Don’t Cry for Amazon

Under growing pressure from Wall Street and consumers alike, Amazon.com has intensified its efforts to achieve profitability, quietly raising prices on books.

Of course, most of the other major online booksellers are following the example of the number one e-tailer in the world and leaving their discount days behind as well. And while it might, at first glance, seem like an opening for independent bookstores to make a stirring comeback, don’t hold your breath.

That’s because Amazon’s new business strategy is bound to succeed.

Wall Street Darling

At one time, Amazon was the darling of Wall Street, showered with venture capital. The company responded by spreading its seed all over the burgeoning world of e-commerce, becoming almost as familiar as those wispy clouds over a pale blue sky that appear every time you boot up.

But as the e-commerce cemetery began doing brisk business with a growing population of dead and dying dot-coms, it suddenly dawned on investors that Amazon’s bleak profit sheet might be cause for concern.

Noting his sagging share price, Amazon CEO Jeff Bezos announced the company would begin an earnest diversification program, adding electronics, lawn and patio furniture, garden products and hardware supplies to its core book, video and music business.

The new strategy drew its share of criticism, even touching off a minor skirmish among analysts and industry experts over whether the diversification will help or hurt the company. In light of Amazon’s distribution problems, the critics have posed a basic question: If a company cannot efficiently deliver the inventory it currently stocks, how will it perform when it adds more product?

The answer is simply that diversification is a historically successful business model, especially in the new economy. And while the stock has been on a steady slide since its high of $113 (US$) in December 1999, the company has merely getting its ducks in a row for the next big push.

New Economy Favors Partnerships

Bezos has always claimed that short-term stock volatility doesn’t bother him, and he has encouraged investors to look toward the horizon. The long-term strategy for Amazon, Bezos says, is to become the central Web shopping destination by selling anything and everything.

To accomplish that goal, the company will literally need to acquire thousands of partners, a task made easier by its deep pockets, brand name, and stature as the heart and soul of e-commerce.

One of the basic tenets of e-commerce, formed early in the Internet Age, is that the drastically increased speed of information makes alliances and mergers more attractive and potentially lucrative than they were in the old brick-and-mortar days. Amazon will relieve itself of the costs and risks of production, while maintaining its financial stake in a huge array of goods and services for sale.

Good News for E-Commerce

Bezos said he will focus more on Europe because that is where he believes the best online market is, as well as where the company’s long-term prospects look the brightest. This notion is difficult for Americans to swallow, but it happens to be true. Europe’s high population density means lower transportation and shipping costs. For a company like Amazon, that’s critical.

It may take a few more years, but Amazon will become profitable. That’s bad news for the independent booksellers, but good news for an industry that, for better or worse, is looking to its standard bearer to lead them out of the doldrums.