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Economy, the Web and E-Commerce: Amazon.com
With Jeff Bezos
Thursday, Dec. 6, 2001; 10:15 a.m. EST
Since its July 1995 launch, Amazon.com has grown from a book-centered business to become the premier e-commerce site for a wide range of consumer products, from CDs to pots and pans. The company boasts millions of registered customers in the U.S. and around the world, with Amazon expansion sites in Britain, France, Germany and Japan.
Jeff Bezos has led Amazon.com its inception, and used his Wall Street background to help launch the company and pioneer Internet commerce. His leading role in making the Internet an integral part of American life was recognized in 1999 when he was named Time magazine's Man of the Year.
Jeff Bezos and Leslie Walker
Bezos was online Thursday, Dec. 6, to talk about Amazon.com and, more broadly, the future of retail and commerce on the Web. Post .com columnist Leslie Walker moderated the discussion and interviewed him on video.
Amazon.com's success has bred its fair share of criticism. Wall Street analysts continue to question whether the company can ever achieve profitability. Competitors decry its efforts to enforce patents on key e-commerce technologies. And with the dot-com meltdown, Bezos and other Internet moguls were blamed for talking up an Internet bubble that ultimately burst. Amazon.com went public on May 15, 1997, with an IPO price of $1.50. As the Internet boom expanded, the company's stock [Nasdaq:AMZN] reached a height of $172 per share, but it currently trades at just over 10 times its IPO price.
The transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
washingtonpost.com: Leslie Walker
Welcome, Jeff. Glad you could join us today. Let's go to the questions.
People see you as a bellwether for e-commerce. Dot-coms have been in freefall over the last two years, especially online retailers. Is the freefall anywhere near over?
Jeff Bezos: I think the period of consolidation we're in right now, which is a natural consequence of the incredible period of experimentation we went through where every experiment got funded, is not over. It'll probably continue for some time.
Washington, D.C.: I remember that earlier this year, some analysts predicted that Amazon would run out of money by December. Well, it's December. How is Amazon doing?
Jeff Bezos: Rumors of our demise were greatly exaggerated. :)
When we gave our quarterly guidance on october 23rd we said we expected to have approximately $900 million at the end of this year.
Fairfax, Va.: Will Amazon.com accept Microsoft's Passport identities as an authentication system, so that customers of .net services can seamlessly buy from Amazon?
Jeff Bezos: We'll have to wait and see whether that system and/or the others that are also on the drawing board get traction with customers. Our general principle is that we do things that make our customers' experiences simpler and more productive.
Baltimore, Md.: Dot-com retailers were supposed to be the best of both worlds: no costs associated with establishing and maintaining a physical store, no sales tax on purchases and a potential global customer base. What happened?
Jeff Bezos: I'm astonished at how much has happened in the last six years. E-commerce is a huge industry for such a short period of time. And it continues to grow. In 1999, we had 14 million folks shop with us, in 2000 it was 18 million, and this year it's 23 million. And I believe we're still at the very beginning. It may not be the Kitty Hawk, but nobody has even conceived of the DC-9 yet, much less the jet engine.
San Francisco, Calif.: What kind of hope can shareholders have that your international and consumer electronics businesses will pan out, given that they had negative operating margins of 23 percent and 36 percent, respectively, in the first part of this year? Aren't losses of those magnitudes almost impossible for retailers to overcome?
Jeff Bezos: It wasn't that long ago that our USBMV business had large percentage operating losses -- but now those numbers are positive. E-commerce is a large fixed cost business and as scale increases percentage operating losses can improve quickly. We've said that we expect Germany and UK, our two oldest international businesses, to roughly break even this Q4.
Bethesda, Md.: What is the AOL stake in Amazon?
Jeff Bezos: About 2 percent.
Vienna, Va.: Do you think that consumers will ever leave the retail store all together and choose on-line, home shopping as their preferred method?
washingtonpost.com: Leslie Walker: Along the same lines, what percentage of all retailing do you think might ultimately move online?
Jeff Bezos: No, I've never though online retailing would subsume physical world retailing. I've always said I think online will long term (10-plus years) be about 15 percent.
Alexandria, Va.: How can Amazon remain a viable company if you continue to ship a single CD in a large (1 lb.) box that almost certainly cost more to send than the $2.65 shipping charge?
Jeff Bezos: Fulfillment expense as a percentage of sales has improved significantly and we expect it to continue to improve over time. Long term we expect it to fall to high single digits (from about 13 percent in the most recent quarter).
Arlington, Va.: What do you see as Amazon's biggest growth area in the next few years?
Jeff Bezos: One of our biggest areas of growth is our international segment: amazon.co.uk, amazon.de, amazon.fr, and amazon.co.jp. In addition, we see a significant amount of momentum in our third party services business. I expect all of our businesses to grow over that kind of time frame.
Bethesda, Md.: Do you see Amazon forming alliances with online newspapers? If so, what type of advantages would prosper from this type of union?
Jeff Bezos: We're open to partnering with anyone where we think that union would result in a better customer experience. Usually to figure out the specifics of a partnership that would make sense, it requires someone to have a creative idea that becomes the central reason to partner. One idea that's already been widely used by many Web sites including some online newspapers is the Amazon.com Associates program. These sites feature products we sell and we track and pay them for their referrals.
London, UK: You had an early view of Dean Kamen's "Ginger" and even put it up for sale on the Amazon site. Now that it is out, are you still planning on selling the Segway?
Jeff Bezos: There is no consumer version of Segway available at this time -- only an industrial version. I'm hopeful that when there is we'll be able to sell it.
We'll be testing the industrial version of Segway this coming January in one of our fulfillment centers to see if it can improve operating efficiency.
Lorton, Va.: Have there been any discussion about a brick-and-mortar presence for Amazon, and if so how far have these discussions gone?
Jeff Bezos: We get asked frequently when there will be a physical store version of Amazon.com, and the answer is that it's not likely any time soon if ever.
It turns out that operating a network of physical stores is a very difficult business and that the set of skills you need to be a great operator of such stores is completely different from the set of skills you need to be a great e-commerce company.
In addition, we like to do things where we can see a way to make a significant customer experience improvement, and we don't know how we would significantly improve physical stores.
Madrid, Spain: Do you think subscription is the only way for information sites to earn money?
Jeff Bezos: I think over time subscription may turn out to be an excellent way for information sites to earn money. I don't know if it will be the only way. Despite what we see in the market today, advertising may also ultimately work at least for some sites.
Atlanta, Ga.: I love Amazon for books and music shopping. I worry that the ultra-diversification in electronics, kitchenware, and so on will ultimately hurt Amazon, as it requires so much more warehousing and staff, and the profit margin can't be large. Service at Amazon has always been so high that the tiniest slip is very noticeable. Thoughts?
Jeff Bezos: We believe we'll ultimately have a much stronger business as a result of adding electronics, tools, and kitchen. These new categories have grown very quickly and are only two years old. Because these new categories will make the whole business stronger, they'll also make books music and video stronger.
An example of this is our recent investment in the feature called Look Inside the Book. For hundreds of thousands of titles, you can now see not only the front cover, but the back cover, the jacket flaps, the full table of contents, the full index and 10 to 20 sample pages from inside the book. Customers have received this new feature very positively.
Laytonsville, Md.: Your customer relationship management software is constantly being refined. Every time I log on there appears to be a new wrinkle. It also seems to spark lots of debate. Customers complain about the product suggestions or even suggest that Amazon "knows too much about me." Do the negatives outweigh the positives? Where do you see Amazon going in the future with these features?
BTW, I like it.
Jeff Bezos: We'll continue to focus on personalization. With tens of millions of products on our Web site, these kinds of discovery tools are important so that people kind find products they wouldn't otherwise be able to find. The vast majority of customers appreciate that Amazon.com greets them by name and makes personalized recommendations.
I'm glad you like it!
Fairfax, Va.: I have always been of the belief that e-commerce on its own cannot survive as a viable entity. A good mix of e-commerce and brick and mortar however can, and I think Amazon itself is headed that way.
Do you think you might be opening kiosks or store fronts in local malls where people can go and log in to Amazon sites, look and inspect some of your big-ticket items and then order those things from the terminals in those stores?
Jeff Bezos: I've not been a big fan of kiosks, only because there aren't very many examples of them being successful. If they turn out to be something lots of customers want we'd certainly move in that direction, but I'm currently skeptical that that's the case.
More generally, I do agree with you that there are a lot of opportunities for partnership between Amazon.com and physical stores. For example, our partnership with Circuit City allows our customers to order online, have their purchase prepaid, and then go to their local Circuit City store where the merchandise will be waiting with their name on it to be picked up. There are probably more ideas that haven't been thought of yet for how we can partner with good physical stores in order to improve the customer experience.
Burke, Va.: How have the events of Sept. 11 impacted your business both positive and negative. Has this changed your strategic planning?
washingtonpost.com: Leslie Walker
We're especially interested in the shipping part of your business. Has the Sept. 11 aftermath affected your costs or delivery times?
Jeff Bezos: No, Sept. 11 has not affected our shipping times or costs.
However, in other ways, we have seen a couple of impacts from Sept. 11. For one, the travel restrictions are causing people to be more thoughtful about how they are going to get gifts to their destination. Many folks are ordering from Amazon.com and having the gifts sent directly to their destination, rather than trying to carry them on an airplane. We see wish list sales up 40 percent, for example.
In addition, we see that some of the items people buy have shifted. For example, children's history book sales, such as the Stephen Ambrose book for children about World War II, are way up (about three-fold). Parents are working to explain to their kids what's going on in the current environment.
We also see some evidence of "cocooning." This is a trend prognosticators have seen coming for more than a decade as a response to the increasing complexity of our lives. Sept. 11 does seem to have accelerated this trend. For example, DVD players are selling exceptionally well in our electronics store. Also, sales in our kitchen store are way, way up. People are staying home, perhaps not going out to restaurants as much.
Finally, also travel related, sales of travel books are flat to down, while sales of road atlases and maps are up 50 percent. Sales of audio books are up 25 percent. People seem to be driving instead of flying.
washingtonpost.com: Leslie Walker
You've been deeply discounting books since August (30 percent off books over $20) and offered a lot of free shipping this holiday season. How does that help achieve bottom-line profits? Along the same lines, how do you balance the desire to grow with the desire to climb into the black?
Jeff Bezos: Yes, we recently significantly reduced prices on books, making books over $20 30 percent off. What we've done is very different from what you typically see with book discounting -- typically if you see steep discounts they are on a narrow range of titles like the New York Times bestseller list. Our 30 percent discount is on huge broad number of titles.
Even though it may seem counter-intuitive that lowering prices helps with profitability, we believe it does. Lower prices leads to higher volumes which can lead to higher dollar profits even if the percentage profits are less.
You can expect us to continue to work relentlessly to lower prices. We'll do that by lowering our cost structure and then passing on our improved efficiencies to customers.
Austin, Tex.: It really worries me how much data you are collecting about my shopping habits. It's clear that you do a lot of cross-selling and joint marketing with retail partners. Don't you ever worry yourself about how much personal privacy future generations will lose to this big all-knowing Internet?
Jeff Bezos: A core part of our business is personalizing our Web site. One of the things we do is greet you by name and make recommendations to you about new products which are personalized just for you based on your past purchases. The vast majority of our customers appreciate this service and find it useful.
We care very much about personal privacy, and to be able to continue to offer useful features like personalization, we have to continue working hard to earn our customers' trust. I think we have one of the best privacy policies on the internet and we take it very seriously. We want other companies to take it as seriously as we do so that the industry earns a good name with respect to how they use information. I hope this happens -- I believe it will.
washingtonpost.com: Leslie Walker That's all we have time for today, folks.
Jeff Bezos: Thanks everyone -- I've really enjoyed this!
washingtonpost.com: Leslie Walker
That's all for today. Sorry we couldn't get to all your questions, but maybe we will have Jeff Bezos back when he delivers on his promise to turn a profit!
Thanks so much to everyone who asked questions, and especially to Jeff for joining us here at washingtonpost.com's offices today.
© Copyright 2001 The Washington Post Company