Amazon at 10: Will it keep clicking?
Ten years after selling its first book — almost a lifetime in the world of the Internet — Seattle-based Amazon.com peddles everything from airline...
Seattle Times retail reporter
Ten years after selling its first book — almost a lifetime in the world of the Internet — Seattle-based Amazon.com peddles everything from airline tickets to zip lines. Today the king of e-commerce faces fierce competition as it seeks to expand its world.
Jeff Bezos was 17 when he launched his first startup inside his Miami bedroom.
For $150, fifth-graders could enroll in The Dream Institute, a two-week summer course that touched upon a wide-range of topics, from President Reagan's foreign policy to neutron stars.
One of Bezos' five students told a Miami Herald reporter at the time that the course taught him "little neat things that I really think are neat." Consider this an early endorsement.
In the past decade, Bezos' other startup — Seattle-based Amazon.com — has been called many things, if not neat.
It has been described as the ne plus ultra of online retail and alternatively as Amazon.toast. It has been lauded for generating awesome amounts of paper wealth for investors and derided for leaving many of them with little more than that.
Amid such spectacular highs and lows, Amazon will mark the 10th anniversary of its first sale on Saturday, a milestone it plans to celebrate with live online performances by Bob Dylan and Norah Jones.
What began with the sale of a science textbook — its first order — has morphed into an online retail juggernaut that last year sold $218.86 worth of books, toys and other goods every second.
But the alchemy that created Amazon — venture capital invested in an unproven retail concept, a stock market that rewarded growth over profits, lucrative stock options to motivate and retain the best employees — may be a once-in-a-lifetime event.
If you had bought 100 shares of Amazon stock in 1997 at $18 a share, it would be worth $39,708 today — a 2,100 percent return.
"I don't believe there could be another Amazon," said Forrester Research analyst Carrie Johnson. "There is very little patience for losses — for as long as Amazon incurred them. We're just living in a different time, frankly."
When Amazon.com opened its virtual doors on July 16, 1995, it was little more than a Web page of text separated by headlines, underlined and bolded in blue.
The site's only graphic was the company logo: the letter "A" with a river snaking through it, layered atop a body of water that looked less Amazon River, more swimming pool. Even then, Amazon touted itself as "Earth's biggest bookstore."
Bezos initially decided to call his startup Cadabra, as in "abracadabra." But his attorney's puzzled response — "Cadaver?" — led him to change the name to Amazon, something big and broad that reflected the company's ambition of eventually selling anything online.
Jeff Bezos' laugh
Amazon.com founder and Chief Executive Jeffrey Bezos's laugh is so legendary that when the company emerged from the dot-com implosion intact, major business articles carried headlines such as "The Last Laugh" and "The Laugh Heard 'Round the World."
How have writers attempted to describe his laugh? Let us count the ways:
"His brown eyes are soft and lively, but what stands out most is his deep, honking laugh, which comes frequently."
April 18, 2000, Princeton Alumni Weekly
"As usual, he's smiling, shaking hands and shocking new employees with his distinctive laugh, a rapid honk that sounds like a flock of Canadian geese on nitrous oxide."
Joshua Quittner, Dec. 27, 1999, Time magazine, when Bezos was named its Person of the Year.
"The most physically remarkable thing about him is his laugh, a wheezy blend of whoopee cushion and Pavarotti canto, rising deep from the diaphragm and swallowing the whole room. The laugh is so startling and infectious that a homeless man on a Seattle street who once heard it began his own uproarious imitation, not stopping for 10 minutes. That only made Jeff Bezos, founder and chief executive officer of virtual bookseller Amazon.com Inc. bellow even more. Always sensitive to his audience, Bezos uses his laugh as a marketing tool to disarm prickly journalists and charm Wall Street analysts. The sound of merriment is his herald, resonating down the corridors of his Seattle-based headquarters, letting employees know the boss has arrived."
Jennifer Hunter, June 21, 1999, Maclean's
"Bezos's laugh is like a streak of exclamation points. He laughs much the way a businessman from an earlier era might have slapped your back or pounded the table. But it's a backslap that would break three of your ribs, and a table-pounding that might chop a wooden desk in half like a bravura karate stunt."
Alan Deutschman, August 2004, Fast Company
"Bezos pauses for a second. Then he unleashes a big, hooting laugh and looks round at his three acolytes, who, after a pause, chuckle mutedly. Even though the room is huge and Bezos is bleary with jet lag after his flight from Seattle, his hoot still fills the place. It isn't so much a laugh as a Laugh."
Stuart Jeffries, Oct. 14, 2002, The Guardian
Interviewer: "Did you ever get into trouble?"
Jeff: "Very rarely. The things I got into trouble on were like I lost my library privileges one time — which was really inconvenient for me — for laughing too loudly in the library. I've had this laugh all my life. I have no idea where it came from. There was a period where my brother and sister wouldn't go see a movie with me. It was too embarrassing."
Interviewer: "How do you deal with stress, with pressure, with setbacks, with disappointments?"
Jeff: "In my particular case, I laugh a lot."
Interviewer unidentified, May 4, 2001, Academy of Achievement
Venture capitalists weren't yet pounding on entrepreneurs' doors to offer early investment dollars, and Amazon was no exception. The company's initial startup money came from the pockets of Bezos and his parents.
Mike, an engineer with Exxon, and Jackie Bezos invested a significant portion of their life savings in the company, even though their son explained they had a 30 percent chance of getting it back. Theirs was not a bet on technology, but rather on their son.
During the height of the boom, it became commonplace to equate genius with an entrepreneur's ability to generate wealth, but Bezos displayed true precociousness. (Bezos was 3 when he tried to fashion a bed from his crib with a screwdriver. In his high-school valedictory speech, he laid out his vision for the colonization of space.)
In the first month, Amazon displayed promise of its own. The company shipped books to all 50 states and to 45 countries.
Once, it received an order from Bulgaria accompanied by a floppy disk and a note, written in English: "The money is inside the floppy disk. The custom officials steal money but they can't read English."
"Get Big Fast"
Amazon was almost out of money when it received a $1 million infusion from mostly private investors.
By the spring of 1996, venture-capital heavyweight Kleiner Perkins weighed in with $8 million, bringing the force of John Doerr to its board. Having Doerr sit on your startup board, it was said at the time, was akin to having the pope attend your Bible study. (Doerr sits on Amazon's board today.)
Amazon, like other startups, used its venture capital to "get big fast," a term it printed on its annual company picnic T-shirts in 1996. The phrase — which captured the spirit of the times to be fast, first and focused — became so imbued in its culture that it handed out T-shirts the following summer that read, "Get Big Fast — Have Another Hot Dog!"
After a successful initial public offering in May 1997, many of the company's employees were turned into instant millionaires. The hype around the stock was such that in November 1999, it rose 20 percent in one day based on an announcement that it planned to make an announcement.
In December, Bezos, at 35, was named Time magazine's fourth-youngest Person of the Year, following Charles Lindbergh (age 25), Queen Elizabeth II (age 26) and Martin Luther King Jr. (age 34).
Surviving the tailspin
Amazon by then had ventured into more countries and other categories, including electronics, toys and lawn and kitchen products.
The company's supercharged growth mentality extended to other e-commerce players, too. In mid-1999, it used its ever-rising stock to invest tens of millions in startups such as HomeGrocer.com and Pets.com, high-fliers that ultimately crashed and burned.
If Amazon was soaring, the company hit its first air pocket during the 1999 holiday season, when it had to write off $34 million in toys it couldn't sell. The following spring, the "get big fast" era was over. On April 14, 2000, the Nasdaq shed 355points in a single day, and continued its race to the bottom from there.
In "The Coming Internet Depression," Michael Mandel wrote that whereas the capital markets in the past typically funded physical investments such as railroads, venture capitalists began gambling on small, high-tech startups with unproven records.
Those risks allowed innovation to occur at breakneck speed. But the moment the venture capital ran out, and the market for new stock issues dried up and the stock options were gone, it would precipitate a downward spiral that would feed upon itself.
"The problem is, once you've tied yourself to the financial markets, you're susceptible to the ups and downs," Mandel told The Seattle Times in November 2000.
Amazon's own growth-over-profit strategy came to an end in early 2001. The company laid off 1,300, or 15 percent, of its employees, and closed two distribution centers and its original customer-service center in Seattle.
Amazon had achieved a size that many believed would finally prove the power of e-commerce, but not without major refinements. The company shifted its attention to the bottom line, working furiously to improve the way it picked, packed and shipped items to customers.
Making a profit
To capture the larger, more mainstream audience moving online, it also moved to deeply discount many items and to offer free shipping on orders that met a certain dollar threshold.
In August 2000, Amazon extended into yet another direction. It partnered with toysrus.com to create a co-branded toy- and video-game store, where each partner focused on what it knew best. Amazon handled site development, order fulfillment and customer service, while toysrus.com identified, purchased and managed inventory.
The online retailer had invested millions in technology that other retailers found hard to replicate. It marked the start of the online-retail giant's transformation from a store that attempted to sell everything to one that grew through partnerships, and shared its expertise with others.
By the end of 2001, Amazon reported its first quarterly profit. The company wouldn't turn a full-year profit until 2003, but it finally demonstrated that it could do more than bleed cash.
"The results were better than anything I or anyone else had expected," Bear Stearns analyst Jeff Fieler said at the time.
Amazon found that the combination of free shipping and deep discounts re-energized sales. By mid 2003, major business publications were writing stories about Amazon's resurgence.
In a nod to Bezos' famous laugh, the headlines made declarations such as "The Last Laugh" and "The Laugh Heard 'Round The World."
The turnaround came with costs. Gone was Amazon's once-prized team of writers, who lent the site its sophistication with reviews of products. They were replaced by technology that recommended items based on a buyer's past purchases and other automated software.
In "Amazonia," James Marcus wrote that while the software gave customers what it thought it wanted, it engineered spontaneity out of the picture.
"From time to time, we want something to arrive out of left field ... At such moments, only human perversity or sheer error will make us happy."
To be sure, infusing art into its business model represents one of Amazon's largest new challenges. If technology has helped Amazon forecast demand for books, music, videos and DVDs, other categories such as toys and apparel require more of a human touch.
"Not all retail is science," said Johnson, the Forrester analyst. "I don't think Amazon has the art of retailing down because they've relied too heavily on the science of retailing."
Amazon now sells everything from loose diamonds to Maine lobsters, although books, music, video and DVD categories still represent the bulk of its business.
With growth leveling off in its core categories, analysts say Amazon must focus on adding stores to its international sites to continue to grow.
"There's obviously a tremendous amount of power in the brand name," said McAdams Wright Ragen analyst Dan Geiman. "You equate Amazon with e-commerce."
The question now is: How profitable can it become? Amazon continues to offer free shipping on orders more than $25 — a promotion that has eaten into its margins. The company calls it a long-term investment. Only time will tell whether it's chasing unprofitable growth.
Meantime, the company's profitable partnerships are also being tested: toysrus.com sued Amazon in May 2004 for violating its exclusivity agreement. Both sides have charged one another with failing to honor the terms of their sales contract.
The broader, unspoken implication is that Amazon may partner with you today and compete against you tomorrow. Just as the Bezoses bet on their son, Wall Street is betting on his ability to steer the company in a more sophisticated online retail world.
This much is true: Amazon pioneered the online-retail category — a feat it carried out amid the most extreme of roller-coaster rides.
"They set a very high bar for the Amazon customer service experience 10 years ago that everyone had to catch up to," Johnson said. "I'm not sure e-commerce would be as developed today if Amazon didn't exist."
Monica Soto Ouchi: 206-515-5632