Amazon CEO Jeff Bezos says a number of myths that helped over-hype E-commerce persist today.

Chris Murphy, Editor, InformationWeek

June 11, 2003

3 Min Read Inc. CEO Jeff Bezos, the almost iconic survivor of the dot-com debacle, says a number of myths that helped over-hype E-commerce persist today. He outlined them at the Retail Systems show here Tuesday:

Jeff Bezos -- Inc. CEO

Jeff Bezos
CEO, Inc.

The Internet = The gold rush
There are some similarities between the two: a boom, a bust, people making real money, and lots of hype. But where the analogy breaks down is that eventually California's gold got tapped out, for all practical purposes. The last significant vein of gold was found and mined. The value of the Internet doesn't have to end that way. "With innovation, there is no last nugget of gold," Bezos said.

Wall Street reflects business operations
Bezos showed a straight-line graph of Amazon's stock going from $1.50 in its early days to around $30 today, a performance he described with great pride. Then he overlaid the actual up-and-down roller coaster leading to that price: "Unfortunately, it went from $1.50 to $30 via $113," he said. Yet when he overlaid a third line--the number of active customers over that time, it showed more consistent growth by far.

E-commerce will kill traditional retail
Bezos predicted Web retail sales will end up being only about 10% of annual retail sales, not the 50% or more that some people talked about when interest in E-retailing started to grow. It's one reason Bezos is so confident about Amazon's ability to re-sell its Web-retailing technology; if Web sales will only be 5% of a company's sales, it's less interested in investing a lot of money in a great Web site.

Core skills are the same between online and in-store
Brick-and-mortar retailers have to be fantastically good at physical stores. Amazon has no skill with real estate, Bezos said. "The only real estate we have is for our headquarters, and we've badly mismanaged it," he said. "We have lots of real estate in downtown Seattle if anyone needs any."

On the other hand, traditional retailers don't need to be good at personalizing the way Amazon needs to be--a store can't be changed for each visitor. Amazon has a chief algorithms officer who leads the effort to better-craft personalized recommendations based on what a customer bought in the past.

Fulfillment is E-commerce's biggest capital cost
Amazon's highly automated fulfillment centers are impressive, but Bezos said the company has spent almost three times as much on business technology--about $900 million--as on fulfillment since the company began.

And the $300 million it has spent on fulfillment centers could have been held to $200 million if Amazon hadn't expanded so quickly. It's since closed one center. Amazon also spent about $700 million on marketing and customer acquisition, some of which Bezos concedes was misspent.

But he has no such regrets about the IT investment, most of which went either to developers creating custom applications to run the business or to the hardware to support it. "I think the $900 million has been our best spent [money]," he said.

About the Author(s)

Chris Murphy

Editor, InformationWeek

Chris Murphy is editor of InformationWeek and co-chair of the InformationWeek Conference. He has been covering technology leadership and CIO strategy issues for InformationWeek since 1999. Before that, he was editor of the Budapest Business Journal, a business newspaper in Hungary; and a daily newspaper reporter in Michigan, where he covered everything from crime to the car industry. Murphy studied economics and journalism at Michigan State University, has an M.B.A. from the University of Virginia, and has passed the Chartered Financial Analyst (CFA) exams.

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