0.cached.png
By Brad Stone
0
Share
Newsweek is a Trust Project member
See more of our trusted coverage when you search.Prefer Newsweek on Googleto see more of our trusted coverage when you search.
The front door of the imposing former VA hospital that is Amazon.com's headquarters is closed these days. You use the basement entrance, marked by a paper tacked to the door reading, limited entry--warning... falling hazard. This winter's Seattle earthquake has taken its toll.
But not as much as this winter's Nasdaq earthquake, which has hammered down the stock price of the New Economy's onetime darling from a fat three figures to several bucks short of an Eminem CD. And the aftershocks keep coming. The takedown has not only affected Amazon shareholders and employees--whose options are so far underwater that you'd need Alvin the deep-diving submarine to locate them--but the company's huge investments in dot-com stinkos like pets.com and living.com (now dead). Some shareholders are suing Amazon. The company has laid off 1,300 employees, has closed one of its state-of-the-art fulfillment centers (and shut down another for 11 months a year). Every weekend, a former employee packs audiences into his one-man show entitled "Twenty-One Dog Years: Doing Time at Amazon.com." So when the ground shook on Feb. 28, "it was like, what's next, locusts?" says Jeff Bezos, unleashing his now iconic laugh, which sounds like an overcaffeinated Norwegian being tickled to within an inch of his life.
Back in '99, when CEO Bezos was somebody's man of the year and Internet stocks could never fall, that laugh was the sound of e-commerce, mocking the brick-and-mortar squares who wore their real estate like balance-sheet balls and chains. Back then, you laughed with him. But today, when Bezos blasts that crazy laugh after ticking through some financial metrics, you smile politely. It's crunch time at Amazon.com--but Jeff Bezos insists that everything's going according to plan.
Read More on News
That plan, forged during a 1994 cross-country drive in a Chevy Blazer, is now the stuff of legend. Bezos had just left his job at a financial firm with the novel idea that you could make tons of money selling stuff on the Internet. He settled on books as the entry point, created what still stands as the classiest and most entertaining retail site on the Web, and now one book in every 20 sold in this country is the result of a mouseclick on his site. Amazon.com rakes in almost 3 billion bucks a year. It is ranked among the 50 top brands in the world.
Everything has gone way, way past Bezos's expectations, save one: the part about making tons of money. At first he believed that after five years he'd take in $70 million and net about $5 million. At year six, however, he's much bigger but deep in debt and still burning dollars. Now, after years of ducking the issue, he says profitability "is the right thing to do," and makes a risky promise: the company will turn what he calls a "pro forma operating" profit (which isn't the same thing as actually making money, but better than nothing) by the fourth quarter of this year. David Risher, one of the supersmarties whom Bezos hired as executives (the company is famous for workers who wrote doctoral theses on stuff like John Locke), says, "When you're running a two-plus billion [dollar] company, frankly you start to get worried. If you don't start going for profitability now, when are you going to?"
Bezos wants to assure his 30 million customers that he's not running out of money (as one analyst has charged). "The stock is not the business," he says. "The business is in better shape than it has ever been." He claims that profit will come by simply by better execution. Jeff Wilke, senior VP of operations, is in charge of lowering costs by a program called Get the CRAP (Can't Realize Any Profit) Out. One night during the Christmas rush, when Amazon execs get on the shipping floors for hard labor, Wilke and Bezos, working at the Campbellsville, Ky., site, were taking 20 minutes to pack a folding chair. "It ate up our whole margin," says Wilke. So he persuaded the manufacturer to pack the chairs itself. Such small victories (in addition to the layoffs and closings) will supposedly produce black ink. Savings will also come as more customers pile into the Web site: virtual aisles don't get crowded.
Not everyone agrees. Some analysts (as well as many Amazon customers) think that Jeff Bezos went off the rails by adding prosaic "stores" to sell kitchen supplies, lawn furniture and tools. In cyberspace, hawking (and shipping) a chaise longue is tougher than moving a DVD. "Right now, they're still definitely in the mode of selling the dollar for 90 cents [in those areas]," says analyst Faye Landes. So why not concentrate on books/music/video and wait until digital delivery obviates the need for warehouses and UPS fees?
"I've heard this a million times," says Bezos, sighing, "now a million and one." (Apparently, he will hear it a million more times without changing his mind.) "Our new businesses are catching on, they are being adopted. You know, Nordstrom started as a shoe seller."
But Amazon would prefer not to sell hard goods alone, and it's actively seeking more partnerships with conventional retailers along the lines of last year's alliance with Toys "R" Us. In a way it's a weird spectacle: the culture giant of e-tail pursuing shack-ups with outre companions like Wal-Mart and Best Buy, matchups that seem like Susan Sontag pairing off with Vince McMahon. Apparently, the suitors aren't so eager to dance. "All the traditional retailers would much rather see Amazon fail rather than help make it more successful today," says one competitor. In any case, Bezos insists even if no partners emerge, "we'll be fine," and that he isn't looking, as some suspect, to merge or be bought out by an Old Economy icon.
As always, Bezos is actively proselytizing his company. At last week's PC Forum, a digerati gathering in Scottsdale, Ariz., he was warmly received for a talk subtitled "Why is this man still laughing?" Outside the meeting room he met Mitch Kapor, who was a 1980s version of Bezos, a warm, fuzzy, high-tech zillionaire entrepreneur. When Kapor commiserated over Amazon's recent woes, Bezos quoted economist Benjamin Graham: "In the short term the market is a voting machine, but in the long term, it is a weighing machine." By the time his company lifts off with profits, he predicted, the market will catch up to the reality. "I just hope you have enough runway," said Kapor.
Bezos unleashed his famous laugh. But Kapor hadn't been joking.
Creatures of the BoomSock puppet:
Henry Blodgett, Mary Meeker: Analysts for Merrill Lynch and Morgon Stanley who predicted continued robust growth for Amazon stock before the crash Oracles of the BustMike Dalsey: The former Amazon customer-service rep now riffs on the company to sold-out audiences in Seattle and runs a popular Web site
Ravi Suria: The ex-Lehman Brothers bond analyst wrote three scathing reports on the company, the last speculating it would run out of cash this year
View 0 Comments
Submit Correction
View Editorial & AI Guidelines