Crazy Business Ideas That Actually Worked: Amazon.com
When Jeff Bezos first described a plan to sell books without a bookshop, would-be investors told him it wouldn't work.
While buying online is a perfectly natural experience in 2010, in 1994 it wasn't something that many business people were willing to experiment with. Fortunately, one man didn't think like the others.
That man was Jeff Bezos, who was then a financial analyst with the New York hedge fund DE Shaw. According to a Fortune magazine profile, Bezos got the idea to launch an online bookstore when his work led him to a surprising statistic: Online sales were increasing at a rate of 2,300% per year. It was time to move, and books, which were easy to ship and always in demand, seemed like the most logical product to start with. "If I had a nickel for every time a potential investor told me this wouldn't work ... ," Bezos laughed in an interview with Time in 1999, the year the magazine named him Person of the Year.
Fortunately, there were a few investors who believed in Bezos's plan. The entrepreneur moved to Seattle from New York in 1994 on the urging of Nick Hanauer, a friend who put up the first $40,000 for the business that would eventually become Amazon.com (AMZN). Bezos began selling books out of his garage in Bellevue, Washington, via a website that consumers called drab and hard to use. A second investor, Tom Alberg, stepped in with a $100,000 installment to transform the website into something a bit more user-friendly. Around the same time, Bezos decided to add a feature that would allow customers to write their own reviews for books.
The revamped Amazon.com quickly became a go-to site for shoppers looking for copies of rare books. The website sold its first book in July 1995 and was selling more than 100 books per day just four months later. By 1996, the company had found a mainstream consumer base and was making more than $15 million in annual sales. Amazon.com went public in 1997 with a target share price of $18 per share, but public demand pushed the price up to $24.
The pressure to "grow big, grow fast" became obvious in many ways during those early years. "The revolution in thinking was everybody saying you have a great opportunity to grow quickly here, money is available, so let's take advantage of it and use that money to grow quickly even if we lose money," Alberg later told the Seattle-Post Intelligencer.The company touted the "Earth's Biggest Selection," while the competition couldn't stock as many books in warehouses and stores. In 1998, Amazon started selling CDs and movies. Soon electronics and housewares were added to the product line. By 2009, Amazon.com was offering more than 10 million items in its MP3 store and had opened shop in the UK, France, Germany, Japan, and other countries.
The company finally became profitable in the fourth quarter of 2001, with a profit of just $0.01 per share. Soon Amazon''s success began to hurt the big-box book retailers. Borders has approached the brink of bankruptcy more than once in recent years and Barnes & Noble was forced to take on a business model similar to Amazon's, with an extensive website.
For Amazon, survival has depended on the company's sustained ability to evolve and meet new demands. In November 2007, Amazon launched the Kindle, one of the first e-readers to hit the market. While the Kindle still holds a majority share of the market, it has been losing ground to competition from Barnes & Noble's Nook, and now Apple's (AAPL) iPad. In its most recent quarterly statement, Amazon had profits of $299 million on revenues of $7.1 billion for the three-month period ended March 31.
Like any good entrepreneur, Bezos had faith in his vision from the beginning and his continued faith has helped Amazon.com remain a force to be reckoned with in the online world. "We remain heads-down focused on customers," said Bezos during the recent earnings season. "Amazon Prime has just celebrated its fifth anniversary, adoption of Amazon Web Services continues to accelerate, Kindle remains our number-one bestselling product, and earlier this week, Kindle selection reached 500,000 titles."
And so the story will go on.
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