Thursday, July 07, 2005

Amazon Turns 10: What's Next?

In 1994, a DE Shaw hedge fund quant named Jeff Bezos capitalized on the Rise of the Internet by driving cross country to Seattle and creating online bookseller Amazon out of a rented apartment.

Up until that point, only academics, engineers, and government specialists navigated the Net.

Then the ultimate Killer App - the Mosaic browser - was released by Netscape and e-commerce exploded out of its chrysalis.

With the "obsess about customers, not the competitors" motto ingrained and reflected in everything he did, Bezos went to work.

The world hasn't been the same since.

I was so happy to see Legg Mason analyst Scott Devitt upgrade his rating on Amazon to buy from hold earlier this week.

The stock has been chugging along at best recently, mostly over concerns that its operating margins would continue to deteriorate this quarter.

The company's efforts to sustain customer loyalty via free shipping has left plenty of tech analysts with a sour taste in their mouths, most of them construing the move as a direct chip away at profits and little else.

Amazon, which turned ten this week, benefits from the long tail shift from mass customization to niche markets.

All that means is that as long as people search day and night for that hard to find book, MP3, or Netflix DVD, companies like Amazon will have someone to service.

The future of online retail is Long Tail.

And the companies that survive will be those that can look beyond mainstream tastes in order to accomodate specialized needs.

I still like Amazon.

The company's first 10 years were quite the ride!

But the real test will be the next ten.

They first went into the black in 2003, and ever since then, Bezos and Co have been working hard to keep their massive customer base from migrating to a competitor.

That being said, Amazon's international sales have ebbed, and I think that's the kick to the groin Amazon must recover from.

International sales account for 47% of revenue so I'm not saying this blithely.


earned 18 cents a share in the first quarter ended March 31, including a tax expense of $56 million, for a profit in line with the consensus forecast. But Amazon's profit was 30% below the 26 cents a share it posted in the year-ago period. Revenue rose 24% to $1.9 billion from $1.53 billion a year ago, also in line with estimates. Excluding a $30 million benefit from foreign-exchange rates, revenue gained 22% over last year. Those sales growth rates are below what Amazon saw in 2004: 31% with currency benefit, 26% without it.
Let's hope Amazon's new technological moves bear some fruit.


The Street isn't cutting this 10 year old any slack.

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