Joining Sam's Club

Can Amazon.com and Sidewalk.com remake themselves into Web-Marts?

AT A RECENT DINNER party for journalists, a writer for Amazon.com, trying to justify his place at the table, was met with a chorus of harrumphs from the liquored-up Vanity Fair, Wall Street Journal, and MacNeil/Lehrer reporters in attendance: "Are you a critic or a salesman?" "Isn't it true that you're not allowed to write negative reviews?" Finally, as dessert arrived, a Boston Globe business writer let our Amazon "colleague" off the hook: "Why do you think people hate Amazon so much?"

For the same reason, it would appear, that people love Amazon. Its Web site claims 3 million customers, and analysts estimate that gross annual revenues have grown to $500 million. Wall Street especially loves Amazon: How else can you explain a company with a price/earnings ratio of negative 107 and a stock price of $116 per share?

The gross revenues hint at the problem for the journalists at the dinner party: There is nothing more odious in all of media than the infomercial, and Amazon is remarkably infomercialish, its protestations to the contrary notwithstanding. "Amazon.com is more than just a store," claims the company's Web site. Its "mission" is to "offer products that educate, inform, and inspire." Even "Where do you want to go today?" Microsoft scoffs at such Amazonian pretensions to altruism and objectivity. "They have a vested interest" in the books they recommend, says Microsoft online business unit manager Matt Kursh. "I don't think it should come as a surprise to anyone that they are a bookstore."

In fact, Amazon is much more lucre-driven than an online version of your lovable corner bookstore would be. It's an unabashed "e-commerce portal," in the current preferred parlance of insiders. As company founder and CEO Jeff Bezos explains—especially when pressed about the immense losses ($11 million last quarter alone) incurred by the expensive business of warehousing and shipping books—he's building a generic destination for all sorts of online shopping. Amazon has already added compact discs and videos to its catalog, and is growing—in the parlance of headline writers—into the "Wal-Mart of the Web."

Therein will lie the company's biggest test to date. It's one thing to add music and films to what's essentially a book-store, says industry analyst Ken Cassar: "Books, music, video—they all seem to do well together—the next step is going to be a real challenge."

According to several sources familiar with its business dealings (the company declined comment for this article), Amazon made a significant step toward Wal-Martization earlier this month by investing in and partnering with Redmond-based start-up DrugStore.com. The virtual pharmacy, which opens for business early next year under the helmsmanship of Microsoft veteran Peter Neupert, is primarily funded by Kleiner Perkins, the Silicon Valley powerhouse behind Netscape, Excite, and Amazon. In August, Amazon acquired Junglee, which makes software that automatically collects, compiles, and updates prices of products sold by any online merchant. Using this technology, Amazon can offer buyers' guides, complete with comparative prices and links to appropriate retailers, in virtually any category, and collect commissions for every customer referred. It's not unlike the way conventional brick-and-mortar malls draw shoppers to a one-stop marketplace and make money by charging rent to individual retailers.

LAST WEEK, MICROSOFT entered the e-commerce fray with its own online shopping guide, code-named "Crosswalk." The new guide, with tips on ski equipment, Christmas presents, and a complete online yellow pages, actually represents the latest incarnation of Sidewalk, which in the past two years has slowly morphed from a Web-based arts and entertainment magazine into—as the current cover of Forbes magazine puts it—"the Wal-Mart of the Web." The movie and restaurant reviews from the old Sidewalk haven't gone away—they're just buried further down in the site, which now bills itself as a generic guide to city living. Although Microsoft wants Sidewalk to become the same sort of hub for online shoppers envisioned by Amazon, Kursh doesn't see the bookseller as a competitor. For one thing, Sidewalk doesn't sell anything directly. Sidewalk is a truer guide, with objective consumer reports, he says, while Amazon is a "direct marketing" catalog.

Kursch's protestations to the contrary, the next step for Sidewalk seems to be consolidation into Microsoft's main portal site, search engine, and Internet Explorer default home page, now called MSN.com but formerly known as home.microsoft.com, then Microsoft Start (not to be confused with the subscription service of the same name).

For its part, Wal-Mart, isn't so keen on these online wannabes. After all—there already is a Wal-Mart of the Web, called www.wal-mart.com, which sells everything from dog food to Rolex watches to. . . books. Last week, Wal-Mart filed suit against Amazon (with DrugStore.com and Kleiner Perkins thrown in for good measure) for recruiting up to 15 managers from Wal-Mart's elite information systems division in alleged violation of trade-secrets laws in Arkansas, where the retail behemoth is based. (The chief information officers of both Amazon and DrugStore.com are former Wal-Mart executives.) "By targeting for solicitation and employment a disproportionate number of key associates, former associates, and vendor representatives of Wal-Mart," the complaint reads, "the Defendants have demonstrated that they are attempting to hire these individuals not because of their general knowledge skills but in an attempt to obtain trade secrets and other confidential information that is unique to Wal-Mart."

"Wal-Mart is technologically as savvy as a large company comes," says analyst Cassar, who sees the lawsuit as a validation of Amazon's business model. The lawsuit sends a strong signal that Amazon's strength is not in books, and certainly not in its "reviews." Rather, it is in the strategic and technological infrastructure it has built for taking, processing, tracking, and fulfilling individual online orders. This is a generic system that can sell any kind of product to any kind of customer. "If Wal-Mart is willing to go to the mat against Amazon," says Cassar, "they must see them as a legitimate threat."

 
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