PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
Amazon.com Inc. recently announced a series of deals that will give other e-tailers, such as Drugstore.com and furniture merchant Living.com, exposure on its popular Web site in return for hundreds of millions of dollars in cash over several years (see BW, Feb. 28, 2000, "Suddenly, Amazon's Books Look Better"). But Joseph Galli, Amazon's president and chief operating officer, says these deals aren't the last. Galli, a veteran of toolmaker Black & Decker who joined Amazon nine months ago, recently talked about what's next for Amazon.com with Business Week Senior Correspondent Robert D. Hof. Here are excerpts from their conversation:
Q: What are you trying to do with these new deals?
A: We feel that once we got past 15 million customers, we achieved a critical mass of customers to establish a platform that is now very valuable. It gives us the ability as a company to accelerate our growth, and accelerate the pace in which we offer selection to our customers, by opening up the platform to partners like Living.com. It has always been part of the vision of the company. We've always believed that it was important first to establish our technical platform, to establish our distribution network, and to get the critical mass of customers.
Q: Why do 15 million customers constitute critical mass?
A: That's the target we had set.
Q: In a sense, you're selling off pieces of your site.
A: Not at all. Actually, it enhances the site and the experience for our customers. Our research keeps telling us that our customers want broader and broader selection.... This is one way to achieve that. We're allowing people that have done a great job, like Living.com, to open up their offerings on our site.
Q: The profitability of these deals has excited analysts. How much of a factor is that for Amazon?
A: We fully intend to develop a very profitable retail business. So all the businesses we're in -- books, music, video, toys, consumer electronics, home improvement -- those businesses are all on their way to profitability. However, this is an additional profit stream that is great news for our shareholders. So it is exciting to us.
Q: If there are more of these deals to come, it seems like they might bring a significant boost in profitability. Is that why you might pursue them, or is it that the money will allow you to keep investing in other opportunities, as you have been doing?
A: It's going to do both. We're going to continue to invest in new opportunities. However, we've always believed that the platform that we're creating is extremely valuable, and this additional profit stream that we're creating is certainly going to make Amazon.com a much more valuable company. This is a very big idea.
Q: What exactly is Amazon.com, when you combine its retail and its landlord-oriented businesses?
A: Amazon.com is synonymous with e-commerce. We want people to think that anytime they're going to shop for anything online, they just come to Amazon.com. It's the only place they need to go.
With Living.com, we have a fabulous selection of furniture and accessories. With Drugstore.com, we get a vast selection of health and beauty products. So we believe that this just accelerates the pace at which we achieve the objective. Think of the Greenlight.com deal for [selling] cars. We had so many people ask us why we don't offer cars. So we did a lot of homework, and these guys did a super job. So our strategy hasn't changed at all. You're just seeing us implement the plan now that we've reached this tipping point.
Q: It seems like your site might look very crowded very soon.
A: We'll need to reconfigure our gateway page, and in fact we are testing some very interesting concepts. We don't have walls in our stores, and there's no limit to what we can offer. We've had hundreds of companies that have approached us to work with us in this way. We're incredibly selective in whom we choose.
Q: How will you handle potential conflicts with merchants in your auctions and zShops, and are you limiting yourself by picking one particular merchant in each product area?
A: Not all the partnerships feature exclusivity. We look at the landscape of companies that we can work with, and we think we've made good decisions in whom we've aligned ourselves with.
Q: How do you decide which products to sell yourself and which to offer through partners?
A: We have a number of initiatives that we're working on in-house. However, there are so many categories that our customers have suggested we offer that we just can't do them all quickly enough. So we look at how do we take the distribution network, the technical platform, and the customer-service team and how do we leverage that infrastructure most optimally. We look at categories that fit best in our infrastructure. In cases like furniture, where you have larger objects and a complex color and designer orientation, those are areas that don't have as direct a fit in our current in-house platform. So we thought it was really a good decision to bring in a partner.
Q: Will you ultimately acquire some of these partners?
A: We never discuss what we may or may not do in the future. But we've been an acquisitive company in the past, and we continue to evaluate acquisitions that might enhance shareholder value and enhance our customer experience. So I would continue to watch us.
Q: Given that you had considerable excess inventory after the holidays, is your distribution network ready to leverage for other partners as well?
A: We haven't opened up our distribution network yet. However, our performance in the fourth quarter is something we're very pleased with. We very intentionally went out and put the inventory in place to serve our customers, and our distribution network performed brilliantly. We had a $16 million day, which is more than the entire company did in 1996. We had incredible velocity of shipments.
Q: So these deals are not the end of the possible new revenue streams.
A: I've been here almost nine months, and let's just say that every month, I discover that there's more and more opportunity for us to build a very large company. So you can expect us to continue to introduce interesting twists on the model.
Q: Are these deals intended to address the investor concern over lack of profits?
A: No, the reason the deals are announced now is that we got the deals done. We have always been extremely committed to building a highly profitable company. So these deals have nothing to do with external bodies and measurements.
Q: Is the lessening availability of capital changing any of your plans?
A: We have an investor base that has a very long-term perspective. People understand our strategy. They agree with the direction we're taking.
Q: The recent layoffs were seen by most as a move to boost profits, but I gather that the real reason was to eliminate people whose skills didn't keep up with their job demands. Is that right?
A: We continually make an effort to get the right people in the right jobs. What we ended up with is a stronger organization with the people deployed in the right functional areas. We put people in the right parts of the company. You know, we hired almost 5,000 people last year. There's well over a hundred positions that are currently being filled.
Last year, we were really staffing up at a very aggressive clip. This year, we won't need to hire at the same pace. The head-count growth as a percentage of sales won't be the same as it was last year, that's for sure. But we will still be hiring a lot of people.
EDITED BY DOUGLAS HARBRECHT
Get BusinessWeek directly on your desktop with our RSS feeds.
Add BusinessWeek news to your Web site with our headline feed.
Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.
To subscribe online to BusinessWeek magazine, please click here.
Copyright 2000 , by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
