you have a hard time doing deals with companies that are in a stronger position than you are?
Bezos:I can assure you that Toys 'R' Us did the deal with us out of opportunity, not need. And I can assure you that Borders is doing it for exactly the same reasons. Is it true that many, many physical retailers have found that the online business is a difficult business? Absolutely. It is a difficult business, just as physical retailing is a difficult business. Companies have to choose core competencies. Smart companies do. We are very, very focused. The lifeblood of our company is e-commerce. We wake up every morning and think about it and nothing else. And that's why you see so much innovation, and that's why our technology platform works so well. It is very, very difficult for companies that don't wake up every morning thinking about that first to have as good of an e-commerce offering. But that doesn't mean these companies have done this out of desperation, far from it. They are just smart to focus on their competencies. And they really want an online offering for their customers that is best of breed.
Q:Consumer electronics is already the second-largest category for Amazon. Yet, when you do an alliance like this, you are giving up some potential upside, as you are sharing some of the profits. Does it make sense to do a deal for a category as important as consumer electronics?
Bezos:Certainly the bar is very high for any of these deals. We are very choosy about who we partner with and on what terms we partner. Just as these partners are doing this out of opportunity, so are we. In a case like electronics, we are very happy to grow that business organically. It is growing very rapidly. We love the economics of that business. When we look at what we can do to inventory turns over time, when we look at the dollar gross profit per item, we see very attractive fundamental economics there that we think over time we can leverage to real bottom-line performance for our company. If in that context we can find some kind of partnership that makes sense financially for us, financially for the partner and for the customer, we would certainly take a good hard look at that.
Q:Conversely, isn't a deal with a consumer electronics seller essential given that you are not authorized to sell home entertainment products from many of the major brands such as Sony and Toshiba, Pioneer and Panasonic.
Bezos:Actually, we are open with about 300 electronics manufacturers today. We have 25,000 items in our electronics store, which is roughly five times as many items as you find in the largest big box.
Q:Yet, in the key categories I mentioned, you are forced to buy from distributors that obviously don't have as good of a price as manufacturers.
Bezos:Absolutely true. And that's the way we started in the book business. That's the way we started in music. Most people don't realize that only in the year 2000 did we finally go direct with the last of the music labels. This is par for the course for us.
Q:Does consumer electronics have positive contribution margins to the business today? Some analysts believe it doesn't. In other words, they argue that the more you sell, the more you lose.
Bezos:We don't break it down to the category level. We have a segment, which you can look at the [profit and loss] on. And we announced our Q4 results, you can look at the [profit and loss] of what we call our early-stage businesses. Clearly, electronics is the largest product category in that segment. And so you can sort of get an idea from looking at that. But we will again release those figures in just a couple of weeks.
Q:Are the analysts who say you are losing money there wrong?
Bezos:That's just a different way of asking
