After years of hearing critics say Amazon.com wouldn't survive, Chief Executive Jeffrey P. Bezos finally can relax a little -- if he were so inclined. With sales recharged from his bold bet on dropping prices and offering free shipping on orders over $25, the No. 1 e-tailer may well earn its first annual profit this year on sales expected to hit $4.8 billion.
Yet Bezos isn't letting up. He's pushing harder on a plan to make Amazon (AMZN) essentially the online partner of his apparent rivals: traditional retailers. By handling the Web sites and even packaging and shipping for the likes of Target (TGT) and Toys 'R' Us (TOY), Bezos hopes to expand a lucrative revenue stream. In a recent interview with BusinessWeek Silicon Valley Bureau Chief Robert D. Hof, Bezos laid out how Amazon has defied the skeptics and provided hints of what's coming next. Edited excerpts of their conversation follow:
Q: What are you focusing on as CEO these days?
A: The vast majority of my time goes into customer-experience issues, because that's what drives this business. At the beginning of this year, we stopped doing broad-scale TV advertising, so we've basically gone away from things that aren't customer-experience drivers. What has always driven our business has been the focus on making that experience better in all the ways that matter to customers.
Q: What are the most important ways to improve the customer experience?
A: Lower prices, for one. It's easy to lower prices, but the hard part is figuring out how to afford to do so. So we do a lot of work on cost structure. We've tested over the course of a year [ideas that] culminated in free shipping on orders over $25. That has been very successful. Customers love it. At the beginning of this year, we made that permanent.
It's a very expensive thing to do. But by working on cost structure, by not spending money on things like TV advertising, we can afford to do that, and the money goes into the hands of the customers. We're going to continue to do that. I'm an absolute zealot about that.
Q: What else?
A: We're also constantly working on the Web-site portion of the customer experience. There's still tremendous opportunity for improvement there -- making it easier for customers to discover products and for products to discover customers.
Reliability and speed of fulfillment is another area. Every year that has gone by, we've gotten better in that regard. That team just did an unbelievable logistics feat of simultaneously laying down 1.4 million copies of Harry Potter 5 all over the world. That's as hard to do as it sounds. They have to go on the right day. Normally, if you deliver a product early, you're O.K., but with this particular product, it cannot be late, but it also cannot be early because the publisher doesn't want it to go out early.
Then there's selection. We've added apparel, and we have dramatically increased selection in our electronics store. We've even dramatically increased selection in our oldest store, our bookstore -- mostly out-of-print items.
Q: How are you continuing to cut expenses?
A: Reduce defects in everything we do. It decreases costs, which lets us offer lower prices, and it improves the quality of the experience. So it's a double win from a customer experience point of view.
Q: Amazon.com now runs sites and online operations for retailers such as Target and Toys 'R' Us. What's the future for that services business?
A: It's a rapidly growing part of our business. And that goes from [large] companies that are customers of that all the way down to individuals using our Web services to tap into the fundamental platform that is Amazon.com. They can build their own applications very effectively. It's almost closer to an ecosystem.
Q: So Amazon is becoming a kind of software platform a bit like Microsoft (MSFT)?
A: People are building stuff that surprises us. That's what's so interesting about this. We've built this big base of technology to serve ourselves, and now we're opening it up and letting people access it.
They're taking these fundamental pieces and building completely new things that not only would we have never gotten around to but in some cases maybe never even have thought of. There are thousands of developers who are building applications using Amazon Web services. The sky's the limit on their creativity.
Q: What arises from all those efforts?
A: People will be able to build very powerful applications by hooking together a whole bunch of Web services from a whole bunch of different companies.
Q: What benefit is Amazon.com getting from this?
A: It's too early to say. It's certainly not a major source of revenue for us. But when people use our Web services, they give us credit for that. That turns out to be very helpful.
Q: Do you ever want to tell your critics, "I told you so"?
A: No, no, no. We have been an incredibly lucky company the whole time.