Amazon turns 10, helped by strong tech, service

When Amazon.com Inc. opened its online bookstore 10 years ago, it faced an uncertain future as it set out to prove that a retailer that sold exclusively via the Internet could succeed against established competitors with physical stores.

The company's first decade online wasn't always a smooth ride, and pundits predicted Amazon.com's demise more than once, particularly when the dot com frenzy turned into despair and many e-commerce companies collapsed.

But through it all, Amazon.com's management, led by its smiling founder, President, Chairman and Chief Executive Officer Jeff Bezos, kept increasing sales and aiming for the elusive profitability, which the company eventually attained in 2003.

Today, Amazon.com stands as the ultimate e-tailer, a company that has blazed a trail in business-to-consumer e-commerce with a successful mix of innovative technology and business practices that many study and attempt to emulate.

What has been the key to its success? Industry experts point to several key factors, including an obsessive focus on customer satisfaction, constant improvements to the Web site's design, an emphasis on personalizing the shopping experience and solid back-end technology.

As a result, Amazon.com has built a loyal following among online buyers as a solid and reputable seller. "There's a trust factor Amazon.com has with its customers. People perceive Amazon.com as an honest company," says Edgar Dworsky, founder of Consumerworld.org, a Web site devoted to consumer advocacy.

Simultaneously, Amazon.com has a reputation as the company to emulate among e-tailers. "The industry looks at Amazon.com as a benchmark" for e-tailing, says Su Li Walker, a Yankee Group analyst.

Amazon.com from the beginning has relentlessly focused on providing good customer service, which in turn has generated a high degree of trust -- and a high sales volume -- from its clients, experts say.

Amazon.com has earned its customers' trust by consistently providing secure transactions, having reliable fulfillment and shipping, offering broad product selection and emphasizing price discounts, experts say.

This solid trust was critical for Amazon.com to obtain in the beginning when it was a newcomer, and it is critical to maintain now, because competition in e-commerce will heat up considerably in the coming years, says Patti Freeman Evans, a Jupiter Research analyst.

Amazon.com from the start has also worked tirelessly on its Web site's user interface, to continually make navigation more intuitive, the lay out more simple and the overall shopping experience more friendly and personalized.

"Amazon.com has always been very aggressive about analyzing its Web site's traffic to a high degree and making modifications based on what they see happening," says Rob Enderle, principal analyst at Enderle Group. "Amazon.com seems to do the best job of continually refining its site to make the customer experience better."

The company has been a pioneer in its relentless use of Web site design testing and optimization, constantly evaluating everything, including minutiae such as the color and shape of tabs on the site, says Guy Creese, managing principal at Ballardvale Research.

That is time and money well spent, because given the volume of traffic on Amazon.com's Web site, even a slight optimization of its design can mean millions of dollars in additional sales, Creese says. "That type of work and study absolutely pays off," Creese says.

By basing its Web site design decisions on usage data and not necessarily on aesthetics or internal designers' gut instinct, Amazon.com has managed to keep its user interface closely aligned with its ultimate goal, which is turning visitors into buyers, says Eric Peterson, another Jupiter Research analyst.

"Amazon.com makes changes [to the Web site] that make sense for the business. I never get the sense Amazon.com is willy nilly about Web site design," Peterson says. "I don't think Amazon.com has the prettiest site, but I never have trouble finding stuff there and making purchases. At the end of the day, that's what they should be most proud of."

Another area in which Amazon.com has excelled is in using past purchasing data to personalize customers' shopping experience, modifying pages on the fly to adjust them to individuals' preferences and interests. It also lets customers post product reviews and lists of suggested shopping items to aide others.

In this way, Amazon.com uses technology -- databases and data analysis tools -- to provide a type of individual shopping assistance that stores used to provide decades ago, when owners knew their customers personally, Enderle says.

Moreover, Amazon.com has managed to do this in a way that most customers perceive as useful and not as a creepy surveillance practice, Dworsky says. "It has been able to maintain pretty good data on individual purchasing and [product] browsing habits without making it appear like you're being snooped on, because it's done in a helpful way," he says.

The recognition of Amazon.com's e-tailing expertise is now broad enough that major retailers have opened up stores inside the Amazon.com Web site, while others have hired the Seattle company to provide them with technology and services for their own Web sites.

Eddie Bauer, Target Corp. and Office Depot Inc., as well as many small retailers, have stores within the Amazon.com Web site, making it an online shopping mall. Meanwhile, through its Amazon Services Inc. subsidiary, Amazon.com also provides e-commerce services, such as Web site building and hosting, order fulfillment and product transportation, to companies such as Sears Canada Inc. and OshKosh B'Gosh Retail Inc.

Along the way, Amazon.com has grown from selling a single type of product -- books -- from a U.S. Web site, to selling a wide variety of wares -- including CDs, DVDs, apparel, home & garden supplies and consumer electronic devices -- from various international Web sites, including Canada, the U.K., France, Germany, China and Japan.

Amazon.com, founded in 1994 and operational on the Web since July 1995, is today a Fortune 500 company. In 2004, it had net revenue of $6.92 billion, up 31 percent from 2003, and net income of $588 million, or $1.39 per share, up from net income of $35 million, or $0.08 per share in 2003. It has come a long way from 1997, the year the company went public, when net sales were $147.8 million and the net loss was $27.6 million, or $1.27 per share. In the past year, the stock has fluctuated between $50.40 and $30.60. It closed on Wednesday at $36.51.

Having survived its first decade, Amazon.com is looking in the coming years at a new set of challenges, according to observers and to the company's latest annual report, issued in April. These challenges include:

-- Increased competition in both the retail and the e-commerce services markets, where Amazon.com faces some rivals with more customers, more financial resources and greater brand recognition.

-- Risks associated with its expansion into new countries and into new product segments. The international expansion inherently involves risks associated with doing business in different countries, where Amazon.com has to deal with different set of laws and regulations, face strong local competitors and extend its technology and business practices to accommodate its foreign business. Its continuing product diversification puts it in competition with companies that are entrenched in those markets and are more experienced in them.

-- The need to continually manage properly its efforts to sell and ship at discounts, to make sure that those lower prices are generating their intended business results.

-- Making sure that, as it grows, its technology infrastructure can keep up, an issue that comes up occasionally whenever the company faces system interruptions that make its Web sites unavailable or affect its ability to fulfill orders and provide services to third parties.

-- Fighting successfully several ongoing lawsuits in which plaintiffs allege separately the company has violated their patents with technology Amazon.com uses to, among other things, personalize its shopping experience and provide its "1-Click" ordering service.

Amazon.com, which didn't return repeated calls seeking comment for this story, will webcast its 10th anniversary concert bash on Saturday from its site.

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