What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!


Amazon.com

Amazon.com (Nasdaq: AMZN) is one of the world’s leading online retailers -- from DVDs to CDs to books that teach your children their ABCs, it has become a one-stop shop for millions of customers around the world.

Company Description

In 1994, Jeff Bezos quit his job at D.E. Shaw to start an online bookstore called Cadabra.com. The store was launched in 1995, and although the name “Cadabra” may seem festive and magical to some, Bezos worried that it sounded too much like “cadaver.” As a result, he eventually changed it to the more familiar (and less dead-sounding) Amazon.com.

The Seattle-based company was one of the world’s first online retailers, and over the years, it has expanded its offerings to include movies, household appliances, computers, toys, clothing, sporting goods, and more. It’s also loaded up on special features to keep customers coming -- prospective book buyers can peek inside some books before making a purchase, while music lovers can sample audio snippets. Don’t want to buy the whole album? That’s OK, too, because in 2007, Amazon.com began to sell “DRM-free” (no digital right management) MP3 downloads, meaning that they can be played on any digital audio player.

One of the website’s most popular features is the review space Amazon.com includes for each item. There, customers can share their good, bad, and ugly product experiences with other members of the Amazon.com community -- one reviewer writes of a no-drip umbrella, “No-drip rain umbrella? Pah! The first time I used this feeble device the skies opened, the rain came down, and I almost drowned.” Another comments on a pair of Adidas sneakers, “I have been running for 31 years, and they may be my all-time favorite.” Each review includes a star rating -- five stars mean that the product is excellent, while one star relegates it to tomorrow’s yard sale heap.

Acquisitions and New Services

These days, Amazon.com operates websites in the United States, Canada, United Kingdom, Germany, France, China, and Japan. Plus, if you’ve noticed a similar format when shopping at other online vendors, that could be because the company uses its technology to power and operate retail websites for Target, Sears Canada, and bebe Stores, among others.

But that hasn’t kept it from continuing to grow its own online services. Some other notable developments include:

2001: The company launches its Amazon Marketplace service, which allows people to sell used items in addition to the new ones that are already on the website.

2005: It acquires print-on-demand company BookSurge and French e-book seller Mobipocket.com.

2005: The company starts to sell products via Pinzon, its own private label.

2007: Amazon.com releases the Kindle, a hand-held wireless reading device that enables customers to read books, magazines, newspapers -- even blogs -- on the go. Sales of book titles for Kindle made up more than 10% of Amazon.com’s total book sales in the third quarter of 2008, and that October, Oprah deemed the device her “favorite new gadget.”

2008: Amazon.com acquired the king of spoken word audio content (books, magazines, newspapers, etc.), Audible.com.

2008: Amazon announced that it will acquire Abebooks, a Canadian company that sells new, used, and rare books, as well as those that are out of print.

2008: It also announced that it has purchased Shelfari, a social networking website for book lovers.

2008: The company branched out into film production and funded the movie The Stolen Child with 20th Century Fox.

2008: Amazon.com expanded its business a step further and announced that it would acquire Reflexive, an online business that sells game downloads for both PCs and Macs.

Competitors

Amazon.com’s two main competitors are eBay and Barnes & Noble. And while eBay’s performance once outshined Amazon.com’s (including an auction service Amazon.com launched in 1999), these days, the online retailing tables seem to have turned: As The New York Times pointed out on Oct. 11, 2008, “Just three years ago, eBay had 30 percent more traffic than Amazon. Today, its total of 84.5 million active users is barely ahead of the 81 million active customer accounts that Amazon reported in June ... in July, Amazon’s valuation surpassed eBay’s for the first time.” Consumers also ranked Amazon.com the top e-tailer, according to Stores magazine. Meanwhile, eBay announced in October 2008 its plans to lay off 10% of its employees, or 16,000 people.

Barnes & Noble has also felt the heat of changing preferences and trends. As more consumers continue to rely on their BlackBerrys, laptops, and other electronic devices (um, such as Amazon.com’s Kindle) to read and order books, brick-and-mortar bookstores have been falling a bit out of style.

Amazon.com has the online advantage, and another part of its success can be attributed to the fact that it now mimics one very powerful component of eBay’s business: the use of third-party vendors, which currently account for around 29% of its sales.

Amazon.com and David Gardner

Amazon.com IPOed on May 15, 1997, and in 2002, David Gardner wrote in Stock Advisor, “What "dot-com" is actually up 40% this year while the Nasdaq is down 30%?” Of course, the answer was Amazon.com. By then, the company had racked up 30 million customers, sailed past its competitors, and was solidly profitable -- and even in the gloomy market conditions of 2008, the stock has still returned more than 200% since David made his recommendation.

Related Companies

Recent Mentions on Fool.com

Advertisement