Of Jeff Bezos and Leo Durocher
First Monday

Of Jeff Bezos and Leo Durocher by Richard Wiggins

When the Special Libraries Association (SLA) chose Seattle for their annual convention in 1997, it was only natural to invite Bill Gates to keynote the general session. Librarians were as eager as anyone to know Microsoft's plans for information technologies and the Internet. No doubt the thousands who attended the Gates presentation were also eager to be in the same room as the richest person on the planet.

That same SLA featured a presentation to perhaps 200 attendees by Jeff Bezos. At the time, Bezos had been featured on the cover of Business Week, but not yet Time. But the 200 people who listened to Bezos speak were clearly well aware of Amazon - and users and fans of it. Such irony - librarians supporting the world's first mass-market virtual bookstore.

News reports consistently emphasize that Jeff Bezos is a friendly, unassuming guy. He certainly confirmed the impression that day at SLA. He took questions for an extended period. As each librarian asked a question, he listened. Invariably he said "That's a really good question" before proceeding with a response. If a librarian made a suggestion for improving Amazon's service, he said, "That's something I never thought of. We'll have to take a look at that idea."

My wife (then my significant other) and I even learned first-hand what a nice guy Jeff Bezos is. After the presentation, I asked Bezos if he would participate in an interview for my cable TV show. Bezos agreed without a moment's hesitation. On a rare cloudless day in Seattle, Bezos spent a half hour of his precious time with a Hi-8 camcorder pointed at him, answering questions about how Amazon got started. Asked if he believed e-commerce would look different in a few years, Bezos said "Absolutely. This is the Kitty Hawk phase of electronic commerce." We toured and videotaped Amazon's customer support center, and laughed at the empty cans of Surge Cola on the cubicle dividers.

Baseball manager Leo Durocher famously observed, "Nice guys finish last." (Baseball historians claim that reporters translated Durocher's actual, less memorable, words into a sound bite, but the phrase endures.) Anyone who has met Jeff Bezos hopes he's exempt from Durocher's analysis. And in many ways, its seems that this nice guy might finish strongly indeed. From Amazon's Kitty Hawk days, it has soared to astonishing heights. Almost from its inception, Amazon attracted attention. Millions of new customers flocked to the site, as competitors Border's and Barnes & Noble struggled desperately to catch up with their own Web sites.

In the last two years, Amazon expanded from books into music, electronics, toys, and even furniture. Bezos exhibited no shyness, taking on Ebay with online auctions. With Zshops, Amazon sought to become the online mall for every small seller.

It's Amazon's service that really builds loyalty. Just this week the local Barnes & Noble reported that it would take ten days to special order a particular title - a relatively obscure book on broadband Internet access. Amazon had it in stock and got it to our house in two days. Last Christmas, my wife asked the UPS delivery person if he was tired of bringing Amazon packages to our house. He said, "We love Amazon. Keep ordering!"

Besides service, Amazon has consistently innovated while offering a fast, and effective Web site. The site is attractive while remaining lean and dialup-friendly. One-click shopping and various friendly touches make it easy to complete transactions. Its book database has become the de facto online replacement for Books-In-Print for readers, authors, and publishers alike.

Amazon's rise wasn't without controversy. Those who worry about the U.S. Patent Office's reckless awards of Internet-related patents contend that Amazon's patent on "one-click shopping" (and its later patent for its Associates program) should never have been awarded (See http://www.oreilly.com/ask_tim/amazon_patent.html). Some protesters urged boycotts of Amazon. But anecdotal evidence indicates that Amazon has built a loyal customer base of millions, thanks to a highly efficient Web buying experience and outstanding customer service.

Almost from its birth, the press and investment analysts spilled a great deal of ink on Amazon. Jeff Bezos became the symbol of the New Economy. Reporters clamored to cover the story of Amazon and its founder. Accolades poured in, culminating in his 1999 selection as Time's Person of the Year.

Today, the business and general press are less kind to Amazon and to Bezos than they once were. A recent Industry Standard cover features a photograph that, due to unusual lighting and framing, causes Bezos to look every bit the doofus. The headline proclaims "The End of Innocence."

A small coterie of stock market analysts has questioned Amazon's financials as its revenues - and net loss - began growing. New York Times' financial writer Floyd Norris has consistently pointed out shortcomings in the company's fundamentals. In 1998, Morningstar analyst Catherine Odelbo said the company was overvalued. Plotted on the same graph, Amazon's annual losses and revenue growth are almost mirror image curves.

Amazon.com: Revenue versus Loss, in Millions, 1994-2000
Figure 1: Amazon.com: Revenue versus Loss, in Millions, 1994-2000

Prudential was once bullish on Amazon, but by February 2000, their analyst Mark Rowen noted that the "customer acquisition payback period" for Amazon extended into infinity, and that Amazon was selling consumer electronics below cost. By February 2001, Prudential had moved Amazon from "hold" to "sell." The Times' Norris wrote in February 2001 "Amazon's most unfortunate decision was to borrow a lot of money when its stock was hot, even though it could have gotten virtually free capital from stock buyers."

Amazon stock has split three times in the life of the company, and now is worth about $16 per share, having traded at $100 or more in 1999 and 2000. Nice guy Bezos takes home a salary of only $81,840. Bezos retains about 1/3 of Amazon shares, which made him worth $7.4 billion a year ago. He's still a billionaire, at least on paper.

Some of Bezos' admirers and loyal customers wonder if the firm wouldn't have been wiser to stick to the original vision of selling books. Instead of branching into other product areas, why didn't Amazon do the best it could to maximize its reach in that arena? Amazon cleverly added used book dealers to its network. Why didn't Amazon make a deal with small independent booksellers? Imagine a kiosk in every small bookstore, allowing customers to order titles too obscure for the store's retail stock. The customer could choose delivery to the store or to the home. The customer gets the book far faster than the ten days it takes to process a special order for in-store pickup, and the independent bookseller gets a piece of the action. The small bookstore concentrates on selling popular, high-margin items such as greeting cards, magazines, and coffee alongside best-selling books, while leveraging the virtual inventory of Amazon.

In April Amazon did make an astonishing alliance - with rival Borders. For years now the Borders Group has sought in vain to offer a Web site that competed effectively with Amazon. Borders became a force in book retailing thanks to its superior computerized inventory management system dating back to the 1970s. It never figured out how to translate its computer expertise into an effective Web site. In April, Borders eliminated all staff positions in Borders.com, and announced that Amazon will front-end its online bookselling. Amazon always had the mindshare - and many believe the more effective Web presence.

The Borders deal probably puts the kibosh on any possible alliance between Amazon and independent booksellers. The independents are exploring their own ways of leveraging the power of the Internet.

  • In 1999, the American Booksellers Association announced BookSense.com, a Web site allowing customers to order books over the Internet with their local independent bookstore getting a piece of the action.
  • BookSite.com provides small bookstores with e-commerce tools and Internet ordering to supplement their inventory.
  • Kiosk vendor TitleSmart aims for the in-store customer support role, making it easy for customers to look up books by category, and helping the store maintain inventory.

Whether these efforts will help the independents in their battle against the Big Three is an open question. It isn't clear that BookSense is a very serious competitor. Its Web site was weak when first launched, but it has improved since then. Still, it's hard to imagine how effective a competitor it can be, in a middle zone between Amazon and the giant bricks and mortar stores. You can order a book for delivery to an address of your choice, or to be held at the cooperating local bookstore. I tried ordering a copy of Double Fold, the controversial new book by Nicholson Baker, and was referred to a bookstore 80 miles away. There is a large independent bookstore, as well as a Barnes & Noble, within three miles of my house.

Today, evidence seems to indicate that Amazon's prices are creeping up, and its discounts are smaller, as it seeks profitability. Careful observers also note a slight decline in service quality. Books ordered for regular shipping seem to arrive a day or two later - still faster than waiting on a book store order in many cases, but not quite as snappy as in the past. And amenities such has gift wrap choices have been curtailed. Some analysts argue that Amazon's cash flow and inventory pictures improve only under impossibly-rosy scenarios - an entire year of cloudless days in Seattle. Some see Amazon folding in 2002 - others as soon as the end of 2001.

Of course, Amazon is about much more than books and music, thanks to its decision to move into retailing a vast array of products. Many of us old customers have a hard time thinking of Amazon as a place to buy a set of Polk home theater speakers or a set of Calphalon cookware. For me, the "Earth's Biggest Bookstore" moniker has occupied a spot in my mind since it began appearing in those tiny bottom-of-page-one advertisements in the New York Times.

Amazon's relationship with its partners may tell a lot about its future. The August, 2000 deal between ToysRUs.com and Amazon might be instructive: ToysRUs buys and manages the inventory, and stores it in Amazon's distribution centers. Amazon runs the co-branded Web site and handles customer service and order delivery. One could imagine a continuum of possibilities in future alliances with clicks-and-mortar sites, running the gamut from Amazon providing only a Web presence to Amazon providing all of the back-end services. Rumors persist of an impending alliance with Wal-Mart, and rumors crop up frequently involving other firms - most recently Best Buy.

But one could imagine a lot of things. What one cannot imagine, at least in the foreseeable future, is profits. Amazon remains the leading Internet retailer, but can they make money at it? After the Nasdaq meltdown, investors are more skeptical. Financial reporters and analysts who reject "pro forma" accounting methods want to know when "real" net earnings will appear. Even analysts who don't see Amazon failing ask when the results in areas such as consumer electronics will turn positive. And we still have the minority view that Amazon will fail within a year or two.

What would happen if Amazon goes under? When most companies file Chapter 13, tangible assets are sold -- often to competitors, and usually for pennies on the dollar. Although Amazon has built its own distribution networks, its most valuable assets may be purely digital: its customer base and the software that manages its Web presence, ordering, and inventory management. One can imagine Border's turning the table, and ending up owning Amazon's Web site. The betting here, though, is that if Amazon goes under, the savviest retailer in America, Wal-Mart, takes over the Amazon Web presence. This would allow Wal-Mart to combine its own superior inventory management and distribution network with Amazon's customer base and Web selling technology to become the clicks-and-bricks uberstore. The Wal-Mart partnership under discussion could help bring profitability to Amazon -- or it could presage a more ominous ending.

But let's not get ahead of ourselves. We're cheering for that nice guy, Mr. Bezos. As sports analyst Dick Shaap observes, Yankee manager Joe Torre, by all accounts also a nice guy, has won the World Series four times. Leo Durocher, decidedly not a nice guy, only won once. End of article

 

About the Author

Richard Wiggins has written about Internet issues since 1992. He is a senior information technologist at Michigan State University.
E-mail: wiggins@mail.com
Web: http://netfact.com/rww


Editorial history

Paper received 24 April 2001; accepted 25 April 2001; revised 6 May 2001.


Contents Index

Copyright ©2001, First Monday

Of Jeff Bezos and Leo Durocher by Richard Wiggins
First Monday, volume 6, number 5, May 2001
URL: http://firstmonday.org/issues/issue6_5/wiggins/index.html





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