Amazon celebrates 10 years of global growth, but how long can it continue?

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The Independent Online

As the company reaches its tenth birthday this month, Mr Bezos can justifiably celebrate.

Amazon is the world's biggest online bookstore - advance orders for Harry Potter and the Half-Blood Prince alone came to 1.5 million. And it also sells a wide range of goods, from airline tickets to caviar. Last year, the Seattle-based company sold $219 worth of books, toys and other goods every second.

For the handful of internet players which survived the collapse in their shares in 2000 - including Google, Yahoo and eBay - such staggering statistics have become commonplace as they have grown into huge companies.

Google's shares have rocketed to the point that it recently became the most valuable media in the world. Meanwhile, Yahoo is expected by Wall Street to notch up earnings growth of 57 per cent this year.

Many analysts believe Amazon was not only solely responsible for the revolutionary concept of selling books over the internet, but it also turned many people on to online shopping in general, by developing a simple and secure buying process. Its website has 49 million active users and last year it booked $6.9bn of revenue.

Amazon has some impressive claims in the internet hall of fame, but closer comparisons with other internet giants are unfavourable. eBay - another online retailer, which also started life 10 years ago - has a market capitalisation which is three times Amazon's size.

While eBay's shares now surpass their previous highs, Amazon's shares are still worth almost 70 per cent less than their peak in late 1999, when they hit $113. Its stock has fallen by a fifth this year.

Mark Mahaney, an analyst at Citigroup Smith Barney, said of Amazon: "It used to be the most controversial internet stock. It now seems to be the least paid attention to."

In fact, some investors in Amazon are paying attention, and are increasingly frustrated with the company's seeming inability to deliver what Wall Street really wants from an established business: strong profits.

In April, Amazon reported a 30 per cent drop in first-quarter profits from a year earlier. The company's second-quarter results, due out today, are expected to show a further erosion in profit margins.

Even the area where Amazon has had a strong record - rapidly expanding its revenues by adding more customers and sales - is in question. According to Forrester Research, which analyses trends on the internet, consumers will spend 22 per cent more money online this year than they did last year.

Forrester believes eBay's share will expand at twice the pace of the overall market, but it thinks Amazon will chalk up only half of the average rate of growth.

Those who share Forrester's bearish view about Amazon think part of the problem is the intense competition from bricks and mortar bookshops, which have been expanding internet sales, and from rival online retailers such as the rapidly growing Overstock.com.

There is also a view that a problem lies at the heart of Amazon itself. Critics say Mr Bezos fixates on rapid expansion in product lines - he recently added jewellery and musical instruments - and geographical reach, leaving little time to focus on Amazon's core business.

While all of the other internet companies which have ballooned in the past few years to become massive companies have hired people trained as managers to become their chief executives, Mr Bezos, 41, still holds the reins as chairman and chief executive. Some investors wonder whether Amazon should now follow the lead of others, and ask Mr Bezos to take a back seat in favour of a leader who would focus on issues such as return on investment.

Mark Andersen, who publishes the Strategic News Service - a newsletter read by technology heavyweights such as Bill Gates - recently summed up a view held by several close watchers of Amazon. "If you're the kind of investor who has run out of patience, you're probably wondering whether there's any trained management in place," he told the New York Times.

Mr Bezos owns a quarter of Amazon's shares, worth almost $4bn, and for friends and foe alike, he is the company. Having trained as a hedge fund analyst with a degree in computer science and electrical engineering, Mr Bezos set up Amazon initially with only his own and his parents' money. He wanted to call it Cadabra - as in Abracadabra - but dropped the idea when people said it sounded like "cadaver". He settled on Amazon, partly to convey the breadth of the books he wanted to sell.

While Mr Bezos has plenty of admirers, he has also attracted detractors. Criticism came to a head in 2000 when shareholders expressed dismay that Amazon was running through its cash at a dramatic rate and crashed to a $1.4bn loss.

Mr Bezos has tried to address some of Wall Street's concerns. In 2001, he reduced Amazon's workfore, cutting back on expensive extras such as employing lots of writers to compose online book reviews.

More recently, Mr Bezos has moved the company into the highly lucrative business of renting space on Amazon's site to third parties - from major companies to individuals - who want to do their own selling online. Finally, Mr Bezos has copied eBay and introduced an auction on Amazon's website.

For its supporters, Amazon remains the best way to buy books online. It offers 57 times as many titles as a typical large bookstore and sells many books which have gone out of print. This service will be increasingly useful with other goods Amazon sells, such as DVDs, whose shelf life in high street shops is ever-shortening.

But critics say that while Amazon's name has gained its place among the internet pioneers whose names are synonymous with the creation of the online world, it is now faltering, and risks being left behind by its one-time peers.

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