Amazon.Com - New Partners Help To Increase Revenue

NEW PARTNERS HELP TO INCREASE REVENUE

During 2000 Amazon.com entered into new partnerships designed to increase the firm's revenue and make it profitable. Amazon.com had spent heavily to attract customers. Now it was entering into agreements with other dot-coms to give them access to its base of 16 million customers in exchange for a fee and an ownership interest. The agreements also were part of Amazon.com 's strategy to offer the widest possible assortment of products through its Web site. Each agreement would add to Amazon.com 's operating income, offsetting a projected loss of $41.7 million for 2001.

In January 2001 Amazon.com invested an additional $30 million in Drugstore.com, increasing its ownership interest in the dot-com to 28 percent. In return, Amazon.com would receive $105 million over three years to display Drugstore.com prominently on its Web site by giving the site its own category tab on Amazon.com 's home page. Amazon.com also invested an undisclosed amount for a five-percent interest in Greenlight.com, which sold cars online. Green-light.com agreed to pay Amazon.com $82.5 million over five years for promoting its site to Amazon.com customers.

Other partnerships involved such dot-coms as Ashford.com, a seller of luxury goods; NextCard, which was creating a co-branded MasterCard and Visa credit card; and Gear.com, which sold sporting goods at a discount. During the year additional links were added to Pets.com and Homegrocer.com As the year progressed, the Internet economy weakened and several dot-coms reorganized or went out of business. One casualty was Living.com, which had promised to pay Amazon.com $145 million over five years to be its home-furnishings partner. That revenue stream was lost when Living.com closed up in August 2000. Weakening support for dot-coms also caused Amazon.com to rearrange its terms with several other partners who were part of the Amazon Commerce Network, including Greenlight.com and Drug-store.com, again reducing the company's revenue.

Although management's strategy was aimed at achieving certain operating income levels rather than revenue growth, Amazon.com continued to lose money during 2000. For the second quarter ending June 30, Amazon.com reported a loss of $115.7 million on revenue of $578 million. Customer accounts rose by 2.5 million during the quarter to reach a total of 22.5 million customers. Repeat orders made up 78 percent of Amazon.com 's total, up from 70 percent a year earlier. The company also noted that its book and video sales had finally become profitable. Its electronics division posted the biggest gain during the quarter, while its U.S. book, music, and DVD sales totaled $385.28 million, with a profit of $10.06 million. The company also announced it expected to end the year with about $1 billion in cash. Investors expressed concern about Amazon.com 's rising debt load, which increased from $1.5 billion at the end of 1999 to $2.1 billion at the end of June. Servicing its debt cost Amazon.com an estimated $150 million annually.

Through its agreement with Greenlight.com, Amazon.com added cars to its product offerings in August 2000. The new link presented information on automobiles and trucks in the standard Amazon.com format. They were listed on Amazon.com 's new ventures section, which included all of Amazon.com 's non-media products. Amazon.com was able to offer new car and truck sales in 27 metro markets through affiliated dealers, including three of the top dealership networks.

After less than a year online, Amazon.com 's co-branded auction site with Sotheby's auction house was closed in October 2000. The listings from Sothebys.Amazon.com were consolidated on Sothebys.com, the auction house's primary Web site. The reason given for the consolidation was the need to achieve a larger scale and offer customers a much deeper selection in a single site. The consolidation also made it easier for Sothebys.com 's 5,000 associates to conduct business online.

Amazon.com also expanded internationally during 2000, opening sites in France and Japan in addition to its existing sites in Germany and the United Kingdom. The Japanese-language site was launched in November 2000 and focused on books. Japan already was Amazon.com 's largest export market, with nearly 200,000 Japanese customers ordering $34 million in products each year from the company's U.S.-based site. The Japanese site was supported by a corporate office in Tokyo, a distribution center in Ichikawa, and a customer service center in Sapporo, Hokkaido. Although Japanese publishing regulations prevented the e-tailer from offering large discounts on Japanese-language books, it could continue to discount its English-language titles up to 30 percent. For the rest of 2000 the Japanese site offered free shipping as an incentive.

A November 2000 report compiled by Forrester Research revealed a tight three-way race among online booksellers. For the first time, Borders.com passed Amazon.com as the top online bookseller, with Barnesandnoble.com a close third. Forrester's PowerRankings of major U.S. e-commerce sites, which were based on consumer surveys followed by its own online shopping tests, gave Borders.com a 66.83 rating, compared to 66.76 for Amazon.com and 65.46 for Barnesandnoble.com. The results demonstrated that while Amazon.com was focused on branching out into other product lines, Borders.com and Barnesandnoble.com were working hard to sell books over the Internet. In the Forrester survey, Borders was tops in the categories of transaction efficiency, cost, and delivery/returns, while Barnesandnoble.com led in ease of use and customer service. Subsequently, in April 2001 Borders announced its exit from online retailing and turned over the operation of Borders.com to Amazon.com, for which Amazon.com received a one-time payment and a percentage of revenue from sales.

A December 2000 report by Jupiter Media Metrix revealed the strength of Amazon.com 's international appeal. It was the most visited e-tailer in Australia, Canada, the United Kingdom, and the United States. In addition, Amazon.com was among the top five online retailers in Brazil, Denmark, France, and Japan. In the United Kingdom the company actually ranked first and second, with its U.K. site attracting 1.75 million unique visitors in November, while its U.S. site attracted 993,000 visitors. The U.S. site reported 1.22 million visitors during November from Canada and 461,000 from Australia.