people. School textbooks were amended so the coup became “a rebellion that changed the destiny of the republic.”

The Liberator’s sacred work would be completed with socialist and communal values replacing capitalist individualism. The comandante called it the Great National Moral and Illuminating Journey. “Education, morals, and enlightenment in all spheres, everywhere, at all times.” He had spoken of this upon taking power, and by 2007 he had formalized it into an official campaign, inaugurating moral and enlightenment training brigades and creating a presidential council to guide schools and universities toward the new consciousness. The campaign did improve lives and elevate learning through literacy programs, which reached rheumy-eyed grandmothers in the slums, and expanded education, which let poor students stay in school and move on to free tuition at Bolivarian universities. The comandante, a talented didact, urged followers to read history, philosophy, and poetry, brandishing his latest favorite tome as an example. … Housewives and taxi drivers found themselves debating colonial history, social consciousness, and the global economy in communal councils and evening classes. Teenagers who normally would have dropped out enrolled in colleges to study architecture, engineering, and literature. A new state-run film studio, Villa del Cine, contributed by producing social documentaries and costume dramas about Venezuelan history. State television talk shows discussed gender equality, the rights of indigenous people, and the role of trade unions. All this unfolded, noted the comandante’s supporters, while the West hiked education fees and wallowed in shallow materialism.

What mattered, as the [2012] election neared, was having the means to confect a boom. Chávez ordered big pay raises for state workers—he was most generous with the army—and a blitz of new payments to pensioners, mothers, children, and students. For the first time the money supply exceeded $100 billion. To tamp down inflation, which was the hemisphere’s highest, the government fixed the prices of fifteen thousand goods, everything from coffee to toothpaste, based upon “scientific analysis” of what constituted fair prices. Soldiers and civilians in red T-shirts patrolled warehouses and stores to ensure that businesses complied, even if it drove them into bankruptcy. At the same time, ports worked overtime offloading containers from around the world to keep shelves stocked. It was like shaking a bottle of champagne and holding down the cork. Inflation and devaluation waited down the line, but in the short term the strategy worked. People had money in their pockets. And many, for the first time in their lives, had hopes of a decent roof over their heads. Venezuelans expected their government to supply cheap housing, but the comandante had built less than his predecessors. Three million people—almost a tenth of the population—lacked adequate accommodation. Thus was hatched the Great Housing Mission, a scheme to build two million houses within five years. “I will not rest in the quest to solve this drama inherited from the curse of capitalism,” said the comandante. It was impossible to build so many houses so fast, not least because nationalized cement and steel factories were sputtering and private contractors feared building anything that could be expropriated. So the government paid firms from Belarus, Russia, China, and Iran inflated prices to throw up apartment blocks all over the country. They also painted slums—those visible from the motorways—bright red, yellow, and blue, Venezuela’s national colors. By mid-2012, the comandante claimed to have reached 96 percent of the housing target for that period. Every few days he or a minister appeared on television to hand keys to a jubilant citizen. The 96 percent number was fanciful, but many homes had indeed been built, or at least redecorated, and it was enough to give hope to those on the waiting list. The list was the key. The government bombarded the population with text messages urging it to register for a home. Millions flocked to mobile registration centers where they received receipts with a name, the date, a registration number, and a stamp. A well-off person cannot understand what it means to possess such a slip of paper, cannot appreciate the solemnity with which a poor person memorizes it, makes copies, and guards it as something precious, a potential passport to comfort and dignity. A vote for Chávez would keep it valid. The list did not just give hope—it gave the government a formidable database come election day.

The rate of muggings, kidnappings, and murders exploded, spreading fear like shrapnel. The state lost the ability to keep citizens safe, to protect them from each other. It was baffling. The maximum leader who liked to micromanage everything lost control of society’s most fundamental requirement, security, wringing his hands while criminals shot, stabbed, and strangled with impunity. It was not supposed to be like this. Poverty was falling and new social missions were bringing services to neglected barrios to ameliorate, as the government put it, decades of “savage capitalism.” Chávez’s opponents were also stumped. They called him a dictator, but real dictators—Trujillo, Pérez Jiménez, Fidel, Kim Jong Il—kept streets safe for ordinary people. The great journey shuddered to a halt because towns and cities were quarantined by fear. … The mayhem undermined official rhetoric about moral renewal and the poor being repositories of virtue and authentic national spirit. The government tried blaming the violence on U.S.-backed Colombian mercenaries out to destabilize the revolution, then on capitalism’s legacy of individualism. It deployed the national guard to bolster police, but the violence swirled around the bewildered soldiers, just as it did the police, and they returned to barracks. … Normally, all this would devastate a president’s support, especially if he was left-wing and could be painted as “soft on crime.” Chávez, to his credit, did not lunge for the death penalty and violent crackdowns, perennially popular but ineffective remedies in Latin America and the Caribbean. And still he managed to escape political damage. It was astonishing. His ratings held up while voters were held up, tied up, cut up, broken into, held down, gunned down, and buried. Chávez achieved this feat by doing something against his nature: he shut up. On crime, which polls said concerned voters more than any other issue, his lips were sealed. Caracas could endure a particularly grisly weekend, more than sixty dead, convoys of funeral corteges, and he had nothing to say. Thugs could abduct ranchers in Táchira, shoot police in Zulia, and rape in Amazonas without presidential comment. Grieving mothers with banners and whistles could block motorways in Valencia demanding justice for slain children, and from Miraflores silence. The comandante simply refused to own the problem. In muteness he sought and found refuge.

If Chávez had been a true dictator, the final act would have been predictable: a slide further into denial until the fantasy realm unraveled and enraged subjects booted the bewildered, pathetic figure into oblivion. His enemies scripted the imagined epilogue with various endings—Chávez boarding a plane to exile in Cuba, Chávez in handcuffs, Chávez forlorn and forgotten at the family ranch in Barinas. Each version involved disgrace and comeuppance. But here his enemies themselves succumbed to fantasy. However much they shouted “Tyrant!” and willed Chávez to act accordingly, he remained a stubborn, indefatigable hybrid: an elected autocrat. His rule stopped well short of dictatorship. Repression was mostly light and selective, involving threats, fines, and jail terms. Opponents organized freely and, with the help of a shrill (albeit shrinking) private media, fought elections. That Chávez hijacked state institutions and resources did not change the fact that people could vote against him.

According to Carroll, Chavez promised the same things as leaders in other countries:

  • To a country that already had a free public health care system for the poor he promised additional health care services/schemes
  • To government workers and people whose skills were not in demand he promised that they would be enriched through taxes on the most successful private sector workers (and that the new higher taxes would not discourage those private sector workers from continuing to work as hard as they formerly had)
  • To most voters he promised that they could enjoy a better standard of living without either working more diligently or learning new skills (i.e., the government would either raise wages or reduce prices).
  • That he would protect citizens from foreign invasion/influence via an expensive military.
  • That he would reduce income inequality.

Assisted by a big rise in oil prices, Chavez delivered on some of these promises. For example, he brought in 20,000+ doctors from Cuba and expanded health care delivery. But his efforts were stymied due primarily to two factors: (1) demographics, (2) incompetent administration.

Venezuela’s wealth is derived primarily from natural resources, such as oil and farmland. Carroll points out “When Hugo Chávez was born in 1954, Venezuela’s population was five million. By 1999 it was an estimated twenty-one million, with 80 percent crammed into crowded towns and hillside slums.” (And by 2012 it had risen to 30 million.) In other words, a fixed amount of natural wealth divided by 30 million did not go as far as when divided

Full post, including comments

Boston Marathon 2014

I took a special (to me) four-year-old to see her first Boston Marathon in Coolidge Corner, Brookline today. The security around the race was very impressive. An EPA ASPECT Cessna Caravan with a tricked-out exhaust system was operated all week from Hanscom Field to look for chemical and radioactive contamination. Coast Guard and U.S. Army Blackhawks flew back and forth overhead in formations of up to five helicopters (at about $25,000 per flight hour per helicopter, according to TIME Magazine). A friend asked “Did you feel safer?” My response: “Given that the Tsarnaev brothers were armed with two pressure cookers and one pistol, the security for this marathon has the same rational basis as a person who is attacked with a kitchen knife and expects the next attack to come from a nuclear-powered submarine.”

What if the Tsarnaevs had some cousins who had wanted to attack this marathon in the same way that the 2013 event was spoiled? The authorities absolutely forbade backpacks, potentially filled with explosives, from being carried near the finish line. But there was no such prohibition on bags and backpacks elsewhere on the route. Greta and I watched from Coolidge Corner, amidst hundreds of other spectators and passed by clumps of as many as 50 runners. At our feet? A large backpack.

[Note: I believe that the backpack belonged to a young woman who was hoping to cross the route to get to her job at Trader Joe’s. But she had been waiting there for 30 minutes and there was nobody to stop her from walking away and leaving the backpack.]

Favorite T-shirt: “Keep Calm and Marath On” (each word on its own line)

Full post, including comments

Interior noise measurements from a 2000 Pilatus PC-12

These measurements were made in Pilatus PC-12 s/n 353, a Series 9 airplane with 10,700 hours. Note that these show that the plane is at least 2 dB quieter than an almost-new PC-12 NG (previous posting).

Measurements were made with a 10-year-old Radio Shack digital sound level meter, model 33-2055, set to “slow” and “A-weighting”. Measurements were made with the meter’s microphone near the ear level of a person seated in the PC-12. All speeds are indicated airspeed (i.e., true airspeed and ground speed would be higher).

 

Phase Pilot Row 1 Row 2 Row 3
idle 79 75 73 70
taxi 74 72 70
takeoff 82 82
climb 84 82
6500′; 180 knots 88 82 80 79
7000′; 215 knots 88 87-88 85 84
10,000′; 208 knots 88 87 85 84
13,000′; 203 knots 87 86 85 83-84
15,000′; 204 knots 88 87 85 83
FL280; 170 knots 86 83 82 81
FL280; 128 knots 85 78 77 75-78
Full post, including comments

Alternative Minimum Tax, deducting state/local taxes, exemptions for children

As in previous years I was unable to understand my accountant’s explanation of why I was paying Alternative Minimum Tax (AMT). If other people are as confused as I am that means that Americans generally have no idea what their income tax bracket might be, i.e., they won’t know until the end of the year how much of a pay raise they would be able to spend.

With a little digging, e.g., this CNBC article, it seems that “The taxpayers now most likely to be liable for AMT payment are people with big families who live in high-tax states.” It seems that with regular taxes the government provides tax benefits for having children and tax deductions of amounts paid in state and local taxes. Then with AMT those benefits are taken away.

I’m wondering why any of this makes sense. Can it truly be efficient to have a country where most of the people who pay significant amounts of tax don’t have any idea what their tax rate is? And if the government needs more money, why are children and state/local taxes deductible?

Let’s consider local taxes. Suppose that you live in a low-tax/low-service town. The town won’t take ownership of streets within developments. You and your neighbors will have to get together to pay for snow plowing of the common street. That won’t be deductible. If the town taxes you, however, and pays the same snow plowing contractor the same amount of money, now the expense is deductible. People who pay more in state/local taxes get more government services, presumably, than people who live in low-tax areas. If people are getting services for their money from their state and local government why do they also need to get money back from the federal government (i.e., from the rest of us)?

How about children? In the old days the federal government didn’t do much for kids so maybe it made sense to provide extra money through the tax system. But now the federal government is involved in funding local schools, in subsidizing student loans, and in providing free or subsidized health insurance for children (the Department of Education was created only in 1979 and now has a budget of more than $70 billion per year; the CHIP program was created in 1997). Is the additional tax subsidy justified? Also, there are people who are earning substantial profits from children who nonetheless may claim these kids as “dependents”. For example, see this posting that refers to Cameron Kennedy’s lawsuit against Peter Orszag where she is trying to get $300,000 per year in tax-free child support to supplement her $350,000 per year salary. If Kennedy can keep the kids with her for 51 percent of the nights of the year, the IRS will give her a reduced tax rate on her $350,000 per year McKinsey consultant income. If we assume that she spends $100,000 per year on the two kids in private school tuition, gold-plated iPhone cases, etc., that means the average American taxpayer will subsidize Kennedy for having a $200,000 per year tax-free revenue source in her house. That’s roughly equivalent to the after-tax yield on $15 million of IBM stock. So we’ve set up a system where, for the sake of fairness, we would have to allow childless Americans to claim a $10-15 million stock portfolio as a “dependent”.

Consider a person who has had the misfortune to be born with an unlovable personality and physical appearance. This person is single, childless, and lonely. In addition, this person will be living in a lonely West Texas town or an isolated hamlet in New Hampshire (i.e., low tax jurisdictions) with very spartan public services. This unfortunate soul will pay federal taxes to support the Department of Education, the Department of HHS, and other agencies that provide free services to more fortunate Americans who enjoy the company of their children on a daily basis. Mr. Lonely Heart will also have to pay additional federal taxes to make up for the money that families with children did not pay because they were deducting state and local taxes in high-tax, high-service locations.

As a parent in a high-tax state I personally am one of the beneficiaries of these subsidies, but I can’t understand why a single childless person in a small West Texas town is paying for our family’s use of the new nearly $100 million Cambridge Public Library. If we ran out of money for whatever reason, the government would step in and give us free housing, free health care, food stamps, and, always, a free education for our kids plus subsidized student loans for college and/or subsidized tuition at state-run colleges. If we haven’t run out of money then why do the existing government subsidies to our kids need to be supplemented with tax subsidies? (In Cambridge, regardless of family income, a child will be able to enjoy the library system, the $27,000 per pupil school system (does not include capital costs so probably $35,000 to $40,000 per year in actual spending), and a 50 percent subsidy of the costs of attending the University of Massachusetts.)

What would it look like if we eliminated the AMT, deductions for state/local taxes, and exemptions for children?

Full post, including comments

Employment Litigation in Maryland

After-dinner conversation this evening with some friends from graduate school …

A friend’s wife was owed about $40,000 by her former employer. She and her husband approached a litigator who estimated that the matter could be handled for $2,500 in fees. On that basis, they agreed to sign up for litigation. The case ended 15 months later with a four-day jury trial in which she was awarded $40,000 in damages. Her legal fees to that point? About $200,000 (i.e., 80X the estimate). Fortunately, the contract under which she was suing required a person found in breach to pay the other side’s fees. The jury agreed with this interpretation and awarded her the legal fees in addition to the actual damages. All’s well that end’s well? “The judge set aside the jury’s fee award, so all I got was the $40,000. I could have appealed but I was exhausted by the process so we gave up.”

How did she feel about the experience? “I learned that the system only works for the lawyers.”

Full post, including comments

Passover Tax Day thoughts

Why is this Passover different from most others? The first day coincides with Tax Day for Americans. Jews remember the bitter hardship and forced labor of slavery in Egypt. Scholars, however, can find no evidence of modern era-style slavery (or of Jews residing in or escaping from in Egypt). As for the pyramids there are records of payments to laborers, typically farmers who had nothing else to do at certain times of year. A “slave” in ancient Egypt may simply have been a person subject to a 20% tax that free Egyptians did not pay.

[To the children at last night’s Seder I pointed out that “the plagues visited upon the Egyptians were so bad that their civilization lasted only about 2000 more years.”]

Full post, including comments

Hugo Chavez’s legacy

I’m reading Comandante: Hugo Chávez’s Venezuela. The book contains an interesting perspective on this leader, from an executive at the Venezuelan national oil company:

Sansó defended Chávez’s energy policy, saying the comandante had helped revive OPEC, sending prices rising even before the Iraq war, and had had the vision to recognize Venezuela’s oil was not just around Lake Maracaibo, in the west, but also in the center of the country along the Orinoco in a smiling arc known as the Faja. The same wilderness that had swallowed gold-seeking conquistadores contained enormous deposits of extra-heavy crude. The black ooze had long been written off as tar, a costly-to-extract type of liquid coal, and the old PDVSA gave foreign oil companies a virtual free hand to develop it. Chávez insisted it was oil, and eventually even the U.S. Geological Survey agreed. The zone contained an estimated 220 billion barrels—making Venezuela’s total reserves vaster than Saudi Arabia’s. Chávez partly nationalized the Faja in 2007, taking majority shares in the operations, an audacious decision that infuriated the foreign oil companies working there. “For that alone Chávez was worth it,” said Sansó. “He was crazy enough to do it. Any reasonable guy wouldn’t have had the guts. He would have said it’s not possible. A century from now Chávez will be remembered and thanked for this, no matter what else happens.”

The book could use some editing. It jumps back and forth in time. There is some redundancy. But it is highly relevant right now when politicians and newspapers worldwide are trying to get people excited about “income inequality” (e.g., see this New York Times op-ed from yesterday). Chávez did not just talk about income inequality but took action.

Full post, including comments

Income Inequality: The Uber Driver and the Patent Litigators

Yesterday I was deposed as an expert witness in a patent case. The deposition was held at a law firm in the Seaport and started early in the morning so I decided to treat myself to an Uber (“black car” version, not the discount UberX). A Lincoln that could have been magnificently comfortable appeared. However, it was 40 degrees Fahrenheit outside and the driver, an immigrant from Ethiopia, had not elected to run on the climate control system. When I asked him if he would consider adding some heat, he used the touch screen on the dashboard to set the “front zone” (where he was sitting) to 80 degrees while leaving the rear zone (where I was sitting) off. I am always interested when people use technology in this manner so I asked him “Do you set the thermostat in your house at 80?”

I spent the rest of the day sitting with the attorneys who’d hired me. These native-born Americans with engineering undergraduate degrees and three years of law school behind them understood the technology of the patent plus all of the legal rules that apply to fights in Federal District Court, patent offer reexaminations, the new PTAB administrative law court within the patent office, the International Trade Commission, etc. Winning or losing a case will nearly always mean tens of millions of dollars changing hands if not hundreds of millions. The attorneys were able to keep an astonishing array of facts alive in their heads simultaneously and apply those facts.

What’s the income difference between these folks? This Reuters article says that New York taxi drivers earn about $150 per day driving their $1 million assets (the medallion!). That’s about what a law firm senior associate earns in one hour, so that’s maybe a 10:1 income ratio. This BLS page says taxi drivers earn closer to $12 per hour, a 12:1 ratio. Uber apparently does not gather statistics on what drivers actually earn, but has claimed at least once that it may be as much as $70,000 per year. Let’s call that $25 per hour or a 6:1 ratio.

[Note that all of these ratios would be smaller if we considered the fact that the law firm senior associate probably ends up working a lot more than 40 hours per week, so his or her $200-300,000/year income needs to be divided by 3000 hours instead of 2000 and works out to less than $100 per hour.]

Full post, including comments

The birth of Amazon.com

The Everything Store: Jeff Bezos and the Age of Amazon is an interesting book for those of us who planned and programmed early ecommerce sites.

Here’s a bit about Amazon’s early infrastructure and design…

Amazon’s first engineers coded in a computer language called C and decided to store the website in an off-the-shelf database called Berkeley DB that had never seen the levels of traffic to which it would soon be exposed.

[Fact check by Greenspun: “Oracle was always used for transactional business data, e.g. CUSTOMER, SESSION, SHIPMENT, etc. Berkeley DB was used for non-transactional data like the product catalog and were always built by offline processes.” — someone who knows]

One early challenge was that the book distributors required retailers to order ten books at a time. Amazon didn’t yet have that kind of sales volume, and Bezos later enjoyed telling the story of how he got around it. “We found a loophole,” he said. “Their systems were programmed in such a way that you didn’t have to receive ten books, you only had to order ten books. So we found an obscure book about lichens that they had in their system but was out of stock. We began ordering the one book we wanted and nine copies of the lichen book. They would ship out the book we needed and a note that said, ‘Sorry, but we’re out of the lichen book.’ ”

In early June, Kaphan added a reviews feature that he’d coded over a single weekend. Bezos believed that if Amazon.com had more user-generated book reviews than any other site, it would give the company a huge advantage; customers would be less inclined to go to other online bookstores. They had discussed whether such unfiltered user-generated content could get the company in trouble. Bezos decided to watch reviews closely for offensive material rather than read everything before it was published.

The site went live on July 16, 1995, and became visible to all Web users.

How well were the founders/managers able to predict the business trajectory?

In the meetings, Bezos presented what was, at best, an ambiguous picture of Amazon’s future. At the time, it had about $139,000 in assets, $69,000 of which was in cash. The company had lost $52,000 in 1994 and was on track to lose another $300,000 that year.

Against that meager start, Bezos would tell investors he projected $74 million in sales by 2000 if things went moderately well, and $114 million in sales if they went much better than expected. (Actual net sales in 2000: $1.64 billion.) Bezos also predicted the company would be moderately profitable by that time (net loss in 2000: $1.4 billion). He wanted to value the fledgling firm at $6 million—an aggressive valuation that he had seemingly picked out of thin air.

What happened when a group of MIT geniuses were pitted against one Lisp programmer from Utah?

That fall, the company focused on customizing the site for each visitor, just as Bezos had promised his original investors it would. Its first attempt relied on software developed by a firm called Firefly Network, an offshoot of the MIT Media Lab. The feature, which Amazon called Bookmatch, required customers to rate a few dozen books and then generated recommendations based on their tastes. The system was slow and crashed frequently, and Amazon found that customers were reluctant to go through the extra effort of evaluating books. So Bezos suggested that the personalization team develop a much simpler system, one that made recommendations based on books that customers had already bought. Eric Benson took about two weeks to construct a preliminary version that grouped together customers who had similar purchasing histories and then found books that appealed to the people in each group. That feature, called Similarities, immediately yielded a noticeable uptick in sales and allowed Amazon to point customers toward books that they might not otherwise have found.

The author adopts a worshipful attitude toward Jeff Bezos, whose advice is almost always so prescient that people refer to him as “prescient”:

Later Bezos recalled speaking at an all-hands meeting called to address the assault by Barnes & Noble. “Look, you should wake up worried, terrified every morning,” he told his employees. “But don’t be worried about our competitors because they’re never going to send us any money anyway. Let’s be worried about our customers and stay heads-down focused.”

Brin and Page left Shriram’s house after breakfast. Revealing once again his utter faith in passionate entrepreneurs’ power to harness the Internet, Bezos immediately told Shriram that he wanted to personally invest in Google. Shriram told him the financing round had closed months ago, but Bezos insisted and said he wanted the same deal terms as other early investors. Shriram said he would try to get it done. He later went back to the Google founders and argued that Bezos’s insight and budding celebrity could help the fledgling firm, and they agreed. Brin and Page flew to Seattle and spent an hour with Bezos at Amazon’s offices talking about technical issues like computer infrastructure. “Jeff was very helpful in some of those early meetings,” Larry Page says. Thus did Jeff Bezos become one of the original investors in Google, his company’s future rival, and four years after starting Amazon, he minted an entirely separate fortune that today might be worth well over a billion dollars. (Bezos adamantly refuses to discuss whether he kept some or all of his Google holdings after its IPO in 2004.) “He’s so prescient. It’s like he can peer into the future,” says Shriram

At the same time, Bezos is a slave-driver:

The assumption was that no one would take even a weekend day off. “Nobody said you couldn’t, but nobody thought you would,” says Susan Benson. Eric Benson adds, “There were deadlines and death marches.”

Parking was scarce and expensive. Nicholas Lovejoy suggested to Bezos that the company subsidize bus passes for employees, but Bezos scoffed at the idea. “He didn’t want employees to leave work to catch the bus,” Lovejoy says. “He wanted them to have their cars there so there was never any pressure to go home.”

During one memorable meeting, a female employee pointedly asked Bezos when Amazon was going to establish a better work-life balance. He didn’t take that well. “The reason we are here is to get stuff done, that is the top priority,” he answered bluntly. “That is the DNA of Amazon. If you can’t excel and put everything into it, this might not be the place for you.”

Kim Rachmeler shared a favorite quote she heard from a colleague around that time. “If you’re not good, Jeff will chew you up and spit you out. And if you’re good, he will jump on your back and ride you into the ground.”

Amazon does not share the Fortune 500’s fondness for PowerPoint and Kumbaya:

“Communication is a sign of dysfunction. It means people aren’t working together in a close, organic way. We should be trying to figure out a way for teams to communicate less with each other, not more.” At that meeting and in public speeches afterward, Bezos vowed to run Amazon with an emphasis on decentralization and independent decision-making. “A hierarchy isn’t responsive enough to change,” he said. “I’m still trying to get people to do occasionally what I ask. And if I was successful, maybe we wouldn’t have the right kind of company.”

PowerPoint is a very imprecise communication mechanism,” says Jeff Holden, Bezos’s former D. E. Shaw colleague, who by that point had joined the S Team. “It is fantastically easy to hide between bullet points. You are never forced to express your thoughts completely.” Bezos announced that employees could no longer use such corporate crutches and would have to write their presentations in prose, in what he called narratives. The S Team debated with him over the wisdom of scrapping PowerPoint but Bezos insisted. He wanted people thinking deeply and taking the time to express their thoughts cogently. “I don’t want this place to become a country club,” he was fond of saying as he pushed employees harder.

“What we do is hard. This is not where people go to retire.” There was a period of grumbling adjustment. Meetings no longer started with someone standing up and commanding the floor as they had previously at Amazon and everywhere else throughout the corporate land. Instead, the narratives were passed out and everyone sat quietly reading the document for fifteen minutes—or longer.

Bezos refined the formula even further. Every time a new feature or product was proposed, he decreed that the narrative should take the shape of a mock press release. The goal was to get employees to distill a pitch into its purest essence, to start from something the customer might see—the public announcement—and work backward.

Amazon can be a comfortable place to work, however:

[in 2006] A temporary employee in the Coffeyville, Kansas, fulfillment center showed up at the start of his shift and left at the end of it, but strangely, he was not logging any actual work in the hours in between. Amazon’s time clocks were not yet linked to the system that tracked productivity, so the discrepancy went unnoticed for at least a week. Finally someone uncovered the scheme. The worker had surreptitiously tunneled out a cavern inside an eight-foot-tall pile of empty wooden pallets in a far corner of the fulfillment center. Inside, completely blocked from view, he had created a cozy den and furnished it with items purloined from Amazon’s plentiful shelves. There was food, a comfortable bed, pictures ripped from books adorning the walls—and several pornographic calendars.

Amazon dominated cloud services with low prices:

Bezos believed his company had a natural advantage in its cost structure and ability to survive in the thin atmosphere of low-margin businesses. Companies like IBM, Microsoft, and Google, he suspected, would hesitate to get into such markets because it would depress their overall profit margins. Bill Miller, the chief investment officer at Legg Mason Capital Management and a major Amazon shareholder, asked Bezos at the time about the profitability prospects for AWS. Bezos predicted they would be good over the long term but said that he didn’t want to repeat “Steve Jobs’s mistake” of pricing the iPhone in a way that was so fantastically profitable that the smartphone market became a magnet for competition. The comment reflected his distinctive business philosophy. Bezos believed that high margins justified rivals’ investments in research and development and attracted more competition, while low margins attracted customers and were more defensible. … Bezos’s belief was borne out, and AWS’s deliberately low rates had their intended effect; Google chairman Eric Schmidt said it was at least two years before he noticed that the founders of seemingly every startup he visited told him they were building their systems atop Amazon’s servers. “All of the sudden, it was all Amazon,” Schmidt says. “It’s a significant benefit when every interesting fast-growing company starts on your platform.”

Amazon employs at least 80 full-time people to navigate the world of taxes:

Color-coded maps were widely distributed to employees at headquarters in Seattle. Travel to green states like Michigan was okay, but orange states like California required special clearance so that the legal department could track the cumulative number of days Amazon employees spent there. Travel to red states, like Texas, New Jersey, and Massachusetts, required employees to complete an intensive seventeen-item questionnaire about the trip that was designed to determine whether they would make the company vulnerable to sales-tax collection efforts (number 16: “Will you be holding a raffle?”). Amazon lawyers then either nixed the trip altogether or obtained a private letter ruling from that state spelling out its specific treatment of that particular situation.

“The economic outlook for many states is bleak,” read one early 2010 internal tax memo to employees that was filed in the Vadim Tsypin case record. “As a result, states are pursuing taxpayers more aggressively than

Full post, including comments