SEATTLE – Jeff Bezos was 17 when he launched his first startup inside his Miami bedroom.
For $150, fifth-graders could enroll in The Dream Institute, a two-week summer course that touched upon a wide range of topics, from Pres. Reagan’s foreign policy to neutron stars.
One of Bezos’ five students told a Miami Herald reporter at the time that the course taught him “little neat things that I really think are neat.” Consider this an early endorsement.
In the past decade, Bezos’ other startup – Seattle-based www.Amazon.com – has been called many things, if not neat.
It has been described as the ne plus ultra of online retail and alternatively as Amazon.toast. It has been lauded for generating awesome amounts of paper wealth for investors and derided for leaving many of them with little more than that.
Amid such spectacular highs and lows, Amazon marked the 10th anniversary of its first sale on July 16.
What began with the sale of a science textbook – its first order – has morphed into an online retail juggernaut that last year sold $218.86 worth of books, toys and other goods every second.
But the alchemy that created Amazon – venture capital invested in an unproven retail concept, a stock market that rewarded growth over profits, lucrative stock options to motivate and retain the best employees – may be a once-in-a-lifetime event.
“I don’t believe there could be another Amazon,” said Forrester Research analyst Carrie Johnson. “There is very little patience for losses – for as long as Amazon incurred them. We’re just living in a different time, frankly.”
When Amazon.com opened its virtual doors on July 16, 1995, it was little more than a Web page of text separated by headlines, underlined and bolded in blue.
The site’s only graphic was the company logo: the letter “A” with a river snaking through it, layered atop a body of water that looked less Amazon River, more swimming pool. Even then, Amazon touted itself as “Earth’s biggest bookstore.”
Bezos initially decided to call his startup Cadabra, as in “abracadabra.” But his attorney’s puzzled response – “Cadaver?” – led him to change the name to Amazon, something big and broad that reflected the company’s ambition of eventually selling anything online.
Venture capitalists weren’t yet pounding on entrepreneurs’ doors to offer early investment dollars, and Amazon was no exception. The company’s initial startup money came from the pockets of Bezos and his parents.
By the spring of 1996, venture-capital heavyweight Kleiner Perkins weighed in with $8 million, bringing the force of John Doerr to its board. Having Doerr sit on your startup board, it was said at the time, was akin to having the pope attend your Bible study. (Doerr sits on Amazon’s board today.)
Amazon, like other startups, used its venture capital to “get big fast,” a term it printed on its annual company picnic T-shirts in 1996. The phrase – which captured the spirit of the times to be fast, first and focused – became so imbued in its culture that it handed out T-shirts the following summer that read, “Get Big Fast – Have Another Hot Dog!”
After a successful initial public offering in May 1997, many of the company’s employees were turned into instant millionaires. The hype around the stock was such that in November 1999, it rose 20 percent in one day based on an announcement that it planned to make an announcement.
If Amazon was soaring, the company hit its first air pocket during the 1999 holiday season, when it had to write off $34 million in toys it couldn’t sell. The following spring, the “get big fast” era was over. On April 14, 2000, the Nasdaq shed 355 points in a single day, and continued its race to the bottom from there.
Amazon had achieved a size that many believed would finally prove the power of e-commerce, but not without major refinements. The company shifted its attention to the bottom line, working furiously to improve the way it picked, packed and shipped items to customers.
To capture the larger, more mainstream audience moving online, it also moved to deeply discount many items and to offer free shipping on orders that met a certain dollar threshold.
By the end of 2001, Amazon reported its first quarterly profit. The company wouldn’t turn a full-year profit until 2003, but it finally demonstrated that it could do more than bleed cash.
“The results were better than anything I or anyone else had expected,” Bear Stearns analyst Jeff Fieler said at the time.
Amazon found that the combination of free shipping and deep discounts re-energized sales. By mid-2003, major business publications were writing stories about Amazon’s resurgence.
Amazon now sells everything from loose diamonds to Maine lobsters, although books, music, video and DVD categories still represent the bulk of its business.
With growth leveling off in its core categories, analysts say Amazon must focus on adding stores to its international sites to continue to grow.
“There’s obviously a tremendous amount of power in the brand name,” said McAdams Wright Ragen analyst Dan Geiman. “You equate Amazon with e-commerce.”
The question now is: How profitable can it become? Amazon continues to offer free shipping on orders more than $25 – a promotion that has eaten into its margins. The company calls it a long-term investment. Only time will tell whether it’s chasing unprofitable growth.
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