Amazon Finally Clicks

Ten years old and profitable at last, it offers a textbook lesson on how to be both focused and flexible.

No Time to Rest

Jeff, of course, is Jeff Bezos, Amazon’s founder, chairman, and CEO, and Time magazine’s “Person of the Year” in 1999. Lauded by the magazine as the “King of the Internet,” Bezos had a legendary epiphany in May 1994, when he spied an Internet site that measured Net usage; it was growing at an astonishing 2,300 percent a year. He quickly grasped an, if not the, essential value proposition of the Net: the ability to sell nearly anything to anyone with maximum convenience and minimum overhead. Books were a perfect start, since a catalog of all books available for sale would be the size of a New York City phone book—that is, too big, unwieldy, and expensive to mail out. Amazon.com was founded that year, and its Website was launched in July 1995, billed as the “Earth’s Biggest Bookstore.” And it was also its most innovative, with a host of customer-friendly enhancements rolled out almost monthly. “The only reason left for a customer to go to an actual physical store,” Szkutak says, “is because he or she needs something right now, this minute.”

Some analysts say that providing that kind of instant gratification is something Amazon should consider. Thomas Underwood, a principal in equity research in the Manassas, Virginia, office of global financial adviser Legg Mason Wood Walker, says, “They’re putting all their eggs in one basket by being a pure-play online retailer. Very few companies will be successful doing that. Traditional retailers found out they can’t ply just one distribution channel. Look at J. Crew, which sells apparel online, through stores and catalogs. Amazon can be successful doing things the way they do now, and I applaud its efforts to be the undisputed leader in the online channel, but eventually it will need to go multichannel.”

Gartner’s Sarner agrees. “Statistics indicate that someone who goes to J.Crew.com is 27 times more likely to visit a J. Crew store afterward,” he says. “This is major. Only 5 percent of retail sales are online. Ultimately, retailers like J. Crew that had pretty poor Websites will catch up to the Amazon customer experience. When they do, they’ll have an advantage Amazon doesn’t—a store to get what you need as soon as you want it.”

But Szkutak has a different perspective: “I wouldn’t expect us to go multichannel, in the traditional sense, with our own physical stores.” But, he adds, partnerships may come into play. Already, ties with Borders Books and Circuit City allow customers to buy a book or TV online and then do an in-store pickup. Brynjolfsson concurs: “I don’t see them needing to have a brick-and-mortar presence, although I do see them partnering with such firms extensively. Why invest in brick and mortar when there are other ways to offer an offline presence?”

“Other ways” would, in fact, make for an apt slogan for Amazon. “Back in 2000, everyone assumed Amazon would open distribution centers for every product it sold,” says Goldman Sachs’s Noto. “Now we know that in some businesses it wants to be the principal capturing all the reward, and in others it wants to be the agent getting a smaller piece of the pie.” In apparel, for example, Amazon found a way to sell other companies’ apparel using its technology infrastructure and the partner’s supply chain.

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