I meant to write this post two weeks back when Amazon, the online retailer, came out with its third
quarter earnings. This former dotcom shooting star has quite a turnaround story. I think that Jeff Bezos and the rest of its management team deserve a lot of credit.
Remember Amazon over a decade ago? It was one of the first fast moving “we will be bigger than General Electric” dotcoms that shot right out of the gate in 1997 to become everyone’s darling. The company quickly went from selling books online, to just about everything from CDs, movies, furniture, groceries, jewelry and even commercial freight goods. Boy do I remember those days well. Amazon (and thousands of other dotcoms) had little need to make profits (or revenues for that matter,) because they were being funded by almost any venture capitalist and private equity company who could buy in. So instead, the company focused on expanding as much as possible to build consumer traffic to its site. "Insignificant" considerations like costs, sales and profit were comically overlooked. No, Amazon was going to change the state of commerce forever and all it had to do was build, build and build itself and everything else would be taken care of.
Yup. Then, the world woke up and the dotcom world imploded. For a good four to five years, Amazon was fighting for its life and at times looked as though it would die and be laid to rest in the same dotcom cemetery as so many other high fliers.
But, Jeff Bezos is a fighter. Through the early 2000s he pushed like hell to turn this backwards business model around. I remember how he cut more than half his costs by selling off warehouses (he stopped holding on to all his own inventory,) cutting back on marketing, staff, travel and everything else that could be sliced away. Finally, in 2002, Amazon squeezed out its very first tiny profit. That was a positive sign, but even then the business worlds (especially analysts) were doubtful that his much smaller, streamlined model could work. And, in the next four to five years, we heard very little from Amazon as the company focused its efforts entirely on a real turnaround.
11 years after it was founded, through more turmoil than can be imagined, Amazon demonstrated good earnings recently in its third quarter announcement. The company now turns over $15 billion in annual revenue and met its earnings per share forecast, which is a critical test for anyone looking at the company’s stock. More importantly, once again, Amazon is seen as one of the leaders within the world of Internet retailing. And, that is big.
How did it go from near death to a successful company? Well, if you go to Amazon.com, the answer becomes quite clear. Its model is focused around three compelling criteria that all consumers want:
1) Very good prices
2) A broad selection of products in key categories
3) Convenience
I’d say that the third point is the most appealing one at times. Let’s face it, commerce on the Web is pretty amazing, but it certainly isn’t convenient. Amazon makes sure that each shopper’s experience is as easy as can be.
Amazon also has become very strategic in what it sells, as well as innovative in how it plans to make money. The company decided to drop its “inch wide and mile deep” strategy by cutting so many of those product lines which made absolutely no sense (like groceries,) and instead focused on innovating through newer offerings surrounding digital products that it could lead the way in. For example, it’s Kindle offering (online book reader,) is selling well to those steady customers who buy Amazon’s core products (books.) Amazon created Unbox, which allows shoppers to download movies and TV shows right onto their computers. It launched an mp3 store that rivals iTunes and has participation from every major music label. And, Amazon is even leveraging its digital acumen to become a leader of its own technology (and rents out part of its back end infrastructure to other companies.)
In a nutshell, the company went back to the basics and has again built a solid reputation for itself in this very way. There aren’t a lot of companies that earn a second chance after such a disastrous first one. Granted, there are a lot of questions for any retailer or business now that they’re stuck right in the middle of this terrible economy (and Amazon’s stock has taken a hit just like so many others.) But, Jeff Bezos and his senior crew deserve to take a bow because they’ve done an admirable job.
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