|BUSINESSWEEK ONLINE : MAY 31, 1999 ISSUE|
Q&A with Amazon's Jeff Bezos
The pioneer of online selling says that eBay doesn't have to lose for Amazon to win
Amazon.com Inc. CEO Jeffrey P. Bezos is the poster executive for consumer E-commerce. In a recent interview with BUSINESS WEEK Senior Correspondent Robert D. Hof, Bezos declined to take on auction rival eBay directly. But he talked about why he thinks Amazon's AMZN mix of retail, auctions, and referrals to other merchants will provide the greatest appeal--and ultimately the most profits.
How is Amazon.com's business model evolving as you've added auctions and referrals to other merchants?
Our vision is that we want to be the world's most customer-centric company. In many ways, we're a one-trick pony. It's just a good trick. And that is we focus incessantly on trying to get the customer experience right.
Within that, we want to build a place where people can come to find and discover anything they might want to buy online. You realize very quickly that you can't sell everything people might want directly. So instead you need to do that in partnership with thousands and indeed millions of third-party sellers in different ways. To try to do that alone, in strictly a traditional retailing model, isn't practical.
What are your goals for auctions and Shop the Web, the program that provides referrals to other merchants?
We have two sets of customers in the auction space, and we are focused diligently on trying to get the experience to be as good as possible for both sets. In the case of the buyers, one of the key things that auctions bring for our 8.4 million buyers is bigger selection. We have in excess of 16 million different items that people can buy from us. Auctions and Shop the Web are components of that. The primary thing we bring to the table for sellers in the auction space is access to the world's largest community of experienced online shoppers--which, if you're sellers, obviously is a pretty important thing.
You have different margin dynamics for auctions and Shop the Web. How does that affect how you're going to build Amazon?
In one case, you have relatively small top-line revenues--that's the case of auctions--but very high gross margins in percentage terms and very high operating margins. In the case of direct sales of products, you have a very high top-line revenue but lower percentage gross margins and percentage operating margins. Those models coexist very nicely.
Why is the retail business model more attractive than the auction model, which has such high margins?
Percentage margins don't matter. What matters always is dollar margins: the actual dollar amount. Companies are valued not on their percentage margins, but on how many dollars they actually make, and a multiple of that.
Do you see dynamic pricing of auctions coming to other products on your site?
No, no, no. Auction pricing is most useful when it's hard to assess a fair value. So that means either that the thing you're selling is unique, or maybe it's not unique, but its value fluctuates rapidly. Stock prices are sort of like that. For most things, fixed prices are more efficient. The reason is that you don't have to negotiate. You don't want to negotiate the price of simple things you buy every day.
Since you've moved squarely into eBay's territory with auctions, how do you see it as a rival?
I believe this is a large market, and there is room for two players to have critical mass. So it's not that somebody has to lose for us to win. And it's for that reason that we've always been a customer-obsessed company instead of a competitor-obsessed company.
I think this is one of the most misunderstood things about E-commerce. There aren't going to be a few winners. There are going to be tens of thousands of winners. This is a big, huge, complicated space. And it's going to be as complex, with as much variety and as many winners, as the physical world.
Do you feel you are distinct enough from a major brand like eBay?
I think the other piece is being the world's most customer-centric company, and I think that's where most of our differentiation comes from. I do not believe there is another company on the Internet that thinks about, talks about, and asks about their customers as much as we do, and asks their customers as many questions as we do, and really tries just through plain old hard work to build the best possible experience for customers. And I believe that's why some of the physical-world companies that have tried to replicate what we have done have had a hard time.
How will online selling change physical-world retailing?
The short answer is that strip malls will go away because physical retailing isn't going to be able to compete on price. If you study the economics, online retailing is just more efficient. As a result, that leaves other things for physical stores to compete on, and there are lots of dimensions that are important to customers besides price. One is entertainment. So a lot of shopping gets done in large part as entertainment. This is why Nordstrom's has a piano player and so on.
So what's going to happen is that stores are going to get more entertaining. The quality of the sales associates is going to go up to make that experience more pleasant. Stores are going to get cleaner. Every dimension you can imagine of making a physical store better is going to happen.
Is there a risk of making your image so broad that people don't know what you stand for?
No. See, we're not a book company. We're not a music company. We're not a video company. We're not an auctions company. We're a customer company.
Don't you need a message that tells customers what Amazon really offers them?
We're the earth's biggest selection.
Do you have a goal for when you can throttle back on expenses and become profitable?
Our strategy is very, very clear: We're focused on long-term returns for investors. And to throttle back on investment now would be shortsighted. When we have less opportunity, that will probably happen. But as long as we have lots of opportunity, we're going to continue to invest commensurate with that opportunity in a very disciplined and methodical way, but in a long-term context. To do anything else, we believe, is irrational.
But we also don't claim that that's the right strategy. We just claim it's ours. And then people get to decide. But we're clear about it. And we do passionately believe it's the right strategy.
Make no mistake about anything I've said here: Long-term profitability and building an important and lasting and sustained company is incredibly important to us. We just believe that, by investing now, we increase our chances of achieving those things.
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eBay vs. Amazon.com
COVER IMAGE: eBay vs. Amazon
TABLE: The Tale of the Tape
TABLE: Toting up the Titans
CHART: Who Has the Best Sales?
CHART: Who Has the Best Bottom Line?
CHART: Who Has the Best Stock Performance?
Q&A with eBay's Meg Whitman
RESUME: Margaret C. Whitman
PHOTO: Meg Whitman, CEO of eBay
Q&A with Amazon's Jeff Bezos
RESUME: Jeffrey P. Bezos
PHOTO: Jeff Bezos, Founder of Amazon.com
ONLINE ORIGINAL: The Duel Extends to Wall Street
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