Feeling secure without SET
So how does the business ever become profitable?
This is scale business. And what happens is that the fixed costs
of doing this business are very high and the variable costs of doing this
business are extremely low. As a result, our major strategic objective has
always been GBF. It's a mantra inside the company, and it means Get Big
Fast. We need that in order to operate successfully what is a
At the same time, we are investing significant amounts of money in
advertising and marketing in order to introduce ourselves to as many
customers as possible, as soon
as possible, as part of this Get Big Fast strategy.
We spend marketing dollars at a level which is disproportionate to a
company of our size. And we do that because we believe this is a critical
category formation time where, roughly speaking, maybe a dollar
spent on advertising today is worth $10 spent on advertising next year
because of this critical category formation time.
When is big big enough to make money though?
We have lots of internal projections and understandings about that, but
we do not disclose when we think we will be profitable. We don't make any
forward-looking financial projections as a matter of company policy.
These huge expenses for advertising can't be focused only on book market;
another piece of it must be for positioning for the new products you are
contemplating selling. Is that a fair guess?
It's certainly fair to say that we are going to enter into these new
product areas. We have been very clear about that. And so certainly when we
look at whether the things we are doing or not are sensible, we do know
what we are going to do in the future and we can tie that all in and make
sure it makes sense.
The repeat customer metric, is that an important one for you?
Absolutely. It's over 58 percent--58 percent of the orders we receive
every day are from customers who have ordered from us in the past. That's a
very important statistic and the reason is that we need to make sure that
we are actually providing a high level of service for these customers. I
mean, it would be useless to spend significant amounts of money on
marketing and advertising to get an introduction to a customer, have them
have a bad experience and never want to come back again.
How safe is it for customers to purchase items on Amazon? Have you had
any incidents of credit card fraud?
Well, it depends on what you mean by fraud. If you mean
has anybody ever
tried to steal a customer's credit card number--that doesn't happen. And
not just at Amazon.com. There's not a single known occurrence of that
happening online. If you look at traditional credit card fraud, which
happens every day in every store in the United States, every merchant
that's doing any number of transactions experiences that. What that is, is
somebody has already stolen a credit card number and now they go to try and
They do that at Macy's, Nordstrom's, and Bloomingdale's every single day.
That's credit card fraud. And the credit card companies catch it and try to
clamp down on it. I think if anything, our credit card fraud rates of that
kind have been less than in traditional physical stores.
To get something from Amazon.com, you've got to give us a postal address,
you've got to give us your name, we can cross-check the zip code of the
billing address against the credit card company's records, which is sort of
traditional things that merchants do. It's a very different situation. But
I think it's very
confusing because when people out there in the world hear "Internet" and
"credit card fraud," they think, "I sent my credit card number across the
Internet and it got intercepted." That's what doesn't happen. That's what
people are worried about. People are not worried about regular old fraud
that happens every day in every store across the United States.
The thing that people don't realize is that any store in the whole country,
whether they're an online store or not--as soon as they start connecting
their computer systems to the Internet, then they have a big file of
important data on customers, like the customers' credit card numbers. Then
maybe somebody could hack in and steal a million credit card numbers at
once. So that's certainly a concern that every company should be
worried about, not just Internet companies. And what Amazon.com does is we
keep all those credit card numbers on a machine that isn't even connected
to the Internet. So it's not even on our local area network inside our
company. We call it CC Motel because the credit card numbers get in, but
they don't get out. And then that machine is connected directly to the
credit card processing companies by lease line. So those credit card
numbers, once they arrive at Amazon.com, never touch the Internet again.
There's the protocol called SET, Secure Electronic Transactions,
designed to do it differently and to make it safe.
It's safe now.
Will you support SET?
If a lot of people use it, we'll support it. If nobody uses it, we
won't. But it's silly to say it's designed to make something safe that's
already safer than any other way that's ever been designed. The least safe
thing you do with your credit card today is to hand it to a random stranger
in a restaurant who you've never seen before in your life. Giving your
credit card number to a reputable merchant on the Internet is one of the
safest things you can do with your credit card. And SET isn't going to
improve that one iota. Now, if it
becomes something that people want for perception reasons, we'll implement
it. But there's no security issue today.
Have you implemented a lot of your knowledge about retailing in the real
world to Amazon.com, or is selling on the Net completely different?
Probably some of the lessons translate, but probably most don't. There
are a whole bunch of rules of merchandising that the physical store
merchants have learned over the years. For example, there's something
called the "hard right," and 90 percent of customers, when they walk into
the store, turn to the right. That's why you put merchandise on the right
and cash registers on the left in a physical store. You'll
find that almost every time. What is the equivalent of the hard right
online? Nobody knows today. These rules of e-merchandising are yet to be
understood. Understanding consumer behavior online--this is the thing that
we know just 2 percent about. A lot of it is going to revolve around
personalization and customization.
Talk to us a little bit about the management inside your company. You're
chairman, CEO, and president?
I'm really just the CEO. I happen to be the chairman of the board,
too--that's pretty common.
Do you have a president or a COO?
No. We have one of the world's strongest management teams. We've got a
great CFO, we've got a great person in charge of product development, we've
got an unbelievably great chief information officer. If you look across the
senior management team at Amazon.com, it's one of the things we did the
best. The result of that we're benefiting from enormously now.
Do you anticipate renaming someone president or COO?
No, not any time in the near future. There's no reason to do that at this
time. That's a strong signal to
name a No. 2 person in the company. And we have a management team that
works very well
together and there's no reason to elevate somebody in that team above the
What's the last book you read?
I'm actually in the middle of reading a book called Reclamation,
which is a science fiction book by Sarah Zettel. It's actually the best
science fiction book I've read since the original David Britton trilogy of
years and years ago.
And how many books do you read in a year?
I read about three books a month. Also, like many people out there, I
buy about nine books a month. It's
actually a bit of an occupational hazard, because I do buy more books than
I probably should.