Jeff Bezos - Defending Amazon.com

January of 2000 marked the first cutback in Amazon's history when president and chief operating officer Joseph Galli, a Black & Decker executive hired by Bezos in June of 1999, laid off 150 employees, or roughly two percent of Amazon's workforce. Galli also hired several new managers, determined to tighten the firm's spending practices and budgeting procedures. In April, Amazon.com began selling lawn and patio furniture, as well as health and beauty aids, on its site and also launched Amazon Kitchen, offering kitchen products to customers for the first time. In one of its first moves to offer e-commerce services to other companies, Amazon agreed to work with Wineshopper.com, a California-based Internet upstart seeking to become the leading online wine retailer. In June, Lehman Brothers convertible analyst Ravi Suria released a report critiquing Amazon's financial state. As a result, share prices fell by 19 percent. While Amazon's sales had experienced incredible growth in the late 1990s, investors were becoming increasingly concerned by the firm's failure to earn a profit, its $2 billion debt which cost about $125 million in interest each year, and emerging competition from the likes of Wal-Mart and other major retailers who were opening their own online stores. In 1997, Amazon had lost $27.6 million on sales of $147.8 million. In 1998, it lost $125 million. Although sales reached $1.6 billion in 1999, losses continued to mount, reaching $720 million.

To make matters worse, Galli resigned suddenly to take on the CEO role at VerticalNet, an online business-to-business portal. Stock prices fell to $45 per share as investor confidence faltered. By August, stock prices had plummeted to $28 per share, decreasing 14 percent after the firm's announcement of poor second quarter results. Nevertheless, Amazon continued to operate as the leading online shopping site in the world, serving 17 million people in 160 countries. To bolster its image, the firm began touting its offerings as the "Earth's Biggest Selection" of products, including books, e-cards, online auctions, CDs, videos, DVDs, toys and games, housewares, and electronics. With only 24 percent of sales coming from international operations, Bezos began working to expand the firm's international base. He also changed the firm's focus from pursuing growth at all costs, a philosophy Bezos had dubbed "Get Big Fast," to cutting costs wherever possible, building on the corporate overhaul started by Galli.

Forbes writer Katrina Brooker explained that the success of Bezos's efforts became evident in the third quarter of 2000, when losses of 25 cents per share beat Wall Street predictions of 33 cents per share, and operating losses were nearly halved, decreasing from 22 percent of sales to just 11 percent. Even more important was the fact that the division housing books, music, and video—Amazon's core businesses—netted $25 million on $400 million in revenues. However, despite evidence that Bezos was taking Amazon toward profitability, by the end of 2000 stock remained down roughly 80 percent from its high. Losses for the year totaled $1.4 billion on sales of $2.76 billion.

Determined to quiet his naysayers, Bezos laid off another 1,300 employees early in 2001, or roughly 15 percent of Amazon's total workforce. He also announced his intent to shut down a service center in Seattle and a warehouse in Georgia. Growth projections were trimmed from 40 percent to roughly 25 percent. While most analysts agree that Amazon.com will likely earn a profit and remain a key force in e-tailing, they remain divided over what level of success the firm will achieve. Those bullish on Amazon's future point to deals like the August 2000 alliance with Toysrus.com, which resulted in a Web site that coupled the inventory of Toys 'R' Us with the e-commerce savvy of Amazon. According to the terms of the agreement, Amazon gets not only a fee for allowing the toy giant to use its software, but also a commission on each toy sold on the site. Toys "R" Us benefited as well. Once the new site was in place, holiday sales for Toysrus.com grew more than threefold.

According to Molly Prior in DSN Retailing Today, "the pundits can't help but wonder if the marriage of a pure-player to a bricks-and-clicks category leader is the wave of the future for Internet retailing." However, Amazon's critics point out that despite deals like this and Bezos's cost cutting measures, the firm still spends much more money than it earns, and projected profit margins are no higher than those of traditional retailers. As the giant e-tailer works to find its niche in the ever-changing world of e-commerce, Wall Street likely will continue to watch Bezos, who owns 32 percent of Amazon, very closely.