Amazon.Com Throws Open The Doors
Jeffrey P. Bezos has always bridled at the nickname pundits give his online superstore: "Wal-Mart of the Web." Because he's modest? No, the label isn't nearly grand enough for Amazon.com Inc.'s ambitious founder and chief executive. Bezos wants to create something entirely new--a place where consumers can find anything they want.
Now there's another way to think of Amazon--which Bezos may find just as inadequate: Mall of the Web. On Sept. 29, Bezos took the big step of opening the doors of its popular Web site to any manufacturer or retailer--even a rival--that wants to sell on its popular Web site. For a $9.99-a-month fee plus 1.25% to 5% of revenues, a merchant can offer up to 3,000 products to Amazon's 12 million customers through a new service called zShops. And for a 60 cents fee and a 4.75% cut of sales, Amazon will let small merchants and individual sellers on its auction site accept credit cards.
Already, zShops offers 500,000 products--in all, 19 million items in inventory. If something's not available there, another new feature called All Product Search will comb the Web for it. "We're taking the exposure and the customer base and offering it to others," says Bezos. "For us, the win is becoming an even better shopping destination."
Bezos had already taken Amazon.com beyond simply duplicating retail stores online. It added auctions last March and bought stakes in other online merchants. But this is a quantum leap--from playing the Web's anchor store to trying to be its chief landlord as well. Says Ken Cassar, an analyst at market researcher Jupiter Communications: "Amazon intends to get its fingers into every transaction that happens on the Web."
Amazon needs to think big--if only to fulfill the outsize hopes of investors. They value its stock at $28 billion, way more than Sears, Roebuck & Co. and Kmart Corp. combined. Yet Amazon remains unprofitable after four years in business, and it's expected to lose about $47 million in the just ended third quarter. One reason: It's spending $300 million to build 5 million square feet of warehouse space. And because the company had added no new-product categories this year until July, when it opened toy and electronics shopping, quarter-to-quarter growth has slowed, to 7%, from 33% a year ago.
BOFFO YULE. These changes--and competition from eToys and new "e-tailing" efforts by traditional merchandisers such as Nordstrom--are putting pressure on Amazon shares. Recently, they were trading 40% below May's high of 110 5/8--before rebounding 23% on the Sept. 29 news, to 80 3/4. Analysts like the potential for rental income and commissions from zShops tenants--most of which would go straight to Amazon's bottom line. With a boffo e-Christmas on the horizon, they expect Amazon revenue to jump to $1.4 billion, up from $610 million in 1998. Still, as a mall landlord, Amazon takes on new risks. If a seller is fraudulent, Amazon's reputation could suffer--even though it will compensate buyers for up to $1,000.
Moreover, the All Product Search could well hand off customers to rivals. And the jury is still out on the e-mall concept. Yahoo! and Excite have been running online malls for some time--but are customers flocking in? Online specialty foods purveyor Greatfood.com is part of zShops, but CEO Ben Nourse concedes, "I wonder if the mall strategy is the right one."
Bezos insists it's a winner: zShops customers will wind up buying more from Amazon, he figures, especially as it moves into new areas such as travel. "The number of items that Wal-Mart can offer online will certainly pale next to what Amazon with other merchants can sell," says Jupiter Communications' Cassar. For all its challenges, Amazon remains a force that even Wal-Mart must reckon with.