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What Business Is Amazon.com Really In?

With more than $550 million in losses over the past five years, how can Amazon.com seriously expect to become a viable retail business? IInc./I offers five theories as to what the leading E-tailer is Ireally/I up to.
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Unsolved Mystery

By drawing attention to its appetite for expansion and red ink, America's leading E-tailer has cleverly concealed its grand plan from public view. Until now

By now, surely everyone knows that Amazon.com isn't actually in the book business. Nor is it in the business of peddling videos or pet supplies. Software? Please. Auctions? Get real. Sure, the giant E-tailer provides those offerings, having serviced cybershoppers to the tune of an estimated $1.4 billion last year. But with losses that would bury multiple businesses (more than $550 million, accumulated over the past five years), it's abundantly clear that Amazon isn't even aiming to become a viable retail business. The challenge, then, is to define what it is.

It's unprofitable, of course, but that's just the superficial answer. The tsunami of red ink, founder and CEO Jeff Bezos has long maintained, is part of the plan. On to the deeper question, then: What on earth is the plan?

Theories abound. Internet analyst Evan I. Schwartz -- whose 1997 book, Webonomics: Nine Essential Principles for Growing Your Business on the World Wide Web, ranked as a number one business best-seller on Amazon.com -- insists that Bezos's enterprise, with its investments in fledglings like Drugstore.com and Pets.com, is "becoming a venture-capital company, and this is how they're going to become profitable." For his part, James McQuivey, the astute research director at Forrester Research, in Cambridge, Mass., believes that Amazon.com's broad positioning is its way of preparing for a surge of new on-line-shopping households, 11 million this year alone. "Until 2001," he says, "I'm buying the argument that it has to lose money to make money."

But such pedestrian interpretations fail to match the measure of Bezos's vision. He is, we're convinced, after something grander. All the talk -- of profitability or its absence, of endlessly expanding product lines or investment in new business areas -- amounts to an elaborate distraction, one that Bezos has created to keep his grand plan concealed. And his smoke screen has worked beautifully. Until now.

Come with us beyond the pithy sound bites. Join us as we slip behind the numbers. Examine the evidence we've gathered. Those brave enough to connect the dots will find themselves staring at possibilities so plainly convincing, they seem eerily familiar. To wit, five solid theories as to what Amazon.com is really up to.

1. Today the World, Tomorrow the Country
What do Steve Forbes, H. Ross Perot, and even "The Donald" Trump have in common with Amazon's Bezos?

Like them, Bezos has at times seemed bent on world domination. And just as they have all toyed with turning high-profile business success into political power, Bezos will soon reveal his so-called business to be a platform for a slightly more focused ambition. He's out to run the country.

Sure, none of them has actually won an election, but it's easy to see why. They're all out of touch, relics of a bygone era when CEOs believed companies needed profits. Bezos brings a refreshingly modern vision with a platform that holds that prosperity is an attitude, a way you choose to operate regardless of the bottom line. Casting himself as a latter-day Perot, he plans to crank up the espresso machine, throw the flip charts into the Volvo, and ride a populist wave into the White House.

"We're going to be unprofitable for a long time. And that's our strategy," Bezos told Inc. in 1997. What debt-strapped citizen could resist clambering aboard that bandwagon? He's got a brazen cockiness that's quintessentially American -- and an inscrutability that's quintessentially electable.

All that remains is a choice of running mate. He's got options: go the traditional route to balance the ticket, tap Bill Gates, and vie for the predictable profitability vote; or follow the model of Jesse "The Governor" Ventura, defy the system, and capitalize on sheer popularity. To that end we understand Bezos has been pursuing someone even more skilled at wizardry than he is. Would someone please tell him that Harry Potter is fictional?

2. It's for Prophet, Not for Profit
One day soon, America will sprout a host of billboards featuring a stark white background with a lonely line of bold text stretching across it that asks: "Depressed about the lack of security in E-commerce? For books about consumer insecurity, click here." In the bottom left corner will be a logo, bright blue with a swirl of soothing yellow-gold -- Amazonetics.

It's simple. It's beautiful. Amazon isn't unprofitable -- it's evolving into a nonprofit. Any day now, it'll be notifying the IRS to reclassify it as a not-for-profit, thereby exempting it from paying taxes.

Like L. Ron Hubbard before him, Bezos will turn a seemingly secular publishing venture into a religion. In the case of science-fiction writer Hubbard, that transformation culminated in a book called Dianetics: The Modern Science of Mental Health. In Bezos's case, it all started with a virtual-bookstore-cum-electronic-mall.

"We're trying to change the world and maybe improve it in a small way, and maybe even a little more than a small way," Bezos told the New York Times last March. As founding principles go, it's not much, but what it lacks in clarity, it makes up for in chutzpah.

3. The Ultimate Product Line: Potential
Drink deep and don't worry. There's plenty to go around.

Amazon.com is our Miracle Elixir, our oasis shimmering in the distance. It's in the business of being a desirable idea, the embodiment of unlimited potential. It's a hair-loss-treatment product suggesting that high school cheerleaders will suddenly find themselves unable to resist paunchy middle-aged men.

Let myopic analysts clamor for Bezos to define Amazon. He knows that his company's success lies in his singular ability to continue to conjure the possibilities of all that it might become. It's the mandate we've handed him: to establish his company as the icon of all that Internet commerce could mean.

Amazon will continue to work that way only as long as Bezos can energize the illusion by unfolding one possibility after another. So far, he shows no sign of letting up. Eric Von der Porten, manager of a hedge fund that is basing its investment on the belief that Amazon's stock will fall, describes Bezos's work as "pumping smoke and flashing lights, saying, 'Look at all this cool stuff we're doing. Just don't look behind the curtain."

According to this theory, Amazon can expand indefinitely, beyond even the loose boundaries of the Web. If Bezos is as good as we adjudge him to be, don't be surprised if you see Amazon buying a sports franchise -- the Boston Red Sox, say. Or investing in Rogaine.

4. Taking the Middle Ground -- and Dominating It
Once a valued presence in the American economy, the middleman has lost ground lately, accelerated by the proliferation of buying opportunities on the Web. Every day another manifestation of that "middle" class gets squeezed: the auto dealer, the insurance salesperson, the stockbroker.

But the nature of the competition is to consolidate. The winner, the ultimate middleman, would mediate transactions in a variety of areas. Develop a trusted brand and people will buy from you, no matter what you sell, the theory goes.

From the beginning, Amazon touted its ability to act as an efficient intermediary in Internet-based transactions. The virtual store boasted of its lack of physical location, its disdain for retail space. You order from Amazon, and the company buys the item and sends it to you. "Their core competencies are ease of use and customer service," notes author Schwartz, whose most recent book is titled Digital Darwinism: Seven Breakthrough Business Strategies for Surviving in the Cutthroat Web Economy. "They can expand into anything."

Bingo. Unlike other Web giants, Bezos ultimately aims to be the essential middleman not only in every E-commerce transaction but also in every human transaction. Best man at every wedding. Marriage counselor. Basketball referee. Midwife.

And you thought portal sites were ambitious.

5. Seattle's Best
If we are correct in our thinking -- and there's no reason to believe we aren't -- Bezos has been carefully planning and executing this one from the day he started Amazon in 1995.

First, create an enormous virtual bookstore that is the very model of self-promotion to prove that book sales alone can't sustain any company of real heft.

Second, branch out into other areas of on-line sales to reinforce the unfriendliness of the Internet to (profitable) commerce. Witness: In the second quarter of 1998, riding the buzz of its brand-new music store, Amazon registered operating losses of $18 million. By the second quarter of 1999, buoyed by expansion into videos and investments in Pets.com and Drugstore.com, that loss ballooned to $122 million.

Third, stay in the book business long enough to change the market dynamic and plow all those pitifully puny stores under.

With all that accomplished, things will really get interesting. Then you'll see Bezos wearing dark glasses and a trench coat, skulking around Seattle with real estate agents and looking for the perfect piece of property.

Then he'll disappear. Vanish.

Only the particularly savvy will discover, months later, in a small storefront in a lonely block in downtown Seattle, a quaint-looking shop called Bezos Books. The smartest of those sleuths will connect that shop with the man who used his grand vision not only to prove the futility of E-commerce but to establish himself as a bookseller, a devotee working tirelessly to get his product into the hands of book lovers.

It'll be a smash. And Bezos will have realized his ultimate dream -- to reinvent the small independent bookstore.

Ron MacLean, a freelance writer based in Jamaica Plain, Mass., now aspires to figure out what business Starbucks is really in.

Last updated: Feb 1, 2000




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