Tag Archives: PETsMART Inc.

About 3339 days ago E-Commerce

Jeff Bezos

Jeff Bezos Amazon.com because “optimism is essential” Few entrepreneurs have taken as many lumps in the court of public opinion as Jeff Bezos has since his famous cross-country drive to Seattle in 1994 to found Amazon.com. Even as recently as June 2000, Lehman Brothers analyst Ravi Suria was memorably predicting that Amazon, based on Suria’s analysis of the company’s cash flow, would be unable to service its debt by the first quarter of 2001–and a lot of people believed him. As a result, Bezos had to spend quite a bit of time fending off speculation that bankruptcy was around the corner and explaining why he’d chosen, at least initially, to stress growth over profitability. (The fact that the company’s most famous Wall Street booster had been Henry Blodget only made matters worse, as Blodget sank into infamy even faster than the market declined.) But even fewer entrepreneurs have had the satisfaction of succeeding despite such skepticism. Not long after Amazon announced its first-ever full-year profit, we invited Bezos to talk about how he beat the odds and what the future holds–not just for him and for Amazon but for the entrepreneurial spirit. I’ve joked that in the case of Amazon.com, half of it was good timing, half of it was luck, and the rest of it was brains. And there’s a lot of truth in that. The fact of the matter is, the odds are stacked against any start-up. Heavily so. There’s a huge amount of luck and timing involved. Amazon.com’s most vulnerable moment was when we were trying to raise a million dollars of angel financing–there was a moment there, back in 1995, where the company very easily could have not continued to exist. We probably had meetings with over 60 people, the process took several months to close, and we ultimately raised the money from about 22 different angel investors. And by the way, that’s completely normal: There was a period in the late 1990s when people could, with a single phone call, raise $60 million, but that’s abnormal. If you go out to raise a million dollars for an untested idea–that’s supposed to be hard. And it was. But I am very optimistic. I’m generally a very happy person. My wife says, “If Jeff is unhappy, wait three minutes.” I believe that optimism is an essential quality for doing anything hard–entrepreneurial endeavors or anything else. That doesn’t mean that you’re blind or unrealistic, it means that you keep focused on eliminating your risks, modifying your strategy, until it is a strategy about which you can be genuinely optimistic. People think entrepreneurs are risk-loving. Really what you find is successful entrepreneurs hate risk, because the founding of the enterprise is already so risky that what they do is take their early resources, the small amounts of capital that they have, whatever assets they have, and they deploy those resources systematically, eliminating the largest risk first, the second-largest risk, and so on, and so on. “You don’t choose your passions, your passions choose you.” Entrepreneurship is really more about a state of mind than it is about working for yourself. It’s about being resourceful, it’s about problem solving. If you meet people who seem like really good problem solvers, step back, and you’ll see that they are self-reliant. I spent summers on my grandfather’s ranch, in a small town in Texas; from age four to 16 I probably missed only two summers. One of the things that you learn in a rural area like that is self-reliance. People do everything themselves. My grandfather bought a used D6 Caterpillar bulldozer, and it had a stripped transmission. He had to get a big gear out of this thing and that one gear probably weighed 500 pounds–so he had to build a small crane! That kind of self-reliance is something you can learn, and my grandfather was a huge role model for me: If something is broken, let’s fix it. To get something new done you have to be stubborn and focused, to the point where it might seem unreasonable. But at a certain point, you have to be flexible and change. The hard part, of course, is knowing when to be stubborn and when to be flexible. So we do a lot of experiments. Some of the experiments succeed and some fail, but all of them are designed to improve the customer experience. Look at something like free super saver shipping–our free shipping on orders over $25. That is something we very methodically experimented with for a full year. At first, orders over $99 would ship free, and then orders over $49 would ship free, and then orders over $25 would ship free. We knew that customers would like that, so it was a question of, would it drive enough sales to make it worthwhile? We compared it with a television advertising campaign: We picked two markets, Minneapolis and Portland, Oreg., and for a year we did television advertising just in those markets. We wanted to see if we would get a sufficient lift in sales to justify television advertising, and to compare that with giving the money directly to the customers in the form of free shipping instead of to the television networks. That’s a very customer-experience-focused experiment, and when we were done we decided we would make the $25 free shipping indefinite. It’s been in place now for almost two years. On the other hand, we invested in a number of dot-com companies–Pets.com, Living.com, Kozmo.com, and Homegrocer. Our strategy was to create placeholders for these categories that seemed interesting to us. But ultimately all the businesses I mentioned failed. Of course, if I knew everything I know now, I would have invested the money differently. But that’s hindsight. When you do experiments you have to expect a certain fraction of them not to succeed. Even once you have a strategy that makes sense and holds together from different angles, optimism is essential when trying to do anything difficult because difficult things often take a long time. That optimism can carry you through the various stages as the long term unfolds. And it’s the long term that matters. If you look at the online space over the next 20 years, you’re going to continue to see innovation. Certainly things are different from nine years ago, but there are still going to be thousands and thousands of successful companies. This is a big industry, and it’s going to have lots and lots of winners, of all sizes. Amazon itself has a kind of ecosystem of people involved in entrepreneurial activities. We have 600,000 active seller accounts now, and over 900,000 associates–the websites that link to us–and a lot of those are small businesses with multiple employees. We recently started making available software kits that let people use the basic building blocks of Amazon.com to build their own websites and e-commerce applications and so on, and we’ve had over 50,000 downloads. That’s beyond what we would have expected. If I were just setting out today to make that drive to the West Coast to start a new business, I would be looking at biotechnology and nanotechnology. I also think about data security–every time you read about the next computer virus, you wonder if there aren’t entrepreneurial solutions to that. These are fundamental technologies, things that are going to change the world. But the truth is, I probably wouldn’t do any of those things because I grew up programming computers. So maybe I’d think about data security, but I’m sure I’d do something with software and computer science and software engineering. Certainly, in the spring of 1994, the thing that motivated the formation of Amazon.com was noticing that Web usage was growing at 2,300% a year. One of the huge mistakes people make is that they try to force an interest on themselves. If you’re really interested in software and computer science, you should focus on that. But if you’re really interested in medicine, and you decide you’re going to become an Internet entrepreneur because it looks like everybody else is doing well, then that’s probably not going to work. You don’t choose your passions, your passions choose you. One of the reasons you saw so many companies that were formed in 1998 or 1999 fail is that they were chasing the wave. And that usually doesn’t work. Find that area that you are interested in and passionate about–and wait for the wave to find you.–Rob Walker Rob Walker is a contributing editor. Jeff Bezos, Amazon.com because “optimism is essential” Betsey Johnson, Betsey Johnson for her stylish life Russell Simmons, Rush Communications for his powerful example Scott Cook, Intuit because he learns, and teaches Sergey Brin & Larry Page, Google for their integrity. And, well, for Google David Neeleman, JetBlue for creating an airline fit for humans Tom Stemberg, Staples for doing it exactly right Jack Stack, SRC Holdings for going naked Judy Wicks, White Dog Enterprises because she’s put in place more progressive business practices per square foot than any other entrepreneur Davin Wedel, Global Protection because he’s a lifesaver Pat McGovern, International Data Group for knowing the power of respect Steve Jobs, Apple Computer, Pixar because we like to be seduced Lance Morgan, Ho-Chunk because a man must make his own arrows–Winnebago proverb James Goodnight, SAS for saying no to Wall Street (repeatedly) and yes to the people who really matter Stella Ogiale, Chesterfield Health Services for doing good while doing well Rhonda Kallman, New Century Brewing for seizing opportunity– again and again Laima Tazmin, LAVT because she’s a lot like other kids–and then again… Laura & Pete Wakeman, Great Harvest Bread for living a little –no, a lot Andra Rush, Rush Trucking for rolling up her sleeves Kathleen Wehner, Cirrus Aviation for refusing to quit Frank Venegas, Ideal Group because he parlayed a little bit of luck into a lot of good fortune for others Dan Wieden, Wieden + Kennedy because he’s a true independent John Sperling, Apollo Group because he stirs the pot, and apparently always will John Stollenwerk, Allen-Edmonds for his commitment to U.S. workers. We also love the shoes Mel Zuckerman, Canyon Ranch for showing the way

About 4466 days ago E-Commerce

Sit! Stay! Make Money! Good Company

realbusiness.com The Mom-and-Pop A tiny business that sells dog supplies on the Web pulls in profits while big pet dot-coms take a poop Company: SitStay GoOut Store Inc., in Lincoln, Nebr. What it does: Sells high-end dog supplies like the gumball- machine-style Yuppy Puppy Treat Machine, $29.95 Number of employees: 4 humans, 4 canines Conventional wisdom: It’s impossible to run a profitable pet site. Witness well-funded fizzles like Pets.com. Unconventional wisdom: A niche market, bootstrapped financing, and over-the-top customer service make dog supplies a profitable venture for a husband-and-wife team. Revenue growth: From $85,000 in 1997 to $888,000 in 2000 Profit profile: Profitable from year one. In 2000, profits were $111,000 on $888,000 in sales. Capital: $20,000 from the couple’s 401(k) investments The telephone is just about the only thing at SitStay.com that doesn’t bark. The clock barks the hour. The warehouse doorbell barks. The computer barks when a customer enters the chat room. And, of course, the four resident dogs — Kari, Bruno, Dancer, and Tilli — all bark. The telephone, however, still rings, and when it does, owner Darcie Krueger answers it with a lilt, not a bark. SitStay.com (aka SitStay GoOut Store) began as a hobby for dog-lovers Darcie, 46, and her husband, Kent Krueger, 41. The pair originally launched a Web site for Belgian-shepherd aficionados. Belgian owners came to rely on the Kruegers for product advice. Darcie soon realized that the hobby site could be a business. Today the company has 19,000 customers worldwide and nearly $900,000 in sales. “People always want to know ‘How did you do it?” says Kent. “We did it by accident.” That may be how the Kruegers like to think about their Internet company. But their success is no accident. SitStay exhibits all the traits of a well-run start-up and none of the hallmarks of a stereotypical dot-com. Drawing on 15 years’ experience in information technology, Kent built the site single-handedly. Darcie’s background in managing retail stores turned her into a service crusader willing to spend an hour on the phone giving training tips to a single customer. The pair have dug themselves a cozy, high-margin niche market. They generate business by word of mouth — unlike big E-tailers that spend millions building brands. And they bootstrapped the company by upgrading software, phone systems, and warehouse space only as cash flow permitted. “I’m not risky with money; I’m risky with ideas,” says Darcie. That’s hardly surprising, given her previous employment. Darcie quit her job as a city risk-management worker and went to work on SitStay full-time in February 1997. In October, Kent left his position as an information-services supervisor for the Lincoln Electric System. As if quitting their jobs weren’t enough, the couple took $20,000 out of Kent’s 401(k) plan. At that point Kent’s dad proclaimed, “You’re nuts.” Though the Kruegers had a head start on a customer base, they needed products to sell and employees to sell them. But instead of staffing up without the sales to pay the salaries, the couple worked around the barking clock until August 1999, when they hired Darcie’s son, Sean Kusek, to pick, pack, and ship orders of Icelandic fish-skin chews and Wiggly Giggly balls. (Sean’s wife, Amy, took over when Sean went back to college, in January 2000.) As last year’s holiday season approached, the Kruegers hired a fourth employee. As for stuff to sell, the Kruegers asked M.I. Industries, a Lincoln manufacturer of all-natural pet treats, if SitStay could sell its high-protein goodies. The company agreed but eyed the basement start-up warily, taking cash for the first order — a single box of Macho Stix. (The aptly named treats are made from the male sex organs of beef cattle.) Little by little, SitStay’s inventory expanded to fill the basement, then the garage, then a 3,000-square-foot office and warehouse. Little by little, the treat manufacturer extended its terms. Now SitStay sells $16,000 of M.I.’s products in a month, and M.I. president Bob Milligan doesn’t give SitStay’s credit a second thought. “You know the check’s coming,” he says. Unlike the big pet E-tailers that try to be all things to all animal owners, the Kruegers limit their offerings to a relatively small collection of products that, like Macho Stix, meet their personal standards of what’s good for dogs. Margins on their 1,500 SKUs range from 15% to 100%. “We don’t have 10,000 products,” says Kent. “We have the best of the best.” Indeed, when it comes to E-commerce, small is beautiful, says Tim Fogarty, an E-commerce research analyst at Thomas Weisel Partners, a San Francisco-based merchant bank. “Who sells the most? EBay,” he says. EBay and Amazon’s zShops introduced myriad small sellers to a vast community of buyers, Fogarty says. Though the public doesn’t hear much about them, the small shops are running the E-commerce factory. But they’re too tiny to compete with a supermarket or a big-box retailer on high-volume, low-margin commodities — particularly in the pet industry, with freight-heavy items like bargain-brand kitty litter and dog food. In such a fragmented field, “what’s really important is to find a niche and grow within that niche,” says Funda Alp, spokesperson for the American Pet Products Manufacturers Association, in Greenwich, Conn. Go too broad and you risk going belly-up, like the former employer of a certain illustrious sock puppet. “Pets.com created great brand awareness, but their business model was all pet products at a discount on the Web. No one has made that work yet,” says Andy Pierce, vice-president of branding strategy at Mercer Management Consulting, in Lexington, Mass. According to Greg Kyle, president and CEO of Pegasus Research International, in New York City, Pets.com sold items for less than what it had paid for them. Add shipping costs, and the company lost $277,000 on about $9.3 million in sales in its last quarter in business. The self-funded Kruegers don’t have the luxury of losing money on sales. But last fall, the Kruegers’ approach didn’t stop SitStay customer Donna McKay (and numerous others) from fearing that Pets.com’s failure would presage SitStay’s untimely death. McKay posted this message on SitStay’s online forum: “Ever since I heard about the demise of Pets.com, I’ve been worried about SitStay. Is there something we should be doing to ensure its viability?” After a flurry of similar postings, Kent replied, “Let me put your minds at ease. SitStay.com isn’t going away. We’re like the tortoise. We just keep on going while the hares are running out of steam.” After four years in business, the Kruegers still like their steady pace and don’t want any venture capital with its attached strings. They have already spurned one suitor. And no, they’re not crazy. “Companies that adopt a risky strategy of growing as quickly as possible without any thought to the bottom line or profitability haven’t managed their growth effectively,” says Pegasus’s Kyle. Instead, the co-preneurs envision growing to $25 million and 25 employees in five years on their own terms. They’d consider a microcap public offering in which they’d retain the majority of stock. SitStay’s biggest challenge will be succession. Someday Darcie won’t be able to handle all the phone calls herself. Someday Kent will want to take his motorcycle out for more than half a day’s ride. Realizing that their business could play dead — for real — without them, the Kruegers are beginning to work out a plan. “As we grow, we’ll cross-train the employees” so that they can take over if necessary, Darcie says. “We’ll still be the soul of the business, but we won’t be the heart anymore, and it can go on beating without us.” With no fanfare and little venture money, the companies profiled here are delivering real stuff to paying customers and making a buck in the process. There may not be any “new rules,” but there are rules, and we suspect every one of them will look familiar. DVD Empire: The Bootstrapper SitStay.com: The Mom-and-Pop Shoebuy.com: The Scorekeepers Accuship.com: The Traditionalist Fashionmall.com: The Conservative Healthcommunities.com: The Underwriter Commentary E-tailing Intermediaries The Markets Please e-mail your comments to editors@inc.com.

About 4466 days ago E-Commerce

E-Tailing By The Numbers

realbusiness.com The Scorekeepers What’s the key to successful online sales? First you find a great niche. Then you set rigorous numerical standards and stick to them Company: Shoebuy.com, in Boston What it does: Sells shoes online Number of employees: 8 Conventional wisdom: Everybody knows that E-tailing is dead. Just read the papers. Unconventional wisdom: Executed well, the E-tailing model can yield healthy profits. Revenue growth: $1.8 million in 2000; more than $30 million projected for 2001 Profit profile: Founded in April 1999, the company first turned a profit in January 2001. Capital: Start-up investment of $200,000 in personal funds; $2.3 million from angel investors Selling shoes online. It’s the kind of business you’d expect to be the brainchild of a fashion maven with a closet full of Manolo Blahniks. But Scott Savitz and Craig Starble couldn’t care less about shoes. What turned the two investment bankers on to peddling oxfords online was the opportunity to use their quantitative skills to test whether E-tailing could really work. In early 1999, Savitz and Starble were working at BankBoston (now Fleet Bank). Starble, now 38, was managing global treasury funds, while Savitz, 32, specialized in individual investments. Investment bankers, says Savitz, take a “very formularized approach to recognizing value in any opportunity,” adding that he himself was always conservative with his clients’ funds. “We never went for home runs,” he says. “We aimed more for singles.” As the pair witnessed all the start-up activity in E-tailing, they decided to take a shot at it themselves. But what exactly would they sell? At the time it seemed as if almost everything that you could conceivably sell online was already being sold there. But no one appeared to be selling shoes over the Internet, at least not in any major way. Which, of course, made them wonder why. Would consumers buy shoes without trying them on first? “Until about the fall of 2000 we tried to talk ourselves out of doing Shoebuy,” says Savitz. “But the more we did the numbers, the more it made sense.” What made particular sense to them was that the people who were already buying $2.5 billion worth of shoes through mail-order catalogs would almost certainly be open to shopping for them online. As Savitz and Starble made their calculations, they came to believe they had uncovered what Savitz calls “a hidden gem.” It seemed that if shoes were sold right, they could bring in extraordinarily healthy profits. Typical shoe retailers, says Savitz, start with about a 100% markup, but that usually whittles down to a 3.5% net margin after they deduct all their costs. Savitz and Starble were determined to eliminate as many of those costs as possible. To entice potentially reluctant shoppers, they decided to offer free shipping. But even after subtracting that cost and salaries for customer-service, technical, and business-development personnel, they were left with a staggering — albeit still theoretical — 30% net profit. Savitz was determined to maintain that 30%, which to him meant that the company would have no sales force, no inventory, no warehouse, and as few employees as possible. It would be, in other words, a virtual organization. “The virtual company was supposed to be the promise of the Internet,” says Savitz, “but somehow that got lost for a lot of people along the way.” Maintaining a warehouse and inventory would erode their precious margin by 18 points. Moreover, says Savitz, by holding inventory Shoebuy would incur the exposure to loss from radically changing trends in footwear. Adding a sales staff would cost the company another 10%. For that reason, Savitz says, he has no plans to add to his staff of eight at any time soon. “We just have to make sure we never spend more than our model will allow,” he says. “Otherwise it won’t work.” Armed with what they saw as a terrific market potential and the chance to land some hefty margins, the partners set out to use their quantitative skills to manipulate those numbers to their advantage. The number that in the end would matter most: the lowest customer-acquisition cost possible. One afternoon last fall, Savitz sat at a folding table in Shoebuy’s modest corporate office in Boston’s financial district, animatedly describing his passion for keeping customer-acquisition costs low. He briskly rattled off a series of well-known online players and the average amounts he had estimated that they spent to snag a single sale: Amazon, $103; Bluefly.com used to be $245 but got it down to $58. And the now-defunct Garden.com, Pets.com, and Furniture.com had struggled along at $71, $200, and $500, respectively. Savitz wouldn’t allow Shoebuy’s figure to rise above $15. He chose to keep marketing costs low by establishing alliances with shopping sites and striking customer-share deals with highly focused E-tailers. He also scored a cobranding coup: Shoebuy was featured prominently in a MasterCard ad that appeared in fall and winter 2000 issues of Bon AppÉtit, Martha Stewart Living, and Gourmet magazines, among others. The ad didn’t cost Shoebuy anything up front, although customers received a discount by using Master-Card for their Shoebuy purchases. The other number that would make or break Shoebuy would be what Savitz calls the company’s “fulfillment metric” — how fast manufacturers could get their shoes to Shoebuy’s customers. But before he could determine what that number should be, Savitz had to persuade manufacturers to drop-ship shoes from their own warehouses. Typically, shoe manufacturers receive shipments from overseas factories in large crates, which they then ship to retailers. To work with Shoebuy, vendors must set up a consumer-direct fulfillment system from scratch, a process Savitz says has been arduous at best. Even after Savitz signs up a vendor to sell its shoes through Shoebuy, it can take up to six months to get its product on the site. Mike Kormos, president of Footwear Consulting Group, in Nashville, says it’s no surprise that Shoebuy has met with resistance. For one, he says, manufacturers fear channel conflict. More important, says Kormos, is the traditional, hidebound nature of the footwear industry. “There’s typically a lethargy in adopting new technology,” he says. Savitz says that manufacturers have gradually embraced the Shoebuy concept. One thing that’s worked in Shoebuy’s favor has been the attraction of one-stop shopping. “It’s hard to make money on the Web when you’re only selling a single brand,” says Savitz. But what really convinced manufacturers of Shoebuy’s value, says Savitz, was their own botched E-tailing efforts. “Some companies have tried selling online on their own,” he says. “And they’ve seen what a costly procedure it is, from building the site to installing in-house customer service. It actually becomes a losing proposition for them.” Savitz admits that launching the company would have been a lot easier if it had maintained its own inventory. “But then you start taking away all the things that make our business model so appealing,” he says. Under its current system, Shoebuy can offer a selection of products that would have been impossible if the company had kept its own inventory. The arrangement is also good for cash flow. “We don’t pay for shoes until after we sell them,” says Savitz. Savitz believes that Shoebuy’s cash-flow advantage explains why the company is still around and onetime competitors like MyFavoriteShoe.com aren’t. “They immediately went out and put good names on the site, signed deals with the Bruno Maglis, and bought a boatload of inventory,” he says. From Savitz’s perspective, that approach was flawed. Even if the folks at MyFavoriteShoe had perfectly forecast their prospective customers’ buying patterns, they still would have tied up their cash for six or seven months while they waited for their inventory to sell. Shoebuy takes on a limited number of each new manufacturer’s products on a trial basis. Companies that sign on with Shoebuy agree to ship shoes within an average of three to five days after an order has been placed. “We can’t explain to the customer that it wasn’t us; the manufacturer screwed up,” says Savitz. He and Starble monitor each manufacturer’s sales history, and unless a particular style meets their sales expectations, it comes off the site. Given Savitz and Starble’s careful calculations, Shoebuy’s 2001 revenue projection seems jarring: somewhere north of $30 million, up from $1.8 million in 2000. How can the founders justify such a “hockey stick” trend line? “We’re in a very scalable position,” says Savitz. “We have a large market with virtually no competition and more than $60 million in ‘inventory’ available on the site. We have the infrastructure to sell at that rate, but we don’t have the actual inventory risk.” Savitz admits that if the company stays at its current run rate, 2001 revenues will be closer to $4 million. “But we went up over 100% from third to fourth quarter 2000 without hiring anyone, and that momentum hasn’t stopped,” he says. But for the company to make those projections, will Savitz and Starble need to seek additional outside funding? “No, but we probably will anyway,” says Savitz, “because the environment is so good for acquisition targets.” Possible candidates might sell similar or complementary items that Shoebuy could roll into its model and scale up appropriately. “But we will never hold inventory, and you can quote me on that,” emphasizes Savitz. “I can’t see that we’d ever go against our model or abandon the metrics we’ve established.” With no fanfare and little venture money, the companies profiled here are delivering real stuff to paying customers and making a buck in the process. There may not be any “new rules,” but there are rules, and we suspect every one of them will look familiar. DVD Empire: The Bootstrapper SitStay.com: The Mom-and-Pop Shoebuy.com: The Scorekeepers Accuship.com: The Traditionalist Fashionmall.com: The Conservative Healthcommunities.com: The Underwriter Commentary E-tailing Intermediaries The Markets Please e-mail your comments to editors@inc.com.

About 4466 days ago E-Commerce

A Bright Future: After the Train Wreck

realbusiness.com Commentary: E-tailing A four-time entrepreneur explores the realities of retailing, both on and off the Web. He finds out that they’re the same As the Great Internet Crash of April 2000 approaches its first anniversary, E-tailers are still clearing away the twisted, scorched ruins of business plans and high hopes, trying to see if E-tailing has a future and, if it does, what that future may look like. But it’s tough seeing beyond the carnage. At year-end 2000, New York recruitment firm Challenger, Gray & Christmas estimated that more than 41,000 workers had lost their jobs at Internet companies. People who were tracking the disaster, such as reporters at the trade journal The Industry Standard, counted at least 135 company deaths by mid-December. A handful of the high fliers left alongside the tracks are now so well known that their names have become synonymous with Internet failure: Pets.com, ToySmart.com, Chipshot.com, Eve.com, Furniture.com, Kibu.com, and Productopia. Less spectacular deaths are chronicled on the let’s-not-mince-words site Fuckedcompany.com. And no one tracks the disappearances of the one- and two-person sites, bootstrapped by entrepreneurs who quietly said good-bye. But despite the stream of obituaries, E-tailing is alive — and it has a bright future. As I was writing this, industry and brokerage analysts were unwilling to draw up a definitive list of winners and losers, but all were amenable to sharing their thoughts on what sorts of smarts will lead an E-tailer to success. “E-tail is not different from retail,” says Dan Levitan, cofounder and managing partner of Maveron Equity Partners, a Seattle-based venture-capital firm that backed eBay and Drugstore.com. Levitan emphasizes that a successful retailing operation on the Web must adhere to the same key management practices as a brick-and-mortar retailer. “The Internet is technology that empowers retailing, but technology alone is not reason enough for people to buy,” he says. “You must be customer focused, not product focused, and you must pay attention to the details.” His argument is merely common sense: all retailers — whether on the Web or off — must tightly control expenses, keep a lid on customer-acquisition costs, and, above all, ensure bottom-line profitability. This back-to-basics message, obviously, is good news for millions of successful business owners who experienced a profound sense of dislocation throughout the “Internet bubble” years of 1998 and 1999, when common sense and good management were so out of style. “For a time the marketplace was sending irrational messages to managers. Those who listened to the messages got destroyed,” says John Hagel III, a former partner with McKinsey & Co., who believes he has divined the mysteries of E-tailing success. He’s putting that insight into practice now as chief strategy officer of 12 Entrepreneuring ( www.12.com), a venture-funded E-tailing start-up that was in stealth mode when I talked with him. E-tailers have to assess whether the products they want to sell are appropriate for the Web. Not all are. According to Levitan, Hagel, and others, some of the now-discredited and oh-so-irrational messages included the notions that entrepreneurs could build valuable businesses by giving everything away, that merely attracting “eyeballs” would lead to success, and that consumers wanted the latest whiz-bang technology and would put up with extreme inconvenience to spend time on a site that offered a cool experience. But given that reality is now back in fashion, what rational attributes and practices will replace the irrational and get the successful E-tailer on the right track to future profits? First, E-tailers have to assess whether the products they want to sell are appropriate for an online store. Not all are. “A high ratio of value to shipping costs is important,” says Hagel. For that reason he particularly favors online enterprises that help customers do such things as download software, purchase airline tickets, and trade stocks. A high value-to-shipping-cost ratio is also a key reason that books, music, videos, and DVDs do so well online and sofas and kibble do not. “It can be a logistical nightmare to ship a bag of dog food to a customer’s home and try to generate a profit from that,” Hagel notes. However, even if an item lends itself to online sales, market factors often make it a bad choice for entrepreneurs, especially if the product has only a few producers. At first glance, high-priced cosmetics might seem to present excellent online sales prospects, but Hagel points out that Estee Lauder controls much of the upper-end market and keeps an iron grip on distribution, putting its products out of reach for most Web E-tailers. That was a lesson learned the hard way by Beautyjungle .com (out of business), Gloss.com (bought by Estee Lauder), and Eve.com (acquired by Sephora.com, a site owned by luxury-goods company LVMH, which tightly controls its own products). The three successful E-tailers that are profiled in this issue — DVD Empire, SitStay, and ShoeBuy — all play in the sort of fragmented niche markets that Hagel prefers, where no single manufacturer exercises monopolistic power and all sell products with high value-to-shipping-cost ratios. For its part, ShoeBuy has the biggest challenge. Although the company operates in a fragmented environment with products that have a high value-to-shipping-cost ratio, a few of the very highest profile brands don’t allow just any E-tailer to carry them. So ShoeBuy must surmount the challenge of attracting customers without offering such top sellers as Nike and New Balance athletic shoes, Vasque and Montrail hiking boots, Justin and Tony Lama western boots, and Gucci and other high-end dress shoes. However, the sheer volume of brands means that ShoeBuy can offer a wide variety of shoes from a number of well-known names (Frye, K-Swiss, and Nicole Miller, to cite just a few). But selecting the right niche and getting the brands are no good without accomplishing the vital task of getting E-customers into your E-store. By now the idea of buying Super Bowl advertising time is a joke — as are anecdotes like the one about inordinately arrogant Half.com, which paid a town in Oregon to rename itself after the company. (That gambit didn’t quite do the trick, however. The company ran into the acquiring arms of eBay to avoid going more than half broke. No word on how the 345 people in Half.com, Oreg., feel about being a subsidiary of eBay. ) The new reality of customer acquisition has seen a shift away from pricey traditional media buys to more affordable online methods. Officials at trade association Shop.org say that the organization’s members — which include America Online, BarnesandNoble .com, and Bloomingdale’s — spent 59% of their marketing budgets online in the second quarter of 2000, compared with 49% the previous quarter. Such a trend toward less expensive marketing tactics showed up in a dramatic decline in the average cost of acquiring a customer: down from $71 in the fourth quarter of 1999 to $20 in the third quarter of 2000. The E-tailers profiled in this issue have shown skill — and a smart skinflint attitude — in keeping their customer-acquisition costs even lower than that. “Affiliate programs are one of the most cost-effective online customer- acquisition tactics an E-tailer can employ,” says Hagel. “Go to the content sites whose users may want to buy your products, and give them a piece of every sale they send to you.” Almost every E-commerce provider can implement affiliate programs inexpensively using free scripts and software. While lowering customer-acquisition costs goes straight to the bottom line, the most profitable customers, say Hagel and Levitan, are return shoppers. Indeed, savvy E-tailers will concentrate on strategies that will ensure repeat business and higher average purchases per visit. (“Would you like fries with that?”) Raphael Amit, director of the Wharton eBusiness Initiative, refers to such repeat business as a “lock-in.” Examples of successful lock-ins include loyalty programs (so-called “frequent buyer” plans offered to Web merchants by a number of companies, including CyberGold, ClickRewards, Beenz, and Flooz); chat and other community forums; site-design characteristics (like Amazon.com’s 1-Click purchasing system); and personalized pages or filtering programs that make product recommendations based on the customer’s previous purchases. Personalized-product-recommendation systems get more accurate the more a customer buys and thus become more valuable as time goes on. For the customer, switching to another site requires dumping a useful system and beginning the process anew with no guarantee that the new E-tailer will offer a better long-term experience. In addition to providing lock-ins, Amit says, companies can offer customers products that complement the one they just bought. For example, European-travel company E-Bookers offers its customers convenient access to information about such things as weather and currency rates in the countries they plan to visit. Likewise, Road Runner Sports’ site ( www.roadrunnersports.com) specializes in selling running shoes but also offers running clothes, timers, sports drinks, fitness calculators, heart monitors, and even framed art oriented toward the runner. The company’s Run America Club creates its own lock-in by offering customers a 5% discount on regular catalog prices, a free magazine, and E-mail notifications of specials. A growing type of complementary marketing can also be found in the so-called “bricks and clicks” sector — established brick-and-mortar retailers that have launched E-tailing sites (Kmart and Bluelight.com, for example) and pure-play E-tailers who link up with complementary off-line retailers. Levitan cites Drugstore.com’s relationship with Rite-Aid as a prime example of a complementary brick-and-click relationship. Drugstore.com shoppers can order prescription drugs online for same-day pickup at a Rite Aid drugstore and get the pharmacy-benefit coverage provided by the insurance companies with which Rite Aid has relationships. Levitan also stresses the importance of offering Web visitors what he calls an “aha!” moment. For instance, Drugstore.com could provide “something your physical pharmacist would not or could not do,” he says. That might include creating a list of all the products the customer has bought before, which makes it easy to reorder the same items. “The site already has an online prescription-recall alert that can send you an E-mail regarding FDA actions,” Levitan notes. Successful sites must seek to do more than just emulate brick-and-mortar retail models. They must use technology not for its own sake, but to solve a compelling need and provide a valued service that can’t be replicated in the physical world. The future of E-tailing, then, looks a great deal like retailing, only enhanced by new technology. In reality there is no old economy versus new economy. Profits matter; customers reign; solid business practices still trump flaky fantasies that sell $5 bills for $4 and try to make up the difference in volume. But the Internet has made E-tailing a globally competitive environment in which, more than ever, the entrepreneur has to do everything right. Bad site design and slow downloading equal no customers. The SitStays of the world will need that affiliate program; Shoebuy might want to think about selling socks or shoe trees; DVD Empire might want to bundle some discount videotapes, since VCRs are still grinding away out there. All three of them might want to see what sorts of deals they could work out with brick-and-mortar merchants. And the lessons they learn will be repeated a million times over as companies move faster than ever in the race to remain among the quick and not the dead. Lewis Perdue is the author of 18 books and has founded or helped launch four technology companies. With no fanfare and little venture money, the companies profiled here are delivering real stuff to paying customers and making a buck in the process. There may not be any “new rules,” but there are rules, and we suspect every one of them will look familiar. DVD Empire: The Bootstrapper SitStay.com: The Mom-and-Pop Shoebuy.com: The Scorekeepers Accuship.com: The Traditionalist Fashionmall.com: The Conservative Healthcommunities.com: The Underwriter Commentary E-tailing Intermediaries The Markets Please e-mail your comments to editors@inc.com.

About 4466 days ago E-Commerce

A Closet Full of Cash

realbusiness.com The Conservative In an industry characterized by sloppy spending and business models with as much staying power as last year’s shoes, Fashionmall has stuck to a classic line Company: Fashionmall.com Inc., in New York City What it does: Operates a virtual mall for shoppers with a yen for designer clothing Number of employees: 45 Conventional wisdom: Retail sites can’t build a brand without blowing their cash, nor can they generate enough money to scale up into the big leagues. Unconventional wisdom: There’s money in the minor leagues. Building a brand is a long-term game, and the company has enough cash to keep going for years. Revenue growth: $14,000 in 1995 to $5 million (projected) for 2000 Profit profile: Lost approximately $6 million last year Capital: Less than $100,000 in seed capital; $35 million from a May 1999 IPO If you really want to get Ben Narasin pissed off, ask him why he isn’t spending the $35 million that’s left over from his company’s May 1999 IPO. Tell him that analyst Catherine M. Skelly of investment firm Gruntal & Co. says his company, Fashionmall.com, needs a “catalyst” to scale beyond last year’s projection of $5 million in revenues. Cite other experts who argue that the company’s only path to glory lies in spending big in order to build a brand, increase traffic, and jack up both the top and bottom lines in a hurry. That kind of talk makes Narasin mad. “With all due respect to intelligent analysts, that’s what they said about everybody — and they are all out of business. Look at MotherNature.com. Gone. Pets.com. They scaled, and look at them. They’re all gone! The concept that you have to spend the money is just plain stupid,” says the 35-year-old CEO, pausing for emphasis. “You have to spend the money intelligently.” Intelligently, for Narasin, means for the long term. For the past six years he’s been carefully building branded sites that will steer Web shoppers to the stores and products they seek. Fashionmall consists of a handful of sites, each of which serves as a central site through which visitors can shop for goods. Web surfers who want to shop for Armani ties or Bulova watches can avoid the various search engines by glancing through the main page of Fashionmall or of one of its other portals, Outletmall.com (a discount site) or the trendsetter Boo.com. The bulk of Fashionmall’s revenues derive from the 60 or so tenants that pay the company 70¢ to 98¢ (depending on the length of their lease) for every shopper who clicks through a Fashionmall site to a tenant site. A small number of tenants also pay Fashionmall for every sale. In addition, the company charges advertisers for banner ads and sponsorship spots throughout the sites, garnering slightly less than 40% of its revenues from those sources. For the millions of people still cowed by the Web, Fashionmall sites offer a one-stop-shopping resource. For its retailer tenants, Fashionmall generates traffic. The company carries no inventory; its resources consist of its intellectual property, its computer equipment, the 45 employees who work in roughly 5,300 square feet of Madison Avenue office space, and, of course, more than $35 million in cash. Narasin launched the company in late 1994 with less than $100,000 in funds from Boston Prepatory Co., an Inc. 500 clothing company he founded and which generated enough cash flow to launch Fashionmall. Narasin, the son of a 30-year IBM man, discovered the Internet in 1994 and was instantly hooked on its promise for spreading the fashion word. He took a leave of absence from Boston Prepatory to run Fashionmall full-time, spending most of his energy evangelizing in an industry resistant to both technology and change. Today Fashionmall has an elite board of directors made up of executives with expertise in retailing, fashion, and mall operations, including former Liz Claiborne Inc. chairman Jerome Chazen, former Neiman Marcus CEO Richard Marcus, and mall developer Robert Taubman, CEO of Taubman Centers Inc. And the company has built a base of about a million unique visitors a month — not enough to rank among Media Metrix’s top 50 Web sites but sufficient to keep its gross margins for last year at more than 80%. Despite having a high-caliber board and a heavily trafficked mall, the company was projecting a 2000 loss of more than $6 million on revenues of roughly $5 million — hardly pretty by conventional accounting standards. Yet Narasin says that the loss, about the same as the previous year’s, is a result of trying to build the company’s brand at a sustainable pace. With its multimillion-dollar stash and its low burn rate, the company could survive for years without any revenue growth. Moreover, Narasin appears to know how to operate the company in the black. For its first four years of operation the company funded its own growth, and for the two years prior to its public offering it turned a small profit. Analyst Heather Dougherty of Jupiter Research respects the company’s prudent financial course and says that Fashionmall has succeeded as a “niche aggregator” that delivers traffic to its tenants without spending itself out of existence. The key to Fashionmall’s long-term success rests in its ability to stick to the plan of building the brand without burning the cash. As a brand builder — and in many other respects — Fashionmall has trod a different path from the one taken by the scores of now-dead players in the fashion and retailing space. When most online retailers were building inventory and reinventing the logistics of home delivery, Fashionmall was eschewing such costs, cutting revenue-generating deals with the likes of Brooks Brothers, Gap, and Lands’ End. And when other dot-coms were spending cash on television and magazine advertising, Fashionmall was swapping space on its sites for valuable ads in magazines like Modern Bride and Civilization. The most spectacular failure in the Web-based fashion industry to date has been Boo.com, which spent $135 million attempting to build its brand before folding. Narasin swooped in and purchased the brand for a figure between $500,000 and $1 million — and got a ton of free publicity to boot. Since purchasing the site, Fashionmall has transformed Boo.com from a high-profile, high-burn-rate, inventory-burdened retailer into a lean portal. At its core, Fashionmall will rise or fall on the notion that established retailers will continue using the Web as a natural extension of their existing businesses. Board member Marcus believes that as more traditional brands use the Web, they will rely on portals like Fashionmall to help shoppers find them in cyberspace. Still, the major challenges for Fashionmall will be holding on to retailers — and to shoppers (who may increasingly skip portals by going directly to their preferred sites) — and finding a way to crack the growth challenge. Skelly, who rates the company as a “market performer” in the intermediate term and a “market outperformer” in the long term, says its key strengths are its available cash balance, slow burn rate, and prudent strategy. “Ben was very forward-looking in predicting that all those dot-coms would go out of business — and he was committed to hanging on to his capital for dear life,” says Skelly, who then falls back on conventional wisdom by adding, “But he sacrificed a great company.” In other words, Narasin could have built a far bigger, fashionably unprofitable Wall Street darling if he had grown the company beyond its modest model. Narasin insists, however, that growth at any cost has already caused the demise of far too many companies. He believes the key to Fashionmall’s long-term success rests in its ability to stick to the plan of wisely investing in personnel and technology, expanding partnerships with blue-chip fashion players, keeping margins fat, and building the brand without burning the cash. “People think there is no barrier to entry on the Web,” he says. “They are wrong. It is just like the fashion business. There is no barrier to getting in, but there is a huge barrier to lasting.” Tom Ehrenfeld is a freelance writer in Cambridge, Mass. With no fanfare and little venture money, the companies profiled here are delivering real stuff to paying customers and making a buck in the process. There may not be any “new rules,” but there are rules, and we suspect every one of them will look familiar. DVD Empire: The Bootstrapper SitStay.com: The Mom-and-Pop Shoebuy.com: The Scorekeepers Accuship.com: The Traditionalist Fashionmall.com: The Conservative Healthcommunities.com: The Underwriter Commentary E-tailing Intermediaries The Markets Please e-mail your comments to editors@inc.com.

About 4770 days ago E-Commerce

Name That Domain

After the domain name rush? What’s in a domain name? More than you realize. Getting your own catchy corner in cyberspace can mean the difference between your site being an out-of-the-way pit stop or a prime destination for throngs of surfers. But catchy domains are going fast. Network Solutions alone counted more than 5 million new domain names in 1999 — a 164% increase over 1998. Within two years, predicts one Florida-based Web designer, 100 million domain names will be claimed, and you can bet that the remaining ones will be as out of fashion as betamax.com or vanilla-ice.net. Alarmed because you have yet to register your site? You shouldn’t be. There’s still time to get a creative, marketable name if you act quickly and know where to look. Find Your Domain Type a domain name you’re interested in: Note: This search will take you to the Whois.net Web site. To return to inc.com, use the “Back” button of your browser. Also, once you know that your selected domain name is available, you can register it at any of the following sites: Network Solutions Register.com DomainRegistry.com Buy Domains Think globally, act locally Feeling down because your business has a simple name that someone else grabbed before you even knew there was an Internet? Try including a geographic reference in your name. For example, say your name is “Joe” and your business, “Joe’s Pizza,” is located in New Hampshire. The Web address JoesPizza.com has already been claimed, but “newhampshirepizza.com” is not. You could even take advantage of your address and turn your site into a de facto source of fun facts about the Granite State. Surfers are pleasantly surprised when sites offer more than meets the URL. Geographic references can also be easier to remember than the name of your actual business. For example, Ron Richards and Co., a New England-based wedding band, registered as BostonMusic.com. That’s a smart way to make sure altar-bound couples — who usually screen several musical acts before making a decision — keep them in mind for the big date. An even better choice might be “BostonWeddingMusic.com,” which would help ensure that users know you’re a wedding band and not a music store. Don’t be afraid to go after “.net” and “.org” domains Alternative top-level domains such as “.net” and “.org” aren’t going as fast as “.com,” but are nonetheless good alternatives if available. A common misconception about these is that “.net” is only for network businesses, and “.org” is only for nonprofits. Though they originally identified such organizations, there is nothing keeping you from registering your business with them. Just keep in mind that your users might look for you at a “.com” by default and not find you. If you are lucky enough to find your own “.com,” it’s a smart idea to buy up its “.net” and “.org” versions as well. Owning all three names will make it that much easier for visitors to find your site, not to mention prevent competitors from buying them up and luring users away. Also, keep in mind that seven new domain name registrations will be available for use sometime in 2001, according to NIC.net; the official provider of .com, .net and .org domains. They are: .info .biz .name .aero .museum .coop .pro Of the seven — .info and .name are the only two open to the general public. The other five domains are limited to professionals and professional organizations. Other options include reserving a domain in a specific country. These will give you an address that ends with a two-level code such as “.uk” for Great Britain, “.to” for Tonga, or “.nu” for the Niue Islands. Some countries require you to have a connection to the country, but some smaller countries with cool country codes (such as Tonga and Niue) are open for business. The Norwegian domain registry maintains a complete list. Note that international policy on who can get and register these domains is still evolving, and the Swedes who have grabbed yahoo.nu will probably have to give it up if yahoo.com complains. Now you can register longer names Recently, the powers-that-be in cyberspace decided to more than triple the allowable length of Web addresses to 67 characters in a domain name. Smart entrepreneurs are registering catchy words and phrases that relate to their businesses. For example, JustLikeMomUsedToMake.com is a site for swapping recipes. Another, RainingCatsandDogs.com, is the address of a Florida-based pet store, and is in its own way just as catchy as Pets.com. One way to avoid having a really long domain name confuse users is to use dashes. They also might better your chances at finding that catchy slogan. For example, “rainingcatsanddogs.com” may be registered, but “raining-cats-and-dogs.com” is not. If you do go for a hyphenated name, spend the extra few bucks to grab the unhyphenated version as well, or someone else might take it and confuse the heck out of people trying to find you. Number yourself Don’t forget that you can use numbers in your address. For example, when Fairfax, Va., entrepreneur Frank Borges Llossa was launching a search engine for finding stock photos on the Web, the name “onestopstock.com” was already taken. So he registered 1StopStock.com. A wise choice, especially because many Web directories list sites alphabetically. Having the number “1″ in his address got his site listed first in the stock photography catagories on Yahoo. Everything is for sale OK, so maybe you’ve tried everything we’ve suggested, but that catchy domain name remains elusive because someone already owns it. Few things in the world don’t have a price attached, so it can’t hurt to hunt down the owner (the contact information of people who own domains can be gleaned from any registrar) to see if you can buy it. Of course, you’ll have better luck if you’re going after an uncommon name — or have truckloads of cash to spend. “Business.com” sold for $7.5 million in November 1999. Copyright © 2000 inc.com

About 4831 days ago Online Marketing

Learn When to Use a Branding Campaign

The objective of a branding campaign is to impress your firm’s brand identity on potential customers, not necessarily to entice users to visit your site or to capture an immediate sale (although both of these may result from a branding-oriented banner). Because of this very specific objective, branding campaigns are more appropriate for certain phases of your business’s growth than for others. How do you determine whether to launch a branding campaign? Here are some of the most common reasons to do so. Use a Branding Campaign if Your Business or Product Is New Branding builds name recognition for your company or product, and there’s no better time to do this than right at the beginning. By having a powerful branding campaign in place when the doors open or the site launches – or both – you’ll have a jump-start on future marketing initiatives (and perhaps on your competition as well). Use a Branding Campaign if Your Business Is Developing an Online Presence If you have a traditional offline business and are now moving into e-commerce, your new venture will require some branding of its own. Particularly if your offline business relies heavily on brick-and-mortar brand associations, you’ll need to invoke different – but equally compelling – associations for your online brand. Consider clothing retailer Lands’ End, whose brand historically has been more about sturdy, practical, and classic apparel than convenience or immediacy (the products were available by mail-order catalog only). Now the company’s site, which has live online service and virtual fitting rooms, is recognized as a leader in e-commerce, expanding the brand emphasis from practicality to cutting-edge, customer-focused service. Use a Branding Campaign if You Need to Set Yourself Apart from Close Competitors One result of effective branding is that it gives the impression that you are the biggest and best player in your market. If you have stiff competition, some savvy branding may be in order. Just think of the fierce competition among the many pet-related e-commerce sites: Pets.com, Petopia, PETsMART.com, Petstore.com, and others. The sites that haven’t built strong brand identities either by leveraging their brick-and-mortar reputation (PETsMART) or by playing up online convenience (as in Pets.com’s tag line “Because pets can’t drive”) will not succeed. Copyright © 1995-2000 Pinnacle WebWorkz Inc. All rightsreserved. Do not duplicate or redistribute in any form.

About 4831 days ago E-Commerce

The Incredible Shrinking Web Site

Remember the “level playing field” theory of the Web? How in cyberspace size didn’t matter because even the most picayune start-up could conceal its lack of heft by developing a sleek Web site? Well, big, it seems, is no longer so beautiful. Now that vast infusions of capital are blowing up many dot-coms to unimaginable proportions, some newcomers to the scene are trying to distinguish themselves by taking the opposite approach: good things, they’re announcing, come in small packages. Exhibit A: DrsFosterSmith.com, a pet-product E-tailer based in Rhinelander, Wis. The site’s name implies that it’s a specialty store on the Web. And to be fair, two true-blue veterinarians did start the business 17 years ago. But this is no modest enterprise — it’s an online superstore run by an $80-million catalog company. The good doctors’ strategy is to marry the best aspects of being big (thousands of products; a 24-hour call center; quick, cheap shipping) with the homegrown benefits of being small (customer intimacy, superior service). And the site assures customers that cofounders Race Foster and Marty Smith, along with three other vets, “personally select or approve every product.” According to Foster, the positioning provides the company with an edge over large, venture-backed competitors like Pets.com and Petopia.com. “We deliberately wanted to be real people — we felt that was our marketing advantage,” he says. Exhibit B: HomeTownStores.com, based in Quincy, Mass. Bob Curry, who owns two Ace Hardware franchises, founded the company with his son and another young entrepreneur. Though he pals around with Web scions like Garage.com founder Guy Kawasaki, Curry has taken pains to brand his business as having the gestalt of a corner store. Yet no corner store shares Curry’s ambitions. His site, which started out selling tools and hardware, now offers 58,000 products, ranging from blankets to chocolates, and has many of the amenities of huge Web sites. Yet its folksy motto is “We run a darn good store, and we’re glad you’re here.” “In my hardware stores we give away free popcorn,” says Curry. “We can’t do that on the Web, but we can bring that philosophy here.” To that end, Curry has invested thousands of dollars in technology that allows virtual salesclerks to greet browsing customers. “I don’t want this to seem like a megamall but like a bunch of village stores,” he says. Why the mania to miniaturize? “If a business shows a proclivity to have a relationship, people will feel magnetized to it,” says Jay Conrad Levinson, author of the Guerrilla Marketing books. “There are smart ways to warm up what is otherwise a cold, impersonal relationship.”

About 4860 days ago E-Commerce

What Business Is Amazon.com Really In?

Unsolved Mystery By drawing attention to its appetite for expansion and red ink, America’s leading E-tailer has cleverly concealed its grand plan from public view. Until now By now, surely everyone knows that Amazon.com isn’t actually in the book business. Nor is it in the business of peddling videos or pet supplies. Software? Please. Auctions? Get real. Sure, the giant E-tailer provides those offerings, having serviced cybershoppers to the tune of an estimated $1.4 billion last year. But with losses that would bury multiple businesses (more than $550 million, accumulated over the past five years), it’s abundantly clear that Amazon isn’t even aiming to become a viable retail business. The challenge, then, is to define what it is. It’s unprofitable, of course, but that’s just the superficial answer. The tsunami of red ink, founder and CEO Jeff Bezos has long maintained, is part of the plan. On to the deeper question, then: What on earth is the plan? Theories abound. Internet analyst Evan I. Schwartz — whose 1997 book, Webonomics: Nine Essential Principles for Growing Your Business on the World Wide Web, ranked as a number one business best-seller on Amazon.com — insists that Bezos’s enterprise, with its investments in fledglings like Drugstore.com and Pets.com, is “becoming a venture-capital company, and this is how they’re going to become profitable.” For his part, James McQuivey, the astute research director at Forrester Research, in Cambridge, Mass., believes that Amazon.com’s broad positioning is its way of preparing for a surge of new on-line-shopping households, 11 million this year alone. “Until 2001,” he says, “I’m buying the argument that it has to lose money to make money.” But such pedestrian interpretations fail to match the measure of Bezos’s vision. He is, we’re convinced, after something grander. All the talk — of profitability or its absence, of endlessly expanding product lines or investment in new business areas — amounts to an elaborate distraction, one that Bezos has created to keep his grand plan concealed. And his smoke screen has worked beautifully. Until now. Come with us beyond the pithy sound bites. Join us as we slip behind the numbers. Examine the evidence we’ve gathered. Those brave enough to connect the dots will find themselves staring at possibilities so plainly convincing, they seem eerily familiar. To wit, five solid theories as to what Amazon.com is really up to. 1. Today the World, Tomorrow the Country What do Steve Forbes, H. Ross Perot, and even “The Donald” Trump have in common with Amazon’s Bezos? Like them, Bezos has at times seemed bent on world domination. And just as they have all toyed with turning high-profile business success into political power, Bezos will soon reveal his so-called business to be a platform for a slightly more focused ambition. He’s out to run the country. Sure, none of them has actually won an election, but it’s easy to see why. They’re all out of touch, relics of a bygone era when CEOs believed companies needed profits. Bezos brings a refreshingly modern vision with a platform that holds that prosperity is an attitude, a way you choose to operate regardless of the bottom line. Casting himself as a latter-day Perot, he plans to crank up the espresso machine, throw the flip charts into the Volvo, and ride a populist wave into the White House. “We’re going to be unprofitable for a long time. And that’s our strategy,” Bezos told Inc. in 1997. What debt-strapped citizen could resist clambering aboard that bandwagon? He’s got a brazen cockiness that’s quintessentially American — and an inscrutability that’s quintessentially electable. All that remains is a choice of running mate. He’s got options: go the traditional route to balance the ticket, tap Bill Gates, and vie for the predictable profitability vote; or follow the model of Jesse “The Governor” Ventura, defy the system, and capitalize on sheer popularity. To that end we understand Bezos has been pursuing someone even more skilled at wizardry than he is. Would someone please tell him that Harry Potter is fictional? 2. It’s for Prophet, Not for Profit One day soon, America will sprout a host of billboards featuring a stark white background with a lonely line of bold text stretching across it that asks: “Depressed about the lack of security in E-commerce? For books about consumer insecurity, click here.” In the bottom left corner will be a logo, bright blue with a swirl of soothing yellow-gold — Amazonetics. It’s simple. It’s beautiful. Amazon isn’t unprofitable — it’s evolving into a nonprofit. Any day now, it’ll be notifying the IRS to reclassify it as a not-for-profit, thereby exempting it from paying taxes. Like L. Ron Hubbard before him, Bezos will turn a seemingly secular publishing venture into a religion. In the case of science-fiction writer Hubbard, that transformation culminated in a book called Dianetics: The Modern Science of Mental Health. In Bezos’s case, it all started with a virtual-bookstore-cum-electronic-mall. “We’re trying to change the world and maybe improve it in a small way, and maybe even a little more than a small way,” Bezos told the New York Times last March. As founding principles go, it’s not much, but what it lacks in clarity, it makes up for in chutzpah. 3. The Ultimate Product Line: Potential Drink deep and don’t worry. There’s plenty to go around. Amazon.com is our Miracle Elixir, our oasis shimmering in the distance. It’s in the business of being a desirable idea, the embodiment of unlimited potential. It’s a hair-loss-treatment product suggesting that high school cheerleaders will suddenly find themselves unable to resist paunchy middle-aged men. Let myopic analysts clamor for Bezos to define Amazon. He knows that his company’s success lies in his singular ability to continue to conjure the possibilities of all that it might become. It’s the mandate we’ve handed him: to establish his company as the icon of all that Internet commerce could mean. Amazon will continue to work that way only as long as Bezos can energize the illusion by unfolding one possibility after another. So far, he shows no sign of letting up. Eric Von der Porten, manager of a hedge fund that is basing its investment on the belief that Amazon’s stock will fall, describes Bezos’s work as “pumping smoke and flashing lights, saying, ‘Look at all this cool stuff we’re doing. Just don’t look behind the curtain.” According to this theory, Amazon can expand indefinitely, beyond even the loose boundaries of the Web. If Bezos is as good as we adjudge him to be, don’t be surprised if you see Amazon buying a sports franchise — the Boston Red Sox, say. Or investing in Rogaine. 4. Taking the Middle Ground — and Dominating It Once a valued presence in the American economy, the middleman has lost ground lately, accelerated by the proliferation of buying opportunities on the Web. Every day another manifestation of that “middle” class gets squeezed: the auto dealer, the insurance salesperson, the stockbroker. But the nature of the competition is to consolidate. The winner, the ultimate middleman, would mediate transactions in a variety of areas. Develop a trusted brand and people will buy from you, no matter what you sell, the theory goes. From the beginning, Amazon touted its ability to act as an efficient intermediary in Internet-based transactions. The virtual store boasted of its lack of physical location, its disdain for retail space. You order from Amazon, and the company buys the item and sends it to you. “Their core competencies are ease of use and customer service,” notes author Schwartz, whose most recent book is titled Digital Darwinism: Seven Breakthrough Business Strategies for Surviving in the Cutthroat Web Economy. “They can expand into anything.” Bingo. Unlike other Web giants, Bezos ultimately aims to be the essential middleman not only in every E-commerce transaction but also in every human transaction. Best man at every wedding. Marriage counselor. Basketball referee. Midwife. And you thought portal sites were ambitious. 5. Seattle’s Best If we are correct in our thinking — and there’s no reason to believe we aren’t — Bezos has been carefully planning and executing this one from the day he started Amazon in 1995. First, create an enormous virtual bookstore that is the very model of self-promotion to prove that book sales alone can’t sustain any company of real heft. Second, branch out into other areas of on-line sales to reinforce the unfriendliness of the Internet to (profitable) commerce. Witness: In the second quarter of 1998, riding the buzz of its brand-new music store, Amazon registered operating losses of $18 million. By the second quarter of 1999, buoyed by expansion into videos and investments in Pets.com and Drugstore.com, that loss ballooned to $122 million. Third, stay in the book business long enough to change the market dynamic and plow all those pitifully puny stores under. With all that accomplished, things will really get interesting. Then you’ll see Bezos wearing dark glasses and a trench coat, skulking around Seattle with real estate agents and looking for the perfect piece of property. Then he’ll disappear. Vanish. Only the particularly savvy will discover, months later, in a small storefront in a lonely block in downtown Seattle, a quaint-looking shop called Bezos Books. The smartest of those sleuths will connect that shop with the man who used his grand vision not only to prove the futility of E-commerce but to establish himself as a bookseller, a devotee working tirelessly to get his product into the hands of book lovers. It’ll be a smash. And Bezos will have realized his ultimate dream — to reinvent the small independent bookstore. Ron MacLean, a freelance writer based in Jamaica Plain, Mass., now aspires to figure out what business Starbucks is really in.