2/24/98- Updated 10:53 AM ET
The Nation's Homepage
Online gamble pays off with big success
SEATTLE - Jeff Bezos is busily stocking shelves with just-delivered videos
while scores of other people scurry around the 86,000-square-foot
warehouse pulling orders and sending them to arrive in time for
Christmas.
The 34-year-old CEO of Amazon.com is working well into the night,
alongside the twentysomethings he commands. It's a daily ritual for him
and his fellow executives during the holiday rush. "Work hard, have fun,
make history," Bezos (pronounced BAY-zohs) tells them, punctuating his
sentences with an infectious laugh.
Working hard is indeed what these people were doing the Sunday before
Christmas in one of Amazon.com's two U.S. distribution centers.
Hundreds of thousands of books (exactly how many is a trade secret) are
unloaded from tractor-trailers on the building's south end. Within 24
hours, nearly all will be on trailers on the north end awaiting delivery to
customers. Then the process begins again. A second center, more than
twice the size, duplicates the process in Delaware.
What Bezos and his investors gambled on has turned into the Gigantor of
the Internet. Billing itself as "Earth's biggest book, music and video store,"
Amazon.com opened its online doors in July 1995 and already dominates
Internet commerce. While many online retailers are having trouble
attracting their first customers, Amazon.com has served 4.5 million. Its
sales in the quarter ending Sept. 30 totaled nearly $154 million, compared
with $38 million one year earlier.
Amazon.com's Web site is not just for geeks anymore, either. The
company's top seller in 1996 was Creating Killer Web Sites by David
Siegel. But last year it was Into Thin Air by Jon Krakauer. And Tom
Wolfe's A Man in Full is the top seller this year, much like in shopping
mall stores. Amazon.com's wares have expanded from books in 1995 to
include music in June and videos and gifts last month.
Perhaps the most remarkable feat is how the company's stock has
performed. Amazon.com, which went public in May 1997, has yet to turn
a profit, but its shares have more than quadrupled in value since
mid-September, when they traded at about $80. Wednesday, they closed at
$325, up 2 5/8.
Employees are relishing the ride. Each one gets stock options that vest
over a five-year period. Some are now millionaires, though the company
won't say how many. "Your family calls" when the stock is in the news,
says Cedric Ross, a training manager who joined Amazon early in 1997.
"And I've been invited to a lot more parties."
But most of Amazon's 1,600 employees - there were 200 a year ago - try
to stay focused on Bezos' dictum: Paying too much attention to short-term
gains means forgetting about long-term customer satisfaction. "Though it
sometimes makes for interesting water-cooler conversation, it doesn't
touch the day-to-day business," says David Risher, senior vice president of
marketing.
Analysts, however, are divided over Amazon's stock price. CIBC
Oppenheimer analyst Henry Blodget says shares will reach $400 and
revenue will hit $1.5 billion in 2000. Merrill Lynch's Jonathan Cohen
disagrees, saying Amazon.com has become "the single most expensive
publicly traded company" because its stock price is more than 15 times
revenue and ought to be closer to $50 a share.
Amazon.com's profits - actually the lack of them - are another matter. It
is not expected to turn a profit for at least two years. Yet, most analysts
generally see the losses as a practical investment in building the company's
brand identity and establishing a customer base.
"What very few online retailers know is the lifetime value of those
customers," Jupiter Communications analyst Nicole Vanderbilt says. But
she says Amazon.com has done an impressive job of acquiring customers
and pursuing long-term relationships with them. "They are a category
killer in every category they provide."
As optimistic as he is, even Bezos admits surprise at his fledgling
company's rocketing success. "We thought we'd have $100 million in
revenue five years out," he says. "We're already over $600 million. No
sane person would have predicted it."
But rapid growth was part of Bezos' initial plan. Rather than hustling to
get online, his team spent a year creating the Web site and the database
programs that make Amazon work. Finding out what consumers wanted
even played a role in selecting the name. They consulted a marketing firm
and tested several names with consumers. Amazon was picked because
words starting with "A" show up on search-engine lists first.
Another choice on the marketing consultant's list was "Juno," which was
picked by Bezos' former colleagues at investment bank D.E. Shaw & Co.
for their online service.
Bezos isn't cocky about success, though. He rattles off a list of one-time
market leaders that have fallen by the wayside, such as Hayes
Microcomputer Products, the now-bankrupt modem maker, and publisher
Software Arts.
"We still have the opportunity to be a footnote if we blow it. We have not
earned our place in business history."
Personal touch
While marketing has been crucial, it is the way Bezos and his team have
harnessed technology that sets Amazon.com apart from other early
electronic commerce sites. Every time a user buys a book, Amazon.com's
computer uses that information to recommend similar books. Bezos says
Amazon.com's personalized front page is like walking into your favorite
store and finding only items that you want on the shelves near the door.
A study by Internet performance measuring firm Keynote Systems finds
Amazon.com's Web site is faster and more accessible than nearly every
other site. Barnes & Noble's site takes 7.3 seconds to load, vs. 4.9 seconds
for Amazon.com. Barnes & Noble also had trouble handling the volume
of traffic on its Web site one day last week, a problem it says has been
fixed.
Time to work it out
That Amazon.com has had three years to make mistakes and fix them
gives it an edge, says Forrester analyst James McQuivey. "Right now, the
odds are in their favor," he says. "They've turned the experience of
shopping online into a relative pleasure."
"The goal here is not rampant consumerism," Bezos says. The idea is to
use technology to capture information about consumers and their interests
and match individuals with other products they might like, including items
they don't even know exist.
That's why Amazon.com bought PlanetAll, which matches people of
similar interests, and Junglee, the leading shopping search engine.
Bezos worries that other online retailers won't focus enough on the
technology and that consumers will be frustrated. That would turn them
off from all online shopping, not just a single merchant.
No matter how good e-commerce sites get, Bezos doesn't think online
shopping will replace traditional purchasing. In fact, he says he still enjoys
buying books from Seattle's venerable Elliott Bay Book store. But the
folks there aren't so fond of Bezos and e-commerce.
Amazon.com has had "a very noticeable impact" on the store's business,
manager Tracy Taylor says. A few customers walk in with recommended
reading lists printed from Amazon.com's Web site and buy the books
from her store. But in-store book sales are flat this year. "And if we don't
have (a book) in stock, they say they'll get it at Amazon. It's depressing."
By Doug Levy, USA TODAY |
