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It's incredibly risky. How elastic is the Amazon brand name? How much can you stretch it until it simply explodes and becomes meaningless to consumers? And how long can the money hold out? Bezos has already burned through a bank's worth of cash with no sign of slowing down. If anything, he's upping the ante--according to estimates, the company's net loss could be $350 million this year alone.
And the e-commerce world has changed enormously since Seattle-based Amazon jumped out to its "first-mover" advantage. There are plenty of second, third and fourth movers to battle. They come in the form of category killers that overwhelm you with selection, expertise, price and service for a given class of goods. Adornis.com is bauble central for luxury items, for instance, and Petopia.com is one of dozens of sites that will shower you and your doggie with selection. On the other side are e-malls such as Buy.com and Shopnow.com Traditional retailers are making the transition to the Web too, and one of them--Wal-Mart--could be letting a monster loose when its new website debuts early next year. And don't forget eBay, the other e-commerce revolutionary. eBay's many-to-many approach to selling--the world is just one big auction--completely opposes Amazon's one-to-many, fixed-price universe. And it's been profitable from Day One.
The sheer number of competitive websites alone will put pressure on Amazon's growth--one reason Bezos is adding categories as fast as he can. During the past year, he's added video games and DVD movies, toys, electronics, software, home-improvement products, auctions and zShops--an online flea market where anyone can sell anything. Bezos says he wants to double his offerings again next year. The company also has minority stakes in other e-commerce companies such as Drugstore.com Pets.com HomeGrocer.com Gear.com and Della.com a wedding and gift registry.
But how long can you build warehouses to the sky and not fill them? Says Scott Sipprelle, founding partner of the investment firm Midtown Research Group: "The chance of a painful failure goes up as they increase the chips on the table. Just look at the metrics. As the company grows in scale, the absolute dollars it's losing are greater and greater: debt is going up, margins are going down and cash burn is increasing."
Bezos, naturally enough, is unmoved by the naysaying because he's convinced that as more customers come to his site, he'll be able to offer the lowest prices. And they will come because Amazon simply does the best job of helping them find stuff. But what if they use his site for research, then go elsewhere for the cheapest price? Bezos has considered that as well. And he has a possible solution: "Membership clubs!" he says. "If you want to see all the information we collect on Amazon--the customer reviews, the professional reviews and use our agenting technology--you have to pay $30 a year." Those membership fees would be used to help drive down the price of items, which would be sold almost at cost. Nonmembers could shop there, of course. They just wouldn't have access to Amazon's rich data and whizzy technology.