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Amazon’s Growth

BY Admin  July 7, 1999 at 10:39 AM EST

In 1997, Amazon.com called itself “Earth’s biggest bookstore.” A year later, the company changed its slogan to “Earth’s biggest book and music store.”

These days they simply call it “Earth’s biggest selection.”

But if the company’s e-commerce strategy succeeds, CEO Jeffrey Bezos hopes to turn his book, music and now auction store into the Internet’s first shopping mall, pharmacy, and mega-outlet all rolled into one. 

The company filed for its first initial public offering with the Securities and Exchange Commission in 1997, just two years ago. But retracing Amazon.com’s growth since then shows how Bezos even then believed his fledgling e-commerce experiment would change retail shopping as we know it.

E-expansion. 

In an effort to continue its innovation and growth, Amazon has taken several steps to widen its market and improve service.

AUCTIONS: Most recently, Amazon.com expanded into the online auction business by partnering with Sotheby, the renowned English auction house. The two will work together in creating online auctions to compete with the Internet’s leading auctioneer, Ebay.com. The company steadied its footing in Internet auctions on April 12 after buying LiveBid.com, a provider of live-event auctions on the Internet. Two weeks earlier, Amazon.com introduced its auction service for a first time.

DISTRIBUTION: By opening two new distribution centers in Kentucky, Amazon says it has reduced delivery times for orders to Chicago, Detroit, Minneapolis and Indianapolis. There are other centers in Delaware, Nevada and Europe.

GROCERY: The company has also moved to increase its stake in other e-commerce efforts. In May, Amazon.com purchased about a third of HomeGrocer.com, an Internet grocery store, in a deal worth $42 million. HomeGrocer.com delivers products straight to your home, just like Amazon.com does with books.

RARE BOOKS & MUSIC: In April, Amazon.com acquired Exchange.com, a company specializing in sales of hard-to-find books and music.

PETS: The company has also purchased about half of Pets.com, the largest pet company on the Internet. 

PHARMACUETICALS: Purchased a portion of Drugstore.com, an online pharmacy with a healthcare product line of more than 15,000 items.

INFRASTRUCTURE: In August of 1998, the company started by acquiring two Internet companies to strengthen its e-commerce capacity. It purchased PlanetAll.com and Junglee.com. Finally, in June of last year after acquiring three additional Internet companies, Amazon.com began offering music for a first time.

Coming soon: The Amazon Megastore?

This kind e-company expansion is what makes Amazon.com’s stock so attractive, analysts say. Amazon has put money toward new product lines, advertising and customer contact. In contrast, a traditional business spends money on real estate, store construction, inventory, and sales staff salaries.

The problem: Amazon.com has yet to turn a profit. Some analysts say it is because Bezos has chosen to invest so much in the company’s future. Others believe Internet retailing, or “e-tailing,” provides such a narrow profit margin.

According to James Angel, professor of business at Georgetown University, both sides are right — that Amazon.com is investing millions in its future and that profit margins for book sales keep shrinking. Because investors see Amazon.com’s potential to become an online megastore, not just a bookstore, Professor Angel says it is key for Amazon.com and companies like it to continue to expand. 

Angel has followed the growth of Amazon.com and other e-commerce companies from their conception and sees an evolution in e-commerce. He says companies have been quick to replicate Amazon.com’s model and enter the market with lower prices. 

“Only the most efficient, nimble companies are the ones that will prosper,” Angel said. “E-tailing is no free lunch, but has great promise.” 

The challenge for Amazon.com, say analysts, is for the site to carve a niche as an e-commerce company rather than a bookseller.

“Amidst a euphoria, people forget the fundamental value of a company,” Angel added, pointing to the 1929 U.S. and 1989 Japanese stock markets. “But if Amazon.com is cultivating a loyal customer base of 8 million people, and expanding efforts into other realms of commerce, and becomes a behemoth to devour all ventures in the future, the stock is worth its value or more.”

So far, other Internet booksellers haven’t seen the same kind of enthusiasm for their stocks. BN.com (Barnes & Noble), Borders.com, and others are still primarily dedicated to selling books and music, like their retail stores. Investors, Angel says, see limited growth potential in those companies. 

But is an Internet megastore something consumers even want? Right now, Amazon.com’s stockholders seem to think so.