Bezos' Long, Strange Trip Down The Amazon

By Alan Wolf On Apr 2 2001 - 6:00am




SEATTLE -As founder of the world's largest e-tailer, poster boy for the Internet economy and one-time Time magazine Man of the Year, Jeff Bezos is accustomed to fame, acclaim and controversy.

But even that curriculum vitae couldn't prepare him for the harsh glare of publicity that 2001 has wrought. Amid layoffs, a plummeting stock price, and charges and innuendos of insider trading and imminent bankruptcy, Bezos remains characteristically buoyant about his business and its future prospects in a wired world.

TWICE recently spoke with the godfather of cyber CEOs about CE, profitability, brick & mortar alliances, and the future prospects of Amazon.com.

TWICE:Where does consumer electronics place in Amazon's world?

JEFF BEZOS: Consumer electronics surpassed music last year as our second largest business, and it's only been open for 17 months.

It's certainly our fastest growing business, it will eventually be our largest business, and it should also be our most profitable business. I mean, the CE market is so much bigger than books, which by comparison is a $28 billion industry.

TWICE:What about the "p" word-profitability?

BEZOS: Our business is comprised of three segments: International; U.S. books, music and video; and our early stage businesses. That second segment is already profitable, it showed a $125 million operating profit in the third quarter last year, which was its second quarter of profitability. The early stage business will follow over time, and we've already announced a target date for companywide profitability.

We're driving hard on operating efficiency, and there's been an incredible improvement in our inventory turns. Because our inventory turns are so high, little perishes, which in turn can drive higher turns. And our model allows us to hold four copies of inventory vs. hundreds.

TWICE:What was the biggest surprise over Amazon's seven-year history?

BEZOS: What was surprising was how quickly it took off. The initial plan was to grow slowly and become profitable quickly. We expected $100 million in sales in the first five years. We didn't expect this-25 million customers and $2 billion in sales. We didn't expect to get here for decades.

TWICE:And yet the bubble has burst for much of dot-com.

BEZOS: What happened in 1999 with the capital markets had never been seen before. When we started, we had a hard time raising our first $1 million. Then we obtained $8 million from the venture capital market.

By holiday '99, we saw the irrational behavior, where people were raising $60 million with one phone call-and then spending it all in one quarter on advertising. Money was incredibly easy to raise. And although I was surprised by the rapidity of consolidation, 2000 was so much healthier, a return to normalcy.

In retrospect, all of that experimentation that's been done will produce winning experiments that will be so valuable for society. It's analogous to biological evolution.

TWICE:How is your partnership with Toys "R" Us working out, and would you consider expanding that model to brick & mortar retailers in other sectors, such as, say.consumer electronics?

BEZOS: Our partnership with Toys "R" Us has worked out fabulously well. We've worked together like hand and glove.

We're open to anything that makes sense and benefits the three parties involved-us, them and the customers. We don't need a brick & mortar component, we would only do a deal out of opportunity, not need.

One of our advantages is that our technology follows Moore's law: It gets cheaper every year, while real estate gets more expensive. But it remains our vision to build a place where people can find everything online, and in some cases, we will partner with other folks in order to accomplish that.

TWICE:Are you feeling the heat from traditional retail giants, i.e. Wal-Mart, that have made the leap to cyberspace?

BEZOS: Our competition is the physical world. We would like to see a healthy Walmart.com because it validates e-commerce in general. And there's plenty of room to go around. People are still talking about a $5 trillion online market worldwide.

TWICE:What will Amazon.com be like in 10 years, or will it be at all?

BEZOS: We are in this for the long haul. Some e-commerce businesses will go in 2001, but we're in this for the long run.

In 10 years, the user experience is going to be so different we can't imagine it. Just five years ago our website looked so different, there's no comparison to what it is today. But I think full-motion video will completely transform the user experience, and that our site will be even more customized. There'll also be more community-type things, where customers help other customers make their purchase decisions.

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