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Stock Zooms as Sells Videos

Retailing: Online firm's shares rocket $22.25 to close at $148.50. The question now is, what's next?

November 18, 1998|JONATHAN GAW | TIMES STAFF WRITER hadn't even opened its online video store before industry watchers declared it a slam-dunk for the Internet retailer.

The Seattle-based company's stock, one of the bellwethers of investor sentiment toward the Internet sector and its potential, zoomed $22.25 to close at $148.50 on Nasdaq on Tuesday.

The company, a leader in online bookselling that expanded into selling music in June, almost immediately took over the No. 1 spot in online music retailing. Thus home videos--which the company said Tuesday it will begin selling--seemed a logical extension. But the company, which has expressed ambitions far beyond media content, has been mum about what might be next.

The company could well find that moving into other categories would be more difficult, analysts say.

Possible lines include computer software, video games, consumer appliances, pharmaceuticals, wine and toys. However, most of those businesses have significant and numerous competitors, have vastly different distribution systems or require customer service and handling skills unlike those involved with selling books, music or videos.

"It certainly will not be as simple as what they have done to date," said David Pecault of Boston Consulting Group. "They may have to do partnership deals with people who have the fulfillment structures, which means they may have to share some of the gravy."

Consumer electronics, for example, with their increased shipping and customer service requirements, would be much more complex than books, said Cris Popenoe, an independent electronic commerce consultant.

In addition, expanding into other categories carries a risk that the company's brand identification among consumers could become diluted.

"The question becomes how do they continue to expand in different areas without taking energy away from their core," Popenoe said.

Amazon's customers have come to expect that virtually any book can be shipped to them within three days. Thus there might be some disappointment if Amazon can't make a similar promise about other kinds of goods.

Amazon doesn't feel that it necessarily needs to offer the full line in every category into which they move.

"It all revolves around customer experience," said Chief Executive Jeff Bezos. "It would be way too limiting to say the next category we go into has to be authoritative selection. In some cases that may be the customer problem that you're trying to solve, but in other categories that's not the problem."

It may be that Amazon's next move would be to aggregate content about other products and receive a commission on sales, like a department store.

Earlier this year, Amazon acquired a company that would move it in that direction. Junglee Corp. created a technology called "shopbot" that scans Internet stores for a specific product and tells the customer which store has the item at what price.

Although the department store model would put Amazon in the position of both aggregator and seller, it may not matter.

"It's kind of like Macy's, which has its own brand of clothing as well as carrying others," said Stephen Franco, an analyst with Piper Jaffray.

Other Internet-related companies, such as the search engine Excite Inc., which bought shopbot technology earlier this year, are trying to create online services people can rely on to get comprehensive information about consumer products.

The aim of the strategy would be to essentially make retailers product handlers, commoditizing their goods and driving margins down.

Ironically, marketing deals that Excite signed with the likes of when the common wisdom was that the portal model would be successful now constrain Excite from being that aggregator. Excite uses its shopbot technology in numerous product categories but not books or music because of deals signed with Amazon and music retailer N2K Inc., a situation that may change when those deals expire in the coming years.

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