The amazing Amazon.com.
As part of its 75th anniversary celebration, Business Week is profiling the greatest innovators of the past seven-and-a-half decades.
In its December 20, 2004 issue, the magazine profiles
“The Wizard of Web Retailing,” Jeff Bezos, founder of Amazon.com. Which prompted us to take a closer look at Amazon.com
In the decade since its founding in 1994, Amazon.com has racked up $17.5 billion in sales. Currently its stock market value is $16 billion. And according to Business Week’s annual survey of the world’s 100 top brands, Amazon.com is No. 66 with an estimated value of $4.2 billion.
Not bad, except for one thing. Amazon.com doesn’t make any money. In the past decade, the wizard of web retailing has managed to lose $3.0 billion. That works out to an astounding 17.1 percent loss on each dollar of sales.
(Note to venture capitalists: You stake me for the next decade and let me lose $3 billion and I’ll build you a brand that even Donald Trump might envy.)
A retailing wizard? When you look at the numbers, Amazon.com looks more like a Kmart than a Wal-Mart. As a matter of fact, in the last decade, Kmart managed to lose only 1.8 percent on each dollar of sales and Kmart went bankrupt.
What kept Amazon.com alive? It was the Internet bubble that allowed the company to sell stock and float bonds to raise enough money to finance a decade of fiscal extravagance.
Will Amazon.com ever make money? Sure, the company made $35.3 million last year. (At that rate, it would take another 85 years for Amazon.com to break even.) And the company is likely to accelerate its profits in the years ahead. But whether or not Amazon.com will make enough money to justify its $16 billion stock value is another matter.
It’s too bad. I think Jeff Bezos is a marketing wizard. His strategy was brilliant. His timing was brilliant. And his name was brilliant. (Amazon: Earth’s biggest bookstore.)
Set up a new category you can be first in, the first law of brand building. Amazon.com was the first bookseller on the Internet. (When we say first, we mean first in the mind, not first in the marketplace. Powells.com was the first on the Internet, but made the mistake of using a line-extension name, a bad name at that, and then not launching the site with a major marketing program.)
Some critics have complained about Bezo’s choice of books as his first product to sell, but again we think the choice was brilliant. The best products to sell on the Internet need to meet three criteria.
(1) The product should be available in more variations than a physical store can stock. Amazon.com carries 23 times as many books as a typical Barnes & Noble superstore and 57 times as many books as a typical large independent bookstore.
(2) Profit margins should be large enough so that Internet prices seem cheap in comparison with those found at physical stores. Amazon.com got off the ground by offering books at 30 percent off list price. (Since a $25 book costs less than $2 to manufacture, books leave a lot of room to cut prices.)
(3) Fashion should not be a factor. Selling apparel, shoes and other fashionable products on the Internet is difficult. No one has ever returned a book because it didn’t fit or it was the wrong color.
What Amazon.com sells: Apparel, arts & hobbies, auctions, automotive, home furnishings, baby supplies, beauty supplies, books, cameras, cellphones, computers, computer software, DVDs, electronics, gourmet food, hardware & tools, health/personal care, jewelry & watches, kitchen supplies, lifestyle, magazines, medical supplies, music, musical instruments, office products, outdoor living, pet supplies, scientific supplies, sporting goods, toys, VHS cassettes and video games.