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Amazon.com Buys 40% Stake in Drugstore.com

E-commerce: Purchase broadens online bookseller's revenue base. It will promote the well-financed Internet drug sales firm on its own site.

February 25, 1999|JOSEPH MENN | TIMES STAFF WRITER

PALO ALTO — Amazon.com said Wednesday that it has taken a 40% stake in Internet retail start-up Drugstore.com, the online bookselling behemoth's biggest move so far to broaden its revenue base.

Amazon Chief Executive Jeff Bezos, who was announced as a director of Drugstore.com, said Amazon will promote the closely held but well-financed site on its own home page, giving it an advantage in the new but already crowded market for online drug sales.

"We're going to let people know that we are a major investor," Bezos said at a Palo Alto demonstration of the site, which debuts today. He declined to disclose the size of Amazon's investment.

Drugstore.com on Wednesday unveiled its site and its financial backers, Kleiner Perkins Caufield & Byers and Starbucks CEO Howard Schultz, who will also serve as a director. The 7-month-old firm is based in Redmond, Wash.--hometown of its CEO and former Microsoft executive Peter Neupert.

For Amazon, the investment lets the dominant online bookseller, already a pioneer of electronic commerce, move beyond print, music and videos into a far larger arena, with annual prescription and over-the-counter sales of $150 billion. Amazon shares Wednesday fell $4.25 to $110.94 on Nasdaq.

"Amazon gets to benefit from investing in something that could be a big player," said Hambrecht & Quist analyst Genni Combes. For Drugstore.com, the expertise and potential traffic from the often-viewed Amazon site "gives them a tremendous head start."

The competition already includes soma.com and drugemporium.com and will soon include PlanetRx of San Francisco.

Besides heavyweight financing, Drugstore.com has two directors from Kleiner Perkins, the noted venture capital firm that also backed such now-household names as Sun Microsystems, Netscape Communications and Compaq Computer.

Neupert said the site will feature low prices, consumer guides, e-mail advice within 24 hours from pharmacists as well as searchability based on brands, types of remedies and price.

More women than men will be attracted to the site, he predicted. And he said it has a privacy appeal that has worked as an effective draw in other online businesses.

"There are many places where you don't want to browse in public," Neupert said. "Nobody likes going to the drugstore."

Among the challenges facing the company and its more than 100 employees is the time lag in mailing what would ordinarily be impulse purchases. And for the parent of a child who needs antibiotics immediately, he agreed there's no alternative to the corner pharmacy.

Regulatory issues are also unsettled, although Neupert said the company can ship to all 50 states because its prescriptions will be filled by traditional supplier Texas-based Rx America.

Insurance plans covering 70 million people will support purchases at the company, he said.

Drugstore.com executives said that while the links and promotions on other Web sites will be helpful, the real differentiation will be in the customer's experience and that it is far too soon to say who will win the battle for market share.

Neupert declined to predict when the company will turn a profit or sell shares to the public.

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