~OT~ Chuzz: I feel that ALL internut companies need a CLEAR path to profitability. Even the grandaddy (AMZN) has demonstrated accelerating losses. They seem to be trying to buy growth at any cost -- with their monopoly money <GG> !! Contrast that technique with DELL's virtual integration model. DELL generates organic growth AND MAKES BIG MONEY. IMHO, one of these days the internet companies WILL BE HELD ACCOUNTABLE for making money. I invest in the sector but I am selective. DELL is the safest (and most stable) internet stock that I own..!! Here is an interesting article on Amazon.....
<<SMARTMONEY.COM: Amazon.com's New Business Model
By Tiernan Ray
Smartmoney.com
NEW YORK (Dow Jones)--On a conference call with analysts earlier this week, executives at
Amazon.com (AMZN) confirmed what has been apparent for several days now: The company is subtly
changing its business strategy. No longer content to be a budding e-commerce superstore, Amazon's latest
slew of acquisitions and new services position it as something else - an e-commerce Web portal, or better
yet, a network.
The greeting-card service, rolled out earlier in the week, was a charming but strange early warning sign:
Amazon is intent on increasing the appeal of the business without adding any new revenue. Hmm. And the
week's acquisitions - of Alexa and other Web properties - was another indicator of spending without
revenue growth. The roller coaster of growth may slow as Amazon enters a strange new period in its
development, one in which Amazon's projects are more ambitious and take much longer to bear fruit.
It's become a staple of high growth, high-momentum Internet investing that rapid revenue growth is
worth any price. The growth for Amazon is certainly there, with revenue up an astounding 235%
year-over-year to $293 million worth of books, CDs, videos and gifts. But the certainty of growth was
something else, as Joy Covey, Amazon's CFO, told analysts that Amazon expected to see slower growth in
the June quarter than in prior quarters thanks to a lack of new lines of business to drive revenue. As
Covey pointed out, "Since Q3 of 1998 we've had one or more product initiatives in rapid ramp. ... In Q2,
we have no such visible product initiatives" to drive revenue growth. This was the salient point: We don't
know when or if this stuff we're building will yield revenue, let alone profit.
The picture that shapes up is one in which Amazon shareholders are grappling not only with renewed
evidence of how costly it is to build a cyberbricks business, but how amorphous and mercurial, almost
capricious, Amazon's winding journey has become. The expenses are heavy-duty, to be sure.
Operating losses were double what they had been in the last quarter as a percentage of revenue (after a
nicely declining operating loss in prior quarters), with the promise of operating losses many times that
this year.
Amazon is also clearly willing to increase its sunk costs dramatically to improve the user experience of all
those shoppers. Covey and Amazon founder, chairman and CEO Jeff Bezos confirmed that the company's
expanded warehouse in Coffeyville, Kan., which is being enlarged from 460,000 to 750,000 square feet,
will initially be less efficient for each order shipped.
That's basically because Amazon is spending to bulk up on more capacity than it needs in order to be
prepared down the line. This sounds like good planning, but it's also a test of how patient investors are
willing to be in the next couple of quarters.
But what's fascinating is what Covey's comments reveal about the cost of keeping customers. Basically,
Amazon is investing heavily to keep the same people coming back again and again, to retain their loyalty.
This is the "greater-wallet-share" theory of retail, as Covey and Bezos referred to it on the call. This was
fine when it was a matter of adding new merchandise that people would start buying immediately; add
CDs, add videos, it's obvious.
The new growth model, however, looks a bit more like the America Online (AOL) subscriber business
than it does traditional retail, without the obvious recurring revenue stream AOL enjoys from monthly
fees.
Revenue growth based on product sales is being sacrificed, in effect, to build a place that people want to
return to. Amazon is investing in things like greeting cards that no doubt increase customer loyalty - they
really are charming, after all - without giving an immediate lift to revenue.
Mitch Bartlett, who covers Amazon for Dain Rauscher Wessels and who is not recommending the stock as
a buy at the current price, nonetheless informs me that I may have underestimated the near-term growth
prospects of Amazon. "I don't think the low-hanging fruit is gone at all," says Bartlett, referring to the
earlier rollout of CDs, videos and books. "If you look at the auction business, this is a very simple,
low-cost model, and Amazon has become the only credible competitor to eBay (EBAY) here. I think this
is going to really pay off in the next few quarters." Bartlett also thinks that nonrevenue services such as
greeting cards will prove their worth by increasing the site's "stickiness" and ultimately inducing visitors
to buy more. Nonetheless, he concedes the business has gotten more diverse and more complex. "You've
basically got book revenue being supported by a cost structure that is going in many different directions,"
says Bartlett.
How will the Amazon network be built? On Tuesday, Amazon bought three start-up companies for $645
million. One of those companies, Accept.com, remains a total mystery. Amazon is unwilling to talk about
what the company, which is a scant seven months old, actually does . The company's not talking, either.
Accept.com's investors refuse to reveal the nature of the business, and even most of my venture-capital
sources seem clueless as to what it will add to Amazon. What, I wonder, could this venture possibly be?
Staffed with some ex-PointCast executives, could it be a kind of PointCast for shopping? Let's hope not.
Maybe a clue lies in the name, Accept.com. It used to be called Emptor, Latin for buyer. How about an
easy way for visitors to Amazon's site to submit a de scription of whatever goods or service they might
desire and have sellers bid for their business? Well, the most Bezos would say on Wednesday's conference
call is that Accept.com is developing "longer-range solutions to simplify person-to-person and
business-to-consumer transactions." A source close to the company I spoke with would only say that
Accept.com's service, which will ramp up shortly, will 'rapidly convert Amazon's entire customer base."
And, this source added, "When you see it, you will lov e it, and you will want to use it." Wow.
Whatever it is, Accept.com sounds like Amazon's secret weapon.
The longer-term question, however, and a possible problem for Amazon, is whether investors will
appreciate being kept in the dark on such matters. Amazon is unique in that it is still very much like a
venture-capital-backed business, growing fast in a variety of different directions. So far, the shareholders
have had no say in the due diligence applied to Amazon's acquisitions. And in the case of a purchase such
as Accept.com, the total lack of information is an intriguing veil of silence that the company's owners are
being asked to put up with.
Well, I'll do my part right now to tear aside the veil with the following startling prediction. I predict that
within two years Amazon will have a new chief executive officer under Bezos, and her name will be Joy
Covey.
For more information and analysis of companies and mutual funds, visit SmartMoney.com at
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