Web Retail's Higher-Fliers

The Seattle company was one of the first e-commerce sites, and its longtime leader Jeff Bezos is still at the helm. It initially turned a profit in late 2001, then started losing money because it continued to invest heavily in research and development.

Last year, it had a profit of $424 million on revenue of about $1 billion. The company's growth strategy is to focus on getting more repeat customers and to sell a greater variety of goods, including internationally. It is also cutting costs.

Amazon was "investing a huge amount into technology and content, which really crippled their margins over the last couple years," said Michael Souers, a specialty retail analyst at Standard & Poor's. "Now they're cutting back on pretty much everything."

Six years ago, the company spent 4.4 percent of its revenue on marketing, according to its financial reports. Now, it spends about 2 percent on advertising. Highly targeted search ads and e-mail marketing allow companies such as Amazon to invest more efficiently in marketing, according to Kristine M. Koerber, analyst at JMP Securities in San Francisco.

Amazon has cut back on some of its technology research and development, including abandoning a mapping feature last year on A9, its internal search engine. The mapping feature wasn't focused on Amazon's core mission of selling goods.

"A few years ago, the bulk of their investment was in the nuts and bolts. They were just trying to figure out how they can get a customer's order fulfilled," said Malindi Davies, an analyst with CIBC Markets. "Now, they're focused more on 'How do we make the customer happy?' "

Making the customer happy is not a simple formula. In some cases, it required Amazon to take risks that, at least initially, were unpopular on Wall Street.

In 2005, when its stock was trading at about $43, it started offering Amazon Prime, which allows unlimited two-day shipping and discounted overnight shipping for a flat fee of $79 a year. High gas prices and narrower margins made this an unpopular move with investors, and the stock dropped steadily for weeks after the announcement. Analysts say the stock's recent increase is partly attributable to the customer loyalty it won because of such initiatives.

The philosophy of having to lose some in order to win some has worked for Amazon in other respects, also.

Amazon has expanded outside its core business. The company made a big push to grow beyond books, CDs and movies, adding non-perishable groceries in 2006 and other commodities to its site. This year, it is experimenting with delivery of perishable groceries near Seattle.

"There was concern from some investors about whether their platform and brand name would stretch to those categories," said Lindsay. "Would buyers want to buy things like dry groceries online?"

Amazon's stock price fell steadily for a month after the initial grocery announcement. But "in the end, Amazon was proven right," Lindsay said. "Amazon expanded into these areas, and the [company's popular customer review system] worked well, and the revenues have proven it."