I'm Betting On Amazon.com
(FORTUNE Magazine) – Here's fair warning: I'm going to say nice things about Amazon.com. The carnage has gotten bad enough that I've heard people say that only one Net business will be left standing--eBay. In other words, the whole Net revolution was an excuse to find a way to digitize yard sales and flea markets, and nothing else that we've worked on in the past five years actually mattered.
I still believe the Internet represents a fundamental change in the way business gets done. eBay is amazing: profitable, unique, with a great culture and attitude. But other Internet companies have also made remarkable contributions. Amazon.com is one.
Most people think of Amazon.com as an e-tailer, and value it for how it sells products and distributes them. Those people make the fundamental mistake of comparing Amazon.com with other retailers and direct-marketing companies.
I think of Amazon.com as a technology company. It may be the only company to have mastered the use of technology in serving individual customers. No other outfit comes close to tracking what its customers do and using that information to make its customers happy. The result: As time goes by, I find myself buying more and more stuff from Amazon.com and feeling good about it. I actually look forward to getting e-mail messages from Amazon.com promoting stuff that I can buy. They are the only commercial e-mails that don't irritate me--the only ones.
During February and March, I got 16 e-mails from Amazon. Six showed me new products in my favorite categories: books, movies, music, and consumer electronics. The other ten promoted special offers or specific products tailored to me. For instance, on March 20, I got an e-mail that started out, "As somebody who has purchased movies directed by David Lean, you might like to know that Lawrence of Arabia will be released April 3 on DVD. For the next few days, you can preorder your copy at a savings of 30% by following the link below." So I clicked on the link and preordered the DVD. And while I was shopping, Amazon also recommended Ben-Hur and Cleopatra. So I bought those too.
Here's the point: Amazon.com has created a successful system of one-to-one marketing. It's the first company to really take advantage of something the Internet makes possible. In the old days, only small outfits could keep track of customers: your local tailor, the local barber, the butcher at the grocery store. As retailing and customer services have consolidated, we've bemoaned the loss of that personal touch. The Net can bring it back.
At most companies internal conflicts make that very difficult. The sales department at a FORTUNE 500 company, for instance, rarely works well--if at all--with the customer-service folks. But Amazon.com is a new company founded by a visionary who understood that the real opportunity was in using the technology to build long-term relationships. Jeff Bezos focused early on building a technology platform: He hired the best IT managers and engineers, he set rules that favored the customer, and he relentlessly built a customer-oriented culture. A couple of years ago I asked Bezos what I thought the killer question was: "Jeff," I asked, "when are you going to know that Amazon needs to make a profit, rather than putting growth first?" He replied, "Customers come first. If you focus on what customers want and build a relationship, they will allow you to make money." That creates a long-term sustainable advantage, one that tends not to be subject to the quantitative analysis performed by most Wall Street analysts. It's the one that results in the 17 orders I made last year, totaling $774.19 in revenue for Amazon.com.
What Amazon.com has done is invent and implement a model for interacting with millions of customers, one at a time. Old-line companies can't do that--I like Nordstrom, Eddie Bauer, Starbucks, and Shell, but they have to reach out to me with mass advertising and marketing. Amazon's technology gives me exactly what I want, in an extraordinarily responsive way.
Indeed, I'm so confident of this analysis of Amazon.com that I'm willing to do exactly what I did when America Online appeared to be in trouble four years ago: Put my money where my mouth is. In that case I bought 100 shares of the company for $4,200. That's turned into 1,600 shares now worth $66,000. I'm a little better off now, so I'll buy 1,000 shares of Amazon, which trades at just under $13 as I write this. Don't take this as investment advice--I'm also the guy who bought Webvan four separate times as it declined from $12 a share to under $1! But I'll let you know in a while how I did. For better or for worse.
STEWART ALSOP is a partner with New Enterprise Associates, a venture capital firm. Except as noted, neither he nor his partnership has a financial interest in the companies mentioned. He can be reached at email@example.com. His column may be bookmarked online at www.fortune.com/technology/alsop.