Amazon.com Turns over Profit for First Time in 6 Years Since Founding

Just one hour before K Mart officially announced its bankruptcy on the 22nd, Amazon Dot Com (amazon.com) announced its first quarterly profit in 6 years since the founding in July 1995.

Amazon earned 5.09 million dollars (about 6.5 billion won) in the fourth quarter of 2001, which was a record leap in profit from 545 million dollar deficit during the same period in 2000. Although it is a profit of 1 cent per share, it is far more than the 7 cent deficit per share that Wall Street predicated. The stock of Amazon closed at 12.60 dollars rising 24 percent.

Amazon could make profits by cutting expenditure by 24 percent as well as by increasing sales by 23 percent through the aggressive low price strategy, giving 30 percent discount for the purchase of books over 20 dollars.

It is the cost competitive power, which only an Internet company can enjoy, that pushes down costs while increasing sales. Another profit-making factor is the intensive restructuring which included closing 2 distribution centers and reducing 1300 personnel.

At a press conference, Jeff Bezos (36), the founder of Amazon, said, "Adam Smith says that sales go up when prices go down. I will continue to cut prices almost to the point of absurdity."

The strategy for Amazon so far was dominating the market by increasing sales. It ignored the profit.

Investment analysts have criticized that Amazon deals with too many items like disc, video, and electric products, not to mention books. Chief executive Bezos, who was the Person of the Year in 1999, was ridiculed as a `chuckling maniac` in 2000.

As if he were already conscious of the criticisms, he said, "I`ve always known that our business model worked."

euntack@donga.com