CEO's Corner:'s Patrick Byrne on Expansion, Sales Tax, More

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Patrick Byrne, CEO of, speaks up about the company's international expansion plans, state sales taxes and dirty finance.Online retailer (OSTK) has been on a tear lately. Even after increasing its spending on marketing and technology, the company boosted its earnings 79% and its revenue 24% in fiscal 2010. It's now gearing up for international expansion, recently introducing the domain name as an overseas-friendly shortcut and signing a deal with DHL to reduce its international shipping costs.

Meanwhile, Chairman-CEO Patrick Byrne has remained outspoken on a number of topics, including stock manipulation and attempts to force online retailers to collect state sales taxes. He recently spoke with DailyFinance about those topics and more:

DailyFinance: Have you noticed changes in consumer behavior as we emerge from recession?
Byrne: I hate to be a Debbie Downer, but I don't believe we're emerging from the recession. The government is just propping up the economy and kicking the can down the road, instead of doing the structural readjustments that we should be doing as a country. What we're seeing in consumer behavior is that the most affluent 20% are back shopping like it was 2007. It's the whole other 80% who are still getting squeezed. opposes being forced to collect state sales taxes in locations where it doesn't have affiliates. Why?
This is being pushed by lobbyists tied to brick-and-mortar retailers. This is a competitive move under the smokescreen of fairness. Secondly, taxes are the price that government charges to provide service. We don't consume the same services as a Target (TGT) in Dubuque. They consume a lot more of Dubuque, Iowa's services than we do by shipping a package to someone there. We don't think it's fair that we should be asked to collect sales tax on behalf of the consumer for those services. The Supreme Court weighed in on all of this 20 years ago and they agreed.

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Is competition from brick-and-mortar retailers a concern?

The brick-and-mortars do have this extraordinary advantage that they can take their foot traffic and, at a very low marginal cost, can take (it) at their website. It's cheaper for them to do that. The ones who have figured out how to do brick-and-click, like Walmart (WMT), those are certainly good competitors that we keep an eye on. But there are lots of others who have not figured out how to make their websites work synergistically with their stores.

Do you think you'll have to sell your brand harder overseas, where shoppers may not know the concept?
They may not be as familiar with the concept of, but they do want bargains. We can see from those who are shopping online now [that] they are really discriminating shoppers. It really comes down to: Can we build our supply chain out to deliver the values overseas that we deliver in the United States? If we can, we think the customers will find us. We are now shipping in 91 countries. was recently penalized by Google for search-engine optimization violations. Is that going to have an effect on sales and revenue this quarter?
It's having a single-digit effect.

You have been widely criticized for your campaign against naked short selling. Do you still feel some investors are manipulating stocks?
Even though the publicity and the evidence became overwhelming, Washington was unable to act because all of these bankers have Congressmen and Senators that they can pick up and call and prevent them from acting. It's called an oligarchy. However, in 2008, when the banks themselves started becoming the victims, the federal government finally acted.

I applaud that the [Department of Justice] is going after this whole network of bad actors on Wall Street. But I don't think that they did it because of the publicity; I think they did it because finally somebody understood that the joint had gotten so crooked on Wall Street that somebody had to do something about it. In fact, the intensity with which they avoid doing the things that they really need to do sometimes worries me. It may just be the game is so crooked that they're afraid to pull too hard on any one thread because the whole thing could come apart.

What are your plans for your controversial business blog Deep Capture?
There's something coming in a matter of weeks that is harder hitting than anything we've yet published. Mark Mitchell is a journalist working with Deep Capture and he's written a story that I think, in a fair world, would win a Pulitzer. It's an expansion of topics that we've dealt with before. This is a yearlong investigation into that blurry border between organized crime and the hedge-fund community.

Are you talking about money laundering, or just unscrupulous behavior?
Money laundering is part of it. It starts with the (May 6) "Flash Crash" and digging into some characters who where involved, tracing the trading activity and the people involved. And it turns out you don't have to trace it very far until you get right into the underworld, organized crime and worse. We're going to publish it over a space of about a month. It's going to be bigger than anything we've ever done.

What else is keeping you busy?
There are two other tabs coming to our site. You'll be seeing one of them in less than a week. But I can't tell you what it is.

New categories?

Services or products?
I can't say any more.
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