If Billy bought any AMZN shares under $6, he is smiling now!!
Even GG cant beat that!
Amazon II: Will This Smile Last?
May 19, 2002
By LESLIE KAUFMAN
JEFF BEZOS is feeling a tad cocky lately. That might seem
like a dog-bites-man observation for the founder of
Amazon.com, a man so obsessed with brain power that he
started a science-and-literature summer school for children
after his freshman year at Princeton and once hired only
college graduates to staff the customer-service phone lines
at his company.
Still, it's been a rough turn of the millennium for Mr.
Bezos, now 38. At the peak of the Internet mania in 1999,
Amazon's stock soared above $100 and he was Time magazine's
Man of the Year, lionized for guaranteeing "that the world
of buying and selling will never be the same."
Then a harsher reality set in. Amazon's stock plunged, to
as low as $5.51 in last fall, and at least one bond
analyst, Ravia Suria, then at Lehman Brothers, was
predicting that the hemorrhaging giant would run out of
cash. (Since its inception in 1995, the company has lost
roughly $3 billion and at the height of dot-com hoopla in
early 2000 was accumulating losses at the rate of $300
million a quarter.) Mr. Bezos even found himself serving as
the main foil of a comic monologue in a popular one-man
play, "21 Dog Years: Doing Time at Amazon.com," by Mike
Daisey, a former customer service agent.
"It was a lightning-quick trip from Internet poster boy to
Internet piñata," Mr. Bezos says with his famous
high-pitched, delighted guffaw. He was not always so amused
by the criticism - after Mr. Suria released his harshest
reports in late 2000, Mr. Bezos's minions went on the
warpath, offering a point-by-point refutation to
practically anyone who would listen.
But these days, Amazon appears to be entering yet another
phase of its very analyzed public life. It is winning
plaudits from investors for the speed at which it has cut
costs over the last year while maintaining sales growth.
The company, based in Seattle, reported an actual profit at
the end of the fourth quarter last year. Its first-quarter
results, reported in April, showed that sales were up 21
percent from the quarter a year earlier, to $847 million,
while losses had narrowed to $23 million from $217 million.
Despite a string of high-level management departures, an
increase in Amazon stock sales by a few important insiders
- including Mr. Bezos himself - and abundant, persistent
skepticism among Wall Street analysts about the long-term
viability of Amazon's business model, investors sent the
stock to a 52-week high of $20.40 last Wednesday. It closed
on Friday at $19.16.
Because Amazon is so inextricably linked to its founder, a
wave of Bezos revisionism is also beginning to crest. "He
rode that out through the whole process and is probably
going to get the respect he should for building just a
magnificent company," said David E. Shaw, the chairman of
D. E. Shaw & Company, the investment firm where Mr. Bezos
worked just before starting Amazon, and a longtime mentor.
To Mr. Bezos and his friends, Amazon's latest status as
dot-com survivor is more than just deserved vindication for
him. It is a validation of their much-maligned original
vision: that the Internet is a revolutionary new form of
commerce and that only companies that became big early,
even while ignoring profitability, will survive.
"The mistake that companies make is that when the external
world changes suddenly, they can lose confidence and chase
the newest wave," Mr. Bezos said in an interview last week,
indulging in a swipe at the all the dot-coms that had
promised to be the Amazons of this or that product category
and then failed. "There was a lot of commotion," he said.
"We kept our focus."
While Mr. Bezos says he himself never bought or perpetuated
the "myths of e-commerce," it is clear that he still
conceives of himself more as visionary than mere merchant.
"There are parts of what we do that are revolutionary," he
said, listing as groundbreaking departures Amazon's ability
to offer a wide selection - because of the unlimited shelf
space of the Internet - and to personalize each customer's
shopping.
STILL, not everyone is ready for his valedictory lap. Many
Wall Street analysts, while impressed with Amazon's
improvements, say the company's grandiose ambitions to sell
everything from Indian spices to dog chow have not panned
out.
"Look, they've shown us that the book business can be a
very nice, profitable business online," said Mark J. Rowen,
a senior Internet analyst at Prudential Securities. "The
only problem is the book, video, music market is limited,
and ultimately if Amazon is going to justify its market
capitalization, it is going to have to show that other
categories are viable on the Internet. So far, they have
not shown that sales of other merchandise can grow rapidly
and be profitable."
In fact, for the first quarter this year, sales of books,
music and DVD's and videos accounted for $443 million, or
more than half of Amazon's revenue. Its next-largest
domestic category and its hope for the future -
electronics, tools and kitchen equipment - brought in only
$126 million. Sales from its international division were
$225 million. Significantly, both of the nonbook divisions
had big losses. Internet services provided to other
companies like Toys "R" Us account for the company's only
other rich profit stream beyond books. But the service
business is vulnerable, because the slowdown in e-commerce
has given name-brand non-Internet companies greater
leverage to negotiate better deals.
IN recent months, Amazon.com has also lost four important
executives. Warren C. Jenson, the chief financial officer,
who joined the company only in 1999 and is widely thought
to be the most important architect of the company's
newfound financial discipline, announced in March that he
would leave sometime in the near but undefined future. Mr.
Jenson's announcement followed on the heels of the
departures of David Risher, an Amazon veteran who had been
the head of its United States retail and marketing
division, or some two-thirds of the entire business, and
the heads of Amazon Europe and its subdivision Amazon
France.
Mr. Bezos says that he is sorry about the resignations of
Mr. Jenson and Mr. Risher, but that he has the bench
strength to ensure that their successions are smooth. "We
have a great team in place," he said.
Analysts do not disagree that Amazon is still long on
executive talent. But they raise the possibility that Mr.
Bezos, in a classic entrepreneur-as-chief-executive mold,
is driving away top talent because he is unable to
relinquish control of the company he has nursed from birth.
Two years ago, Joseph Galli Jr., the company's president
and second in command to Mr. Bezos, resigned after only a
year on the job. Mr. Galli, now at Newell Rubbermaid,
declined to comment.
Amazon has said it has no plans to replace Mr. Galli. Mr.
Bezos now holds the titles of chief executive, president
and chief operating officer. Six senior vice presidents of
equal rank report to him. The company says that only if
there were a need to replace Mr. Bezos would the board
consider a succession plan.
"The truth is, all of us who left, left for unrelated
reasons," said Mr. Risher, who has not taken another job.
And while he did not dispute the characterization of Mr.
Bezos as having trouble letting go, he did say that his
former boss had made marked improvements in delegating
responsibility: "He obviously has had to grow a lot as a
manager. He has spent a lot of energy trying to change and
over all he has made huge progress in letting others run
things."
The bursting of the dot-com bubble and the fiscal
discipline it imposed have also contributed to Amazon's
evolution from an exciting, mold-breaking company to a more
conventional corporate citizen. The loss of mystique has
taken its toll on the quality of mid- and low-level
employees willing to sign with the organization.
"Starting in 2000, the environment really changed," said
Ginger Dzerk, who now lives in New York but who worked for
Amazon in customer service and then merchandising from 1997
to last May. "They did a restructuring, with layoffs, with
no warning, and that was disconcerting to everyone. Then it
began to get more corporate.
"Instead of hiring overqualified people," Ms. Dzerk added,
"they started hiring pretty much anyone who could use a
computer, and that had a huge effect on morale and
productivity. You went from having people who could
problem-solve to having people who just wanted to get off
the phone. Customer-service problems at the time really
began to soar."
Ms. Dzerk, who was laid off in a restructuring in 2001,
says she declined subsequent offers of different positions
within the company because she wanted to keep her buyout
package.
Without addressing the specifics of customer service, Mr.
Bezos said Amazon still had its pick of employees. "Our
attrition rates are way down from 1999; then, it was very
tough to recruit and retain top talent because there was so
much competition," he said. "Since that time, the hiring
situation has flipped on its head. The only time people
leave us is if we have put obstacles in the way of their
doing their job well."
Some outsiders, however, have noticed a toll on Amazon's
vaunted consumer relations. "With its strong need for lower
operating costs, we are concerned the company will no
longer be able to offer exceptional customer service, which
has been its basis of competition historically," Holly B.
Becker, an Internet analyst for Lehman Brothers, wrote in a
report late last month. "Lately, we have noticed that
consumers need to be increasingly patient with the company.
We recently placed a book order for a title listed on
Amazon as `usually shipped within 24 hours,' but it was
actually not shipped for almost two weeks."
Amazon begs to differ. "We consistently find that taking
costs out improves the customer experience," said Bill
Curry, a company spokesman. "That's because we are
eliminating errors and inefficiencies so the result is
faster and more reliable."
Mr. Curry said internal data showed that the company's
e-mail backlog had dropped substantially in recent years
and that contacts per customer had also declined. The
American Customer Satisfaction Index from the University of
Michigan "rates us as an 84 on customer satisfaction in
2000 and 2001, and that is the highest ever for a service
company regardless of industry," he added.
INVESTORS have also been buzzing because Mr. Bezos has
raised his stock sales sharply of late. In the first
quarter of 2002 alone, Mr. Bezos sold nearly three million
shares - more than he sold during all of last year.
Another executive, Richard L. Dalzell, the chief
information officer, has been selling shares as soon as his
options vest. The company says Mr. Dalzell has regularly
sold his shares to diversify his holdings.
Thomas A. Alberg, a board member, has raised the number of
shares that he is selling. Mr. Alberg did not return calls
seeking comment.
As for Mr. Bezos, he says he has sold less than 5 percent
of his 111 million shares. In any case, he said, the sales
do not reflect his level of confidence in Amazon's future.
And what is that future? "Our vision has not changed at all
in four years," Mr. Bezos said. "It is to build a place to
find and discover anything that customers might want to buy
online."
Consistency, friends concur, is Mr. Bezos's real strength
in an industry perhaps best defined by turmoil. "The
amazing thing about Jeff is how consistent he has been in
the pre-euphoric period, the euphoric period and now the
post-euphoric period," said Danny Hillis, chairman of
Applied Minds, a technology consulting firm. "It's like for
him it is all kind of going according to the plan."
In fact, for those in Mr. Bezos's closest circle of
friends, a self-styled group of Silicon Valley's elite, he
retains the status of mystical visionary - someone who
foresaw a period of darkness and is prepared to carry on
until the Internet's destiny is inevitably fulfilled.
"It took 30 years for the Internet to become mainstream,"
said Linda Stone, a former Microsoft executive and longtime
confidante of Mr. Bezos. "We are still at a very nascent
stage on the commercial front. If I could pick one word for
Jeff, it would be `resilient.' And thank God there is an
executive like that driving for some realization of the
commercial potential, because that's what it's going to
take."
nytimes.com
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