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Broadcast
8th January 2000
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QUESTIONS RAISED OVER AMAZON.COM EVER MAKING A PROFIT?
It was a great Christmas for the Internet bookseller amazon.com.
In the topsy-turvy world of the Internet, Amazon proudly
told investors it sold more books at a loss than last Christmas
- but there are signs some investors' patience with the
strategy of expanding at all costs is wearing a bit thin.
Amazon.com has been hit hardest of all the Internet stocks
in the New Year. It sold 20 million items over the Christmas
period and, if it can't make money selling that much, Martin
Webber asked the New York-based Internet consultant Randy
Ramirez why we should believe it ever will?
"As
long as Amazon is still selling a million shares or whatever
it is a day, people are still going to come back and they
are still going to funnel more capital into this company,
in the belief that, several years down the road, it will
turn a profit and will fall into typical or normal valuation
models.
"For a company like Amazon, I could easily
see them sustaining this pace for the next ten years.
There's still going to be this interest because
this Internet medium is not another industry. It
is not another fad. It is not a trend. This really
is an industrial revolution that connects on a global
basis. For the first time, anyone can walk into
the living room or office and get connected around
the world and have everything that they need almost
at their finger-tips.
"That's how typical business models normally
work: first you want to dominate on a market share
level, you want to keep the interest of the public,
you want to garner support and interest in the company
and for the products.
"The way you do that is by doing some form
of marketing blitz. And marketing costs money. Advertising
costs money. Then you want to spread yourself, as
Amazon is doing, across all types of media and interests.
And then it's much easier to manage the cost, the
expense and the operation site after the market
share exists."
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Amazon
can count on an increase in the sales once the
market share and the base is there. Randy
Ramirez |
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Tom Allen runs Staceys, a traditional independent
bookstore in San Francisco. He's suffered having
to compete with the Internet operations selling
books at a loss. For Mr Allen, the Amazon strategy
of selling at a discount over the Internet has always
been flawed: Mr Allen says it will sell lots of
books, but it may not ever make amazon.com any money:
"I'm puzzled as to why so many investors seem
so enamoured of the idea - not just with Amazon.
If they were the only player, then I would say the
prospects are great for their success, But there
are so many others. For the handful of survivors,
it will eventually be a profitable business model,
although the discount to consumers might not be
so great.
"The only stores I know which are making money
at this are those which primarily sell used books
over the Internet, because the profit margin is
greater and there is less competition. In every
other case that I know of, whether it's a big company
like Amazon or a small retail store, it's not profitable
selling new books on line because of the technology,
the equipment, the hardware, the experts to do the
programming and keep it running."
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Certain
individuals are just banking on the fact that
Amazon will be the survivors and the others
will drop out. Tom Allen |
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| The
Markets: 21:06 GMT |
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FTSE |
6406.80 |
-11.00 |
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Dow Jones |
12525.7 |
-48.11 |
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Nasdaq |
2467.70 |
-9.91 |
| Data delayed at least 15 minutes. |
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| Internet
links: |
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amazon.com |
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