Why has Jeff Bezos bought the Washington Post?

Is it the prestige that prompted Amazon founder Jeff Bezos to splash $250 million on the Washington Post?

Or is it a cunning ploy to lever himself into a new business opportunity that no-one else sees?

Bezos turned an online book store into the biggest online retailer in the world through an aggressive approach to business – cutting costs on tax and worker welfare. That and a visionary attitude to new business opportunities earned him the title “Dread Pirate Bezos” from former engineers, and has made his company incredibly successful.

What does he want with a newspaper?

A toy?

Bezos is certainly not investing in the Washington Post for a quick buck. The family-owned Washington Post with its prestigious history, poor finances and falling print circulation don’t make it an obvious money-spinner.

Robert Picard, a professor at the Reuters Journalism Institute at the University of Oxford says those days are long over:

“The news and the print media were very very profitable in the 1980s and 90s, that is gone now. No-one is going in there thinking they’re going to make a lot of money. You might break even. So why would he do this?

“It gives him a good forum at a national level, and it will get him invited to good parties” says Professor Picard. “It’s the same thing that makes people with great wealth want to go out and buy football clubs. Even rich people need their toys.”

‘Even rich people need their toys’ Professor Robert Picard, Reuters Institute of Journalism at Oxford University

That’s what Henry Blodget who writes at Bezos-owned Business Insider thinks too: “This is a man who invests in rockets and atomic clocks, after all. He doesn’t necessarily make these investments for the money.”

But Luca Paderni, a Research Director at the business analysis firm Forrester, reckons Bezos has his eye firmly on a business opportunity.

“Mr Bezos is a businessman, and this is not pocket money.

“He is going to look for a new way to monetise it, and turn it around in 5-10 years.”

A business opportunity?

And that opportunity is advertising.

Newspapers may have pioneered the model of selling adverts next to content. But online, it’s the tech companies creaming in the profits from this model – Google and Facebook’s primary source of revenue is advertising.

Mr Paderni thinks that Amazon may be angling to get further into the juicy online advertising market. And the Washington Post will help there. Even if it looks now like a distant prospect. He explained why Amazon is interested in ads:

“If you look at the data, emarketer estimates that last year Amazon made $600 million from advertising. And they think it will be close to a billion this year. And that’s just from Amazon selling adverts on its own website.”

“For comparison, Twitter is going to turnover $300-400 million from advertising and AOL will take $1.5billion.

That may seem like a small amount on Amazon’s total revenue – $61 billion last year, but Amazon runs on a very small profit margin – making only $676 million in operating profits on all its sales. Selling goods online is not a high profit margin business. Selling adverts is – because the cost of sticking up an advert is very low.

Mr Paderni says Amazon well-placed to go far in online advertising:

“The advantage that Amazon has over Google, is that the amount of information Amazon has on its users is much more. Because it has a purchase history. So the level of targeting that they are able to provide is much higher, so it’s more interesting to advertisers.”

The Post helps here because The Washington Post knows about getting people to lookat pages and the adverts next to them. They just need some help with the money side.

Bezos ‘makes ordinary control freaks look like stoned hippies’

Profits aside, many are very interested to see what thw Washington Post will look like under Bezos.

One of the most interesting insights into the Bezos’ success – and management style – comes from an accidentally published memo from a former employee, Steven Yegge, where he describes Bezos – “Dread Pirate Bezos” as a micromanger:

“Bezos is super smart; don’t get me wrong. He just makes ordinary control freaks look like stoned hippies.”

'He just makes ordinary control freaks look like stoned hippies.' Steven Yegge, former Amazon engineer

And he gave a very frank description of the Amazon work ethos:

“They don’t give a single shit about charity or helping the needy or community contributions or anything like that. Never comes up there, except maybe to laugh about it. Their facilities are dirt-smeared cube farms without a dime spent on decor or common meeting areas. Their pay and benefits suck, although much less so lately due to local competition from Google and Facebook. But they don’t have any of our perks or extras — they just try to match the offer-letter numbers, and that’s the end of it.”

But it works.

However, Bezos won’t be in the Washington Post office, and promises a commitment to maintaining the Post’s acclaimed journalism. All we have for sure is what Bezos himself says announcing his purchase on the Washington Post:

“The Internet is transforming almost every element of the news business …

“There is no map, and charting a path ahead will not be easy. We will need to invent, which means we will need to experiment. Our touchstone will be readers, understanding what they care about.”