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Surviving the online jungle

AMAZON.COM, the online bookseller and pin-up company of the dot.com revolution, recently posted its latest quarterly results – dripping with red ink.

The company has been hailed by many as the shining example of online retailing. As a user of the service I’d certainly agree their range, prices, service and terrific personalised recommendations put it right up there.

But post-crash Amazon’s inability to get into the black, despite its strong brand and solid customer base, has to be worrying.

Particularly when CEO Jeff Bezos made a mantra out of telling the market he could turn his company to profit at the flick of a switch. The focus, he said, was buying market share.

In the heady days of two years ago many were prepared to buy that as revenues soared and Amazon flowed, flogging books to videos to CDs to electronic equipment from its web site.

But times have got a lot tougher. First came the crash and, more recently, the economy has been getting softer which has all meant that investors ready to put up money for online adventures are bordering on extinct. Most worrying of all for Amazon, its upward-tracking revenue path has begun to alter course.

Bezos’ confidence about how easy it would be to flip from growth-focused to profit seems to have been frighteningly overdone.

This is not to have a go at Amazon – as I said I am a fan – but to raise the question our grandmothers might have asked, “are you having too much of a good thing?”

It could not have been easy for Bezos to raise the initial funding for his idea but once he had his start-up on the road and the Internet bubble really took off, he must have felt as if he was surfing a tsunami.

Later funding rounds would have been about as hard as collecting lottery winnings, over and over. The pain of having to pitch for new capital isn’t something anyone would willingly take on but it can teach some valuable lessons. Just as having to readjust and reshape operational strategies to changing conditions is always about learning, for any company.

In many ways dot.coms were the poor little rich boys of recent times. They were overwhelmed with valuables without ever having to really earn them. That lack of learning as to how to change to new conditions meant many were unprepared when the market “adjusted” (aka crashed).

Even the mighty Amazon appears to be suffering the same problems. It is possible Bezos is working with a malformed organisation and, even though it has significant resources, and arguably the world’s strongest online brand, the shift to profit may not be possible.

Which might not necessarily point to a failure of online retailing but of consuming too many of the good things, and not eating your greens, as grandma might have said.

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