From Internet poster child to analysts' whipping boy, Amazon's tale warrants a bestseller. Andrew Donoghue talks to UK MD Steve Frazier about Internet retail and the company's plans for the future.
Amazon.co.uk is the ultimate Internet icon. It’s a truly global brand with a mature and sophisticated platform but it has yet to make a profit. One way to make money is through partnerships with bricks-and-mortar firms wanting to buy Internet expertise from an established player, and it already has deals with Toys ‘R’ Us and book chain Borders.
Q: How important is licensing your technology to partners in the overall aim of achieving profitability? A: We have very openly said we will make the technology open to other people, and be happy to sell it and provide those platform services to other people. In the case of Borders and Toys ‘R’ Us, it isn’t simply technology. Toys ‘R’ Us own the inventory but we process it through our warehouses and provide customer services as well. A step beyond would be to sell the pure software, but clearly if we didn’t have the business system capabilities that we have, we could never have done the deal in the first place.
Do you think you can sustain your retail brand while also being seen as a software company? Nobody should think that, because we are out there trying to sell the technology, we have stopped developing our internal store. The site continues to develop on a weekly basis.
Do you think Amazon has been unfairly represented, going from Internet poster child to whipping boy for the analyst community after the dotcom bubble burst? People get a lot of stuff wrong in the short term. They say all kinds of ludicrous things but over time they start to disappear. The weight of the real progress of the company speaks louder than words. A year ago people said we would be out of cash by Christmas, and here we are in the middle of summer 2001 with hundreds of millions of dollars of cash. So I guess that was wrong. There has always been a lot of debate about Amazon – good and bad. Unfortunately, a lot of the comment in the recent past – when the dotcom shake-out was so severe – was very unfortunate. I don’t think that people were looking at the underlying facts about how we were doing. People say things such as: “Gosh, their stock has doubled in the last year – are they too expensive? Gosh, their stock has dropped in the last year, is it a good time to buy? Gosh, it looks like their customer service is getting better. Gosh, my brother got a book late the other day, I guess their customer service is getting worse.”
You obviously have to take a lot of flak from day to day. Are the challenges any different in the UK compared to the US? I don’t know that our business is dramatically different over here. It is simpler and we only have one distribution centre.
Is it fair to say that the UK market is about the same as the US was two years ago? I’m not sure that is a useful comparison. The US was a startup, but we were the foreign subsidiary of a startup. We have always done our own unique thing to match our unique circumstances. The website we are most like is our German partner’s.
Is the US writing to the same specifications as you, given the higher penetration of broadband over there? We write to the same standard because broadband is not that highly penetrated in the US. It is more so than the UK, but it is still not a very high number. It is still single digit percentages.
What changes would you make to the site if your customers had unlimited bandwidth? I can scarcely begin to imagine. The greatest impact of broadband is not necessarily that you do new things but that it makes everything we like about the Internet today that much better.
Are you looking forward to the time when you break even and can look your creditors in the eye again? The actual date when we make a profit may be anti-climactic, because it will be so obvious that we are getting there three months off. The first milestone is to get to operating profit. The next question is how to break even on a net income basis. But breaking even isn’t really the goal. Then it will turn to what is the real return on investment.
What does Amazon have to earn to justify the money it has spent going into business? Once you get into that number business you never get off the treadmill of how high are your earnings going to be next year. Running a top-of-the-line company is a treadmill. It never, ever stops.
– Andrew Donoghue is deputy news editor on Computing