How to go from 100 to 1.5 million units per day

In keynote session that shared highlights of Amazon.com’s rocket ride since launching online in 1995–-including lessons learned and some costly mistakes--founder and CEO Jeff Bezos debunked what he termed the top myths of e-commerce to a packed audience of retail managers and executives at today’s Retail Systems show in Chicago.

Bezos kicked off the presentation with a bit of the technology razzle-dazzle that’s helped grow the site’s customers to 30 million a year over the past seven years when he arrived at the speaker’s podium on a Segway human transporter. “It’s really fun to drive–-and it’s available exclusively on Amazon.com,” he told the crowd.

On a more serious note, Bezos squared popular perceptions in retail about e-commerce with the reality of Amazon’s experience, zeroing in on key differences between the online and offline worlds. While the Internet at various times has been called both a “gold rush” and a “dot-com bomb,” it’s in fact neither, he said. “The myth in 1999 was that e-commerce would kill retail. The myth in 2000 was that e-commerce was dead,” he said. “The reality is it’s in between. Online is an important channel, but it always will be a fraction of retail.” Ultimately, Bezos said he sees online settling in at perhaps 10% of retail, adding that stores will remain the most efficient and most economic way for consumers to shop for many products.

That leaves multi-channel retailers wrestling with channel integration to answer the strategic question of how much of their sales they eventually see coming from online when making technology investments, he said. “If it’s 5%, the question becomes, how do you provide a best of breed online experience without defocusing on the rest of your business?” he said. Amazon concurrently with the show announced it had created a new division devoted to supplying its technology platform to other retailers in the type of relationship it already has with Borders, Target and others. (Click here for related story.)

Bezos ticked off key factors that he said separate the requirements of successful retail operation from those of e-commerce. Among them are retail’s dependence on physical location, not a factor online, and the impossibility of personalizing to every customer in a store--something to which Amazon has devoted major resources online.

He also tackled the widely held misperception in retail that fulfillment is Amazon’s biggest expense, saying that Amazon’s biggest spending has been on technology. Over the past 5 years, Amazon has spent some $300 million on fulfillment, more than twice that on marketing and customer acquisition, and $900 million on technology, he said. Technology continues to be the company’s biggest expense with spending in that area averaging about $200 million a year, he added. “Technology dominates every aspect of the customer experience at Amazon,” he said, from helping people find products to fulfillment and delivery.

Much of that technology spending has been in the form of developing new tools and features for customers to use online, such as single-page checkout and one-click buying. “Only a tiny piece of inconvenience can cause people not to do something online,” he says. “One-click is the ultimate in making that process as friction-free as possible.” Amazon has also invested big in the engine that drives its personalized recommendations to shoppers, Bezos added, recently creating the new position of chief officer of algorithms to oversee the massive algorithms it’s developed to power the recommendations engine.

Technology also is at the center of Amazon’s fulfillment operation. In 1995, the first year it was online, Amazon packed 100 orders on its peak day. Last year, it shipped 1.5 million units on its peak day, averaging 17 orders per second throughout the day. Bezos added that if the company had the knowledge it’s gained over the past several years at the outset, it could have shaved as much as half off the $300 million it spent on fulfillment through greater efficiency.

Of the $600 million to $700 million Amazon has spent on marketing over the past five years, Bezos invoked the old marketing saw that half was wasted, but it was unclear which half. Increasingly, the company is focusing on initiatives that deliver measurable results. Amazon’s affiliate program, currently numbering about 1 million, is the largest such program online, he said. “We know there what we are paying for,” he said. Adding that other major online advertising deals have also been effective, Bezos said Amazon recently discontinued TV ads because the benefits they delivered were unclear. “I wish we had made that decision a few years ago,” he said.