Will Amazon.coms Growth Strategy Work?
For the first time in its eight-year history, Amazon.com posted a profitable quarter that wasn't driven by holiday shopping. But to keep growing, Amazon will need to wield more clout offline. Here's a look at its untested strategy to offer back-end onlineIt was a statement unusual in its candor. Cornell Williams, Vice President and Chief Technology Officer for Gap Inc. Direct, the online division of apparel retailer Gap Inc., was at an e-tailers conference in mid-2003 when he was asked about his companys decision a year earlier to sell clothing through Amazon.com while maintaining its own retail Web site. "When I go to Amazon, Im not looking for apparel," Williams told attendees. "Right now, the Amazon relationship does not have a primary revenue impact [on the Gap]." Odds are, thats the last thing Amazon.com Inc. management wants to hear. The company that debuted eight years ago as an online bookseller and became the Webs paradigmatic retailer is in the midst of a difficult transition that has gone mostly unnoticed. With its book and CD sales beginning to slow and international expansion peaking, Amazon is quietly trying to transform itself into a technology company, a portal and infrastructure provider for would-be e-tailers.
Its a difficult gambit that represents an intriguing disconnect between a central tenet of Amazons growth strategy and the general view of Amazon that has driven its stock this year to levels unseen since the dot-com crash. While Amazons top executives, led by CEO and president Jeffrey Bezos, contend that Amazons future depends on signing up more and more third-party retailers to sell products through Amazon.com, most analysts have ignored this plank of Amazons platform. Instead, theyve staked their buy ratings on the notion that Amazon is still a sexy, fast-growth e-tailer, even without third-party partners. Whether Amazon will be able to live up to either the internal or external expectations is an open question, but the attempt will go a long way toward finally addressing a larger issue: What does it take to make money online?