Seeing Clearly Through the Amazon Jungle

Regarding ''Can Amazon make it?'' (Cover Story, July 10): Amazon.com Inc. has and always will stock and ship tangible products (i.e., books, DVDs, toys) from its warehouses to its customers. Thus, from Day One, it has been clear to anyone not caught up in Wall Street hype that Amazon is a retailer, albeit with a very slick Internet interface for ordering products. Thus, Amazon never was a true Net stock. (The value of Amazon as a portal to other Web sites is an interesting part of the business, but currently, only a minor part.)

Lehman Brothers Inc.'s analysis of the company as a retailer should not be viewed as rocket science but more as a reality check. (Judging by the 19% drop in stock, some investors only recently woke up to this!) Amazon is now experiencing the problems that retailers typically incur, i.e., large cash usage to finance higher levels of inventory and construction of warehouses, etc.

Hopefully, as Internet hype is put to rest, the markets will view Net companies as belonging to one of two groups--those that sell tangible goods (retailers) and those that sell intangible goods (i.e., brokers). While Amazon would be in the first group, eBay, Expedia, and lastminute.com (whose revenues are derived from matching buyers and sellers and does not require purchase of inventory or warehouses) would be in the other. These are the true Internet stocks.

If you are invested in the first group, expect to earn returns similar to those of retailers. If you are in the second group, who knows what you will earn? One thing is sure: The pursuit of revenue growth without positive earnings growth will no longer be rewarded by the market on a long-term basis.

James Culhane
Pasadena, Calif.

It is interesting to note that Amazon's management has packaged its model according to the following scenarios: 1). Be the leading online interaction between customers and distributors, with minimal investments; 2). Be the best customer-service business in the world by providing world-class product offering and order-fulfillment capabilities (totally contradicts No. 1); 3). Garner significant revenue streams via online advertising on the Amazon ''storefront'' from other e-tailers and brands (which is currently evaporating as companies reassess the return from online advertisement).

In each iteration, management never seemed to fully address the flaws with the previous business model. Now, time has finally begun to run out for Amazon's smooth talk to the investment community. As Amazon tries to sell all products to all customers, it will continue to hemorrhage cash. It is making its business more complex when it has never adequately managed the relatively simple business of selling books, CDs, and movies. This complexity will exacerbate Amazon's losses. In other words, Amazon is doomed to failure if it tries to be all things to all customers.

I'm glad to see that the flaws in Amazon's business model are finally being looked at by the investment community. Amazon was given preferential treatment for too long. It's time it addressed such issues as its ability to accurately forecast customer demand for its vast product lineup, manage inventory, and distribute products through its network, which is physically constrained in terms of time, space, and distance.

Fred Sharkey
Austin, Tex.

P&G: Good Strategy, Bad Execution

''Warm and fuzzy won't save Procter & Gamble'' (News: Analysis & Commentary, June 26) on Durk Jager's termination as P&G's CEO was insightful. I agree that the issue wasn't too much change too fast. What P&G needs is what all growth organizations need: a leader who can effectively break with the past, who is real vs. playing a role, who is on a meaningful personal journey, who understands and can differentiate between supporter-participants and observer-critics, and who can allow good people to do their work.

Jager was obviously unaware of who he had as supporter-participants, the people who had the courage to tell him what he needed to hear vs. what he wanted to hear, who could be held accountable, and who could hold others accountable. People who behave like Jager are out of touch and prove to be ineffective leaders at best. P&G threw the baby out with the bathwater--good strategy, horrible implementation.

James H. Blackburn
Columbus, Ohio

FleetBoston: Only Rich Customers Need Apply

Thank you for ''Bigger isn't better for Fleet's customers'' (Finance, July 10), which provided a straightforward summary of Fleet Bank's poor treatment of everyday customers. While I'm sure most financial institutions want to serve their wealthy clients well, Fleet seems to insist on doing this at the expense of the rest of its clientele.

I had a Fleet account three years ago and was happy to close it because of poor service and prodigious fees. I had no trouble finding another bank, but the latest FleetBoston Financial Corp. merger makes it more difficult to find a convenient bank that is actually interested in serving the little guy.

Tom Rogers
Framingham, Mass.

The reason these new superbanks charge outrageous fees is because they know most of their customers don't want to bother changing banks. I suspect most bank customers don't have a clear idea of how much the bank is taking because they break their charges into $1 and $2 fees across the course of a month.

These customers must realize that they have plenty of choices, including smaller banks, credit unions, and Internet banks. You mention that there are hundreds of small banks in New England, and I'm sure most of them charge lower fees.

I was a customer at a local bank that was taken over by Bank of America. After seeing my fees double, I decided to move my money to a credit union that doesn't charge any fees. By sacrificing a small amount of convenience (the credit union is closed on Saturdays, and there are fewer ATMs), I've saved hundreds of dollars a year in fees. If more big bank customers did what I did, the FleetBostons of the world would have to rethink their policies.

Jim Kutsko
Santa Fe, N.M.

IMF Remedies for Japan's ''Post-Bubble Blues''

Your speculation about an International Monetary Fund rescue of Japan five years down the road seems far-fetched given the country's foreign reserves of well over $300 billion and its large current account surpluses (''The tsunami threatening Japan,'' International Business, July 10).

We have been paying close attention to Japan's difficulties in recent years, both for their own sake and for their impact on the rest of Asia and the world. Just last month, an IMF team was in Tokyo to discuss the policy challenges, an exercise we conduct regularly with each of our 182 member countries. Important steps have already been taken to avoid your nightmare scenario. Nonetheless, more needs to be done.

Japan is still suffering from the ''post-bubble blues.'' Corporations remain over-indebted and burdened with too much capital stock. Meanwhile, the banking system is still unable to fulfill its normal functions. Our advice to the government: First, strong macroeconomic life support is still needed. While the rapid accumulation of public debt is a serious problem, fiscal tightening would be premature while the economy remains fragile. Large-scale fiscal adjustment will eventually be required. But it will be hard to achieve until growth is firmly reestablished. The Bank of Japan should maintain zero interest rates until recovery is locked in. We are not there yet.

Second, the authorities need to continue vigorous structural reforms. In particular, they should finish fixing the financial system, removing barriers to competition, and put in place a legal and tax framework conducive to corporate restructuring. They should also extend deregulation across the economy and update tax codes. This job has begun but is not yet complete.

Yusuki Horiguchi
Director
Asia & Pacific Dept.
International Monetary Fund
Washington

A Design That Could Make Space Travel Doable

Stan Crock writes that the X-33 hasn't worked because its new fuel tanks have proved difficult to make (''Space travel is still a dream,'' Science & Technology, July 10). True enough, except that the ''X-33'' is in fact the VentureStar, a design NASA chose over two other proposed designs for the X-33--originally a catchall designation for whichever design would be picked to eventually replace the Space Shuttle.

One of these alternate designs, the Delta Clipper, actually flew in prototype--the only one of the X-33 models to do so. A single-stage vehicle that not only rose and landed vertically but could hover in place and move sideways on its thrusters, the Delta Clipper was discounted by NASA--prematurely, I would argue--after one of its landing legs collapsed at the conclusion of an otherwise successful flight. The VentureStar, meanwhile, would require a Shuttle-like launch-pad-and-landing-strip arrangement, essentially providing nothing more than a fatter Space Shuttle.

The Delta Clipper depended entirely on existing technology; neither of its two competitors has even been built, let alone flown, so the VentureStar's setbacks hardly come as a surprise. If the Delta Clipper were to be revived and used, whether by NASA or by the private sector, the hopes for space business would see a greater chance of coming to fruition.

Fred Herman
New York

Kudos for Kuttner's Take on Ireland

Thanks for ''Ireland's miracle: The market didn't do it alone'' (Economic Viewpoint, July 10). Typically, it was intelligent and provocative. It opined where Irish economists would merely surmise, partly because we are still pinching ourselves to make sure the whole experience is real. For example, the performance of labor markets in general and of long-term unemployment in particular passes all previous econometric understanding.

But when Robert Kuttner maintains that Irish cuisine is still too dependent on spuds and cabbage, one must misquote Clueless by saying: ''That's way hash, Bob!''


J. Jerome Casey
Dublin

''The list'' (Up Front, July 10, 2000)

''The list'' (UpFront, July 10) mistated the costs of rape in the U.S. It should have said $127 billion. In the same section, ''In the buff in Buffalo'' incorrectly reported that Adelphia Communications' headquarters would move to Buffalo. The company is only building a new facility there.

''You can slow down the clock'' (Business Week Investor, July 17, 2000)

A table accompanying ''You can slow down the clock'' (Business Week Investor, July 17) should have said that a videotape on exercise from the National Institute on Aging costs $7. Information on the video is available at 800 222-2225.