Amazon.com turns 5 but will it survive?

Amazon.com turns 5 but will it survive?
Scott Hillis

SEATTLE, JULY 15: Five years ago, a feeling ofdread gripped Jeff Bezos the day before he launched his new company: could his wild idea to sell books on something called the Internet succeed?

His doubts vanished when Amazon.com Inc. threw open its doorsin cyberspace on July 16, 1995, marking the dawn of the DOT-com era and promising to rewrite the rules of retail.

"On July 15 I was with one of the software developers, and wewere looking at our warehouse, which was about the size of a two-car garage, and he said 'I can'T figure out if this is incredibly optimistic or incredibly pathetic'," Bezos laughed in a recent interview with Reuters.

As Amazon turns five years old, Bezos says he is as confidentas ever despite concerns over whether the grand-daddy of all DOT-coms will ever turn a profit.

The pressure is greater than ever.

With Internet start-ups biting the dust Left and right, alleyes will be on Amazon when it reports its second-quarter earnings in less than two weeks.

"It's a very important company because it has led the sectorand continues to lead the sector in terms of what other people try to do," said Adam Hamilton, an analyst with Seattle-based brokerage McAdams Wright Ragen.

Fresh doubts about Amazon's viability were raised in lateJune when a debt analyst with investment firm Lehman Bros. described its credit as "extremely weak and deteriorating."

Lehman analyst Ravi Suria said Amazon had a weak balancesheet, poor working capital management and huge negative operating cash flow. The conclusion? Amazon would run out of money within a year.

The comments sparked a steep sell-off in Amazon shares, whichhit a 52-week low of 32-7/16, far below its peak of 113.

Calling the report "hogwash", Amazon retorted that it had $1billion in cash and would show a positive cash flow for the rest of this year.

On Friday, the stock soared 7-1/2, or 20 percent, to 42-1/2after an analyst with another investment firm, Salomon Smith Barney, made positive remarks about Amazon's cashflow.

WRITING THE BOOK ABOUT E-TAILING

Observers and analysts say if there is any Internet successstory, it's Amazon.

Annual sales have soared well over the $1 billion mark,customer ranks have swollen to 20 million, and the site books 100 orders per minute, compared to 100 a day in late 1995. There are operations in Britain, France and Germany.

"We're not in the business of betting against the leaders inthe industry. There are a lot of companies with riskier business plans who are in worse positions, with zero brand," said John Keister, President of Go2Net Inc., a Seattle-based provider of E-commerce tools.

"Yeah, they've had a rough go the past few months, but ...they've got incredible scale and there all kind of ways to leverage that scale in ways we haven'T even thought of," Keister said in an interview.

Dwayne Walker, Chief executive of Seattle-based E-commerceinfrastructure company Network Commerce Inc., said Amazon has the best chance of surviving the E-tailing shakeout, but could drastically revise its business model in the face of competition from real-world retailers like Wal-Mart.

"The economics haven'T proven their way out yet," Walkersaid. "It's a tough issue. I come down on either side of it on any given day. It's going to be a wait-and-see thing."

AUCTIONS AND ZSHOPS AND TOOLS, OH MY!

Bezos says he expects the next five years to be as fun as thelast five, in which he went from dropping off packages at the post office in his Chevy Blazer to hosting Vice President Al Gore, who dropped in on the Amazon headquarters in 1997 to work the phones.

Hewing to his mantra of making Amazon "Earth's mostcustomer-centric company", Bezos forecasts that personalization of the online store will make the Web site totally different for each customer.

"You should have control over your store," Bezos said.

Bezos insists that those efforts will pay off. Givingcustomers more control will keep them happy, and happy customers come back and spend more money.

"If you don'T listen to the customer, you will fail," Bezossaid. "Anytime you do something that creates value for the customer, you create value for shareholders."

Satisfying customers drove Bezos to push Amazon beyondselling just books and into music, electronics, hardware, tools, kitchen supplies and its "zShop" network of merchants -- moves that raised eyebrows over whether the company was spreading itself too thin.

Nonsense, says Bezos.

"We would get all these E-mails asking when we were going tocarry 'X', and every time we got an E-mail message, 'X' was something different," Bezos said, adding that Amazon isn'T finished yet.

"There are still things to come," Bezos said.