The Trials of Jeff Bezos

At the time, it seemed like a brilliant stroke: Amazon.com, the retailer that launched and led the e-commerce revolution, would promote other online retailers on its site in exchange for hefty fees. For CEO Jeff Bezos and his company, the payments would be nearly pure profit and could quickly turn around his money-losing operations. So beginning in late 1999, Amazon signed a string of such deals with the likes of Audible.com, Drugstore.com, Greenlight.com, Living.com and others. Wall Street analysts gushed and predicted that Amazon.com could bring in an extra $500 million over five years.

But those deals don't look so clever anymore. As it turns out, the "fees" Amazon collected often took the form of stock in enterprises that were highly speculative. One by one, Amazon-affiliated startups collapsed, leaving some investors claiming that they were duped. Even though Amazon disclosed partial details of the agreements in its regulatory filings, it now faces more than a dozen lawsuits from investors.

That's just one of the headaches Bezos faces. Investors once reacted to his every announcement with enthusiasm. But for more than a year now, Wall Street has responded with nothing but skepticism, even scorn, as many of Amazon's efforts to calm investors with soothing spin and new initiatives have fallen flat. Even relatively positive news is coming up short. Last week's announcement of smaller-than-expected losses, followed by a new alliance with bookseller Borders and an upgrade on its debt by Moody's, might have given Amazon a boost but hasn't quieted increasingly vocal critics on Wall Street, who are calling on Bezos to do something dramatic to reverse the firm's fortunes.

Amazon consists of nearly 20 stores with about $2.8 billion in annual sales – but only books, music and videos generate operating profits. The others, such as toys, housewares and consumer electronics, as well as international operations, continue to lose money. And pro-forma operating profits for the entire business, which Amazon hopes to reach in the fourth quarter of this year, still exclude a lot of hefty bills, most notably interest on Amazon's $2 billion in debt.

Back at headquarters in Seattle, Bezos and his team say they are forging ahead on a steady course. But that course has been derailed. Tacitly acknowledging that it can't keep losing vats of money, the company has been scrambling to cut costs. During the past few months, it has tried everything from improving efficiency to cutting staff to shuttering warehouses. It also has sought to reinvent itself with new alliances.

It all sounds a little desperate - for good reason. These days, even Amazon's most reliable weapon, Bezos' disarming earnestness and goofy charisma, has lost its magic. After months of relative quiet, the affable, ever-smiling CEO has launched a full-blown PR offensive. But despite a flurry of interviews with news organizations, Bezos hasn't been able to generate much positive coverage. He has lost his Teflon coating.