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When Amazon.com opened its cyber doors in July 1995 as an Internet bookseller, it did not even merit a mention in Time magazine. During the next four years, however, the company became not only a driving force in American business, it emerged as a shining example of how to turn an Internet start-up into a corporate empire. Because of its amazing success, Time named company founder Jeff Bezos its "Person of the Year" for 1999.
Today, Amazon.com is a household name thanks to an enormous amount of publicity and a customer base of twenty-five million. It has weathered ups and downs to become the nation's largest bookstore and one of the top businesses in the country. In addition to millions of book titles, the company also offers a wide variety of other goods, from CDs and DVDs to kitchenware, electronics, toys and games, automobiles, and computers.
In 1994, Jeff Bezos left his $1 million a year job as an investment manager at the New York City firm of D. E. Shaw & Company with the intent of starting a business to take advantage of the 2,300 percent-a-year growth of the Internet. In a story he has told in numerous interviews, Bezos said he drew up a list of the best products to sell on-line and books topped the list, primarily because of the millions of titles in print.
Once the product was decided on, Bezos and his wife moved from Texas to the Seattle, Washington, area, home to dozens of computer software companies, including the Microsoft Corporation (see entry). Bezos figured that there he would have access to a large pool of high-tech professionals. With his wife, MacKenzie, driving their 1988 Chevy Blazer west from Texas, Bezos wrote a business plan on his laptop computer. The plan included naming the company Amazon, after the world's largest river. The symbolism proved to be amazingly prophetic.
Bezos soon rented a two-bedroom house in the Seattle suburb of Bellevue and set up operations in his garage with four employees. A computer programmer, Shel Kaplan, was the first person he hired; Kaplan was given the task of developing the company's Web site. A beta, or test version, of the Amazon.com Web site was put in place in June 1995.
Bezos financed the operation with his own money and a $300,000 loan from his parents. But realizing he needed much more, Bezos contacted former co-workers and family friends and convinced fifteen of them to invest in his start-up, bringing his total capital to $1 million. With his initial investment, and after a month of successfully beta testing the Web site, Bezos was ready for business.
Amazon.com officially opened for business on July 6, 1995. For the first few days, orders came mostly from family and friends. Ten days later, the first "real" customer ordered an obscure science book, Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought, by Douglas R. Hofstadter.
From then on, orders began pouring in despite little publicity. Within a month, Amazon.com had sales in all fifty states and forty-five countries. Most had heard about the company by word of mouth or stumbled across it while surfing the Internet.
Bezos, his wife, and a small group of employees did all of their work from the garage. To save money, Bezos built desks, bookcases, and other office furniture out of old doors and pieces of used lumber. To help supply electricity, he used power cables to bring electricity from the house to the garage. Once a customer placed an order, the staff would immediately request the title from one of their book suppliers. Employees had to crouch or kneel on the garage floor to pack books in shipping cartons. Everyone took turns packing books for shipment, sometimes staying up until two or three o'clock in the morning.
Part of Amazon's early success can be attributed to the company offering one million new and used titles. Of these, 300,000 were available for shipment within forty-eight hours while the remaining required four to six weeks for shipment. This far exceeded the traditional bookstore that typically stocks 30,000 to 175,000 titles. Also unlike traditional bookstores, Amazon.com was open twenty-four hours a day, seven days a week. Customers could complete their transactions without ever leaving their home or office.
Another key to the company's rise was its use of the "secure sockets layer," a format developed by Netscape Communications Corporation (see entry) that encrypts (scrambles) and protects data, such as credit card information. It is built into most Web browsers, such as Netscape Navigator and Microsoft Internet Explorer, and most major Web servers. It allows credit card and other information to be securely sent from a customer's computer to Amazon.com .
At about the same time Amazon.com was starting, the search engine Yahoo.com was establishing itself on the Internet as a major presence. Internet users entered key words or short phrases and were given a list of Web sites that matched their input or query. Yahoo contacted Bezos about listing Amazon.com in its "What's Cool" section. With this free publicity, Amazon.com book sales immediately skyrocketed.
As Amazon.com 's sales increased, Bezos realized it was more important than ever to stick to his core philosophy of what makes a successful company: the customer is the single most important priority, regardless of the cost. This often resulted in the company spending more to ship a book to the customer than the price of the book itself. Amazon.com absorbed the added costs to ensure that the customer received the book in the time frame originally promised.
Jeff Bezos spent months coming up with the company name for Amazon. He discarded his original idea, "Cadabra," when, in a telephone conversation, his attorney thought he said "cadaver."
Amazon.com quickly became know for its excellent service and also for its "customer-friendly" Web site, where consumers could rate and post their own reviews of books, and authors could host question and answer pages. A particularly successful feature of the company's site is that it "remembers" past customers and automatically makes recommendations
While Amazon.com posted net sales of $511,000 during its nearly six months of operation in 1995, after paying operating expenses it actually had a net loss of $303,000. This would be the first in a series of unprofitable years for the company. Bezos, however, was not discouraged and remained confident that his fledgling business would be a success.
At the beginning of 1996, Amazon employed eleven people and moved to new headquarters, a small warehouse not far from Bezos's home. To help keep costs down, the company carried little inventory (products on-hand) and relied on speedy shipments from its suppliers. By the end of 1996, Amazon.com 's growth was phenomenal. It offered 2.5 million titles although it still carried minimal inventory. To accommodate its 151 employees, it relocated to a larger building in downtown Seattle. Its 1996 revenues showed $15.7 million in net sales and a net loss of $5.7 million. During the same year, several on-line competitors surfaced, including Book Stacks, BookZone, and Internet Book Shop.
The company's growth continued in 1997. In May, Amazon.com began offering its stock for sale to the public with an initial offering of three million shares. Opening at $18 a share, Amazon.com stock rose to $30 before closing for the day at $23.25. In one day, the stock sale raised $54 million for the company.
Two other developments proved noteworthy in 1997, both involving the nation's largest traditional bookseller, Barnes & Noble. On May 12, Barnes & Noble unveiled its own Web site and filed a lawsuit challenging Amazon.com 's claim to be the world's largest bookstore. "[It] isn't a bookstore at all," the suit stated. "It's a book broker."
An out-of-court settlement (where both parties agree to settle their dispute without the help of the court system) was reached in October. Details were not released, but Amazon.com continues to call itself the world's largest bookstore. According to its Web site, Amazon offers the Earth's Biggest Selection T M of products.
The Barnes & Noble lawsuit proved to be only the first of several legal challenges to Amazon.com . On October 16, 1998, Wal-Mart Stores, Inc. (see entry) filed suit against the company charging it with stealing distribution and merchandising trade secrets by hiring Wal-Mart executives. The two business giants reached an out-of-court settlement eighteen months later, which legal analysts saw as a victory for Amazon.com . Under the agreement, one Amazon.com employee was reassigned and all fifteen employees named in the suit were restricted in their duties relating to information systems.
In 1997 and 1998, Amazon.com 's stocks shot up as sales dramatically increased. Still, the company continued posting quarterly losses. By the end of 1998, Amazon.com offered 3.1 million titles. It reported total sales of $610 million, up 312 percent over 1997. It also had a net loss of $124 million, a 301 percent increase from 1997.
Amazon.com 's sales were boosted by expansion into the United Kingdom and Germany, as well as the addition of music, video, and gift "stores" to its Internet site. It also introduced its associates program, which allowed other Web sites to sell books through a link to Amazon.com . In addition, beginning in 1998, the company began to partially or totally take over a number of companies, including Junglee (a Web technology firm), Drugstore.com , Pets.com , HomeGrocer.com , Overstock.com , and Della.com (wedding gifts and registry.)
By the end of 2000, Amazon.com was an unquestionable force in American commerce. It partnered with Toys R Us, expanded it range of merchandise well beyond its core line of books, music, and videos, and added new technology that improved customer interaction. It also launched sites in France and Japan.
Yet the more Amazon grew, the more money it lost. Early in 2000, the company announced its first-ever job cuts: 150 employees would be laid off. Net sales for the year were $2.76 billion but the company posted a net loss of $1.4 billion. Wall Street analysts said that unless Amazon.com began to show a profit, its future was uncertain. Investors and stockholders started to become nervous.
Bezos heard Wall Street's warnings loud and clear. In late January 2001, Amazon.com announced it would lay off thirteen hundred of its nine thousand workers and close its McDonough, Georgia, warehouse, one of eleven across the country. It also announced that they would eliminate a customer service center in Seattle, and operate its Seattle distribution center only during the holiday season. Finally, it also closed a distribution center in the Netherlands. Amazon.com rebounded in 2001 posting a fourth quarter net profit of $5.1 million on net sales of $1.12 billion. For the year, it reported net sales of $3.12 billion and a net loss of $567 million.
As it started 2002, Amazon.com offered more than two dozen on-line "stores," which sold products ranging from cameras, cars, and computers, to tools, toys, and travel. It also operated its own auction shop and partnered with the Target Corporation (see entry) and Circuit City. Even traditional bookseller Borders signed an agreement for Amazon.com to sell books on its behalf on-line. It expected to start selling clothing, and movie, concert, and event tickets by the end of the year. In March, Warren Jenson resigned as chief financial officer (CFO). He joined the company in 1999 and is credited with helping Amazon.com achieve its first quarterly profit.
Wall Street analysts are split over whether Amazon.com can sustain its profitability. Bezos predicts the company will stay profitable by continuing to expand its merchandise line, keeping its commitment to customer service, and operating more efficiently. "What we want to become is something completely new," Bezos said in a January 2002 interview with CNET.com . "And our vision hasn't changed at all the last few years. We want to be a place where people can come to find and discover anything they might want to buy on-line."