You make money by rotating other people’s capital….”

Ram Shriram Former VP,
Business Development, Amazon.com

Ram Shriram, earlier with Amazon is now
a freelancer playing the role of an internet visionary giving lectures when not
encouraging young companies with ideas, motivation and money. Shriram spoke to DATAQUEST
in a ‘free for all’ interview covering issues like, ‘eyeballs’,
traffic, and the unglamorous side of the web business. Excerpts:

  • Everybody focuses on
    ‘eyeballs’, but isn’t it the value of the service provided that will be the
    clincher?

Sure, great service is a
must and that is what will bring the ‘eye balls.’ But the point is, nobody may
know about the service. How do you get people to come there? The challenge of building
value is great. Hence it is important that marketshare comes before revenue. By
marketshare I mean the number of people, which in turn is driven by the kind of the
service offered.

  • What is content and
    what is the role of content in providing value?

Newspaper is content, a DVD
player is content, all of which will be free. You have to build other services on top of
it. Web is constantly reinventing itself. It is inherently unstable, so the constant
challenge is in knowing what is it that makes a user’s experience better, to draw
people to the site. In other words, a true value-add. I say, go build a field of dreams
and people will come. Take the case of two Stanford students who plan to build the best
search on planet. Today, the web does not give you good results for a search, since the
information base has become so vast. What these two plan to do is give the best results in
top 10. The service will search based on the relative ranking—that is, hierarchy
based on who has more links and more traffic. It stands to reason that the one who has the
maximum links would have the maximum traffic.

  • How will they make
    money?

Through advertisements.
They have a working model which I won’t talk about. But all this starts with building
a great user interface.

  • Coming to Amazon, it
    is going from a virtual store to a brick and mortar business, with setting up warehouses.

There are two aspects to
the web—the glamorous front end and the unglamorous back end. The front end is all
about the web, prices of products, how to pay, and other such things. The back end is all
about warehouse and customer service. At the end of the day you have to physically deliver
the goods. In the past, you had an inventory in the physical store; on the web, you still
need to be close to the manufacturers or have third-party contracters for delivery of
services. If you are a serious player you can’t depend on drop shipper to ship it for
you. Amazon’s experience has been to do it all by itself. The traditional warehouses
ship in bulk, not one-to-one. Here, the shipper gets the product delivered at home. This
last-mile problem is what Barnes & Nobel are in the process of solving. So, at the
warehouse end, business models have to change, which calls for huge investment in conveyor
belts and all the other ugly stuff.

  • In all this, how does
    an Amazon make money?

You make money by rotating other
people’s capital, basically it is based on return on investor capital. It’s a
cash flow model where you recycle the money.

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