Amazon.com is doomed. A few months ago this would have been a controversial statement. Not anymore. First, the good news: Amazon.com has truly been an Internet and e-commerce pioneer. CEO Jeff Bezos has been pictured in more business magazines than Bill Gates. I love buying books, CDs, and other stuff on this user-friendly Web site. It is a wealth of shopper convenience. Unfortunately, the company is a disaster waiting to happen. Amazon.com will not make it in its current configuration because its business design is financially unworkable. The financials have been lousy from the very beginning. As the company expands, it enters more and more business segments about which it knows less and less. If Amazon.com had remained a "clicks and NO mortar" company, I would be excited about it. Lots of supply and distribution companies would love to be Amazon.com's distribution partners. Of course, they would require a profit on their efforts, and that may fly in the face of Amazon.com's low-pricing policy. The problem with strategies based on low prices and broad assortment is that such a strategy requires operating excellence that is unsurpassed. Only a few companies have achieved that level in recent years, such as Wal-Mart and Home Depot. Others who tried it have failed, as evidenced by the closing of numerous regional discount chains such as Zayre and problems at others such as Kmart. Amazon.com's pitch has been to build traffic and thus own the minds (and mouse clicking fingers) of consumers. That is a great idea, if and only if you have some idea how to make money once you have the consumers coming to the store/site. But Amazon.com is going in the wrong direction. Even loyal analysts at Merrill Lynch, Bear Stearns, and Prudential Securities are starting to squirm publicly, and analysts simply don't do that unless a problem is looming. If you take its last six quarters of published losses, and divide by the millions of customers shopping the site, the trend is all bad. A $3 loss per quarter per customer a year and a half ago has worsened to a $15 loss per quarter per customer in the most recent quarter. The more customers that shop Amazon.com, the more money it loses! The reasons given are the marketing expenses and the investment in infrastructure. Of course. Those expenditures are the ones upon which returns must be earned! Web sites are fairly inexpensive to create and expand compared with advertising and national distribution systems. Warehouses, inventory, and employees cost real money. Until now, Amazon.com has used its own version of "funny money," by way of its grossly inflated stock price. This reduces the cost of capital dramatically, and if the cash flow supports its ongoing operating expenses, Amazon.com can continue its pyramid scheme for a long time. But, sooner or later, real value must be created, and a real stream of revenue in excess of expenses must begin to flow or those debts, however cheaply financed, will never be paid off. If you have made money on Amazon.com stock thus far, congratulations. Many people have -- but not in the future. If you think I am saying Amazon.com will just disappear, that won't happen either. Such a prominent brand name and presence in consumer's minds is worth a lot -- but only if the operator can figure out how to turn a profit with it. Amazon.com has not done that. Maybe instead of stealing Wal-Mart employees, Amazon.com should become Wal-Mart's Internet division. That might make real sense for both companies. Wal-Mart is superb at sourcing, merchandising and distribution. Wal-Mart wants to be a $1 trillion company by just after the end of the next decade, and it will be driving hard on its Web presence -- at the expense of those who occupy that competitive space now -- such as Amazon.com. Amazon.com has the Web traffic now, but even that hold is tenuous. Before the sharp-shooters using robot shoppers find who else sells things cheaper than Amazon.com, it is time to trade in some of the clicks and mortar for real bricks and mortar -- but only if the talent to manage it comes along with it. For all the wonders of the Web, computers, and technology, the real secret of success lies in people executing against a well-thought out strategy creating value. Pushing a bubble of losses forward is not creating value -- not yet anyway. Stand back if that bubble bursts, because a lot of people will lose a lot of money.
John Mariotti, a former manufacturing executive, is the author of Smart Things To Know About Brands, (1999, Capstone Ltd.).