Amazon strategy shift may threaten eBay
The company is planning to allow sellers of used goods on its site to branch into new businesses, an analyst says, in a move that could put pressure on the big auction site.
Amazon Chief Executive Jeff Bezos and other executives met with investors last week in Seattle and outlined an expansion plan for the company's Marketplace and Services units, according to Safa Rashtchy, an analyst with U.S. Bancorp Piper Jaffray. As part of the plan, Amazon has struck a deal with Circuit City that will allow the electronics chain to sell its own goods on the Web superstore--alongside Amazon's.
Currently, people and businesses can sell used goods on the site only if Amazon itself offers the same items new. For instance, if Amazon sells a CD by the rock group U2, then it allows a seller to offer a used copy of the CD. This way, Amazon doesn't need to create new product descriptions or displays.
Under the new plan, sellers would be able to create their own product descriptions and displays, Amazon executives said, according to Rashtchy.
Rashtchy said Bezos wanted people to be able to find anything they wanted on the site.
Amazon representatives did not return calls seeking comment Tuesday.
This strategy shift could draw a slew of new sellers to Amazon, said Rashtchy, who alluded to the changes in his weekly research note on Amazon on Tuesday. Instead of just featuring used DVDs, books and CDs, Amazon could feature the types of goods found on eBay: Beanie Babies, Porsches or antique wind chimes.
"This could potentially hurt eBay," Rashtchy said.
eBay declined to comment.
Analysts have noted that it can be better to host an online commerce area and just collect fees than to actually run an online commerce operation, which includes the cost of expensive inventory and shipping.
Amazon's Marketplace unit collects fees and a share of the profits by allowing sellers to offer used goods to its more than 29 million customers. The company's Services division is also paid for outfitting retailers with some of Amazon's e-commerce technology.
The Services unit contributed $225 million in revenue during 2001, about 7 percent of Amazon's total sales. The sale of used goods accounted for 23 percent of total U.S. orders, compared with 4 percent last year.
"Amazon likely said to themselves, 'How can we leverage our assets and take advantage of our marketplace?'" Rashtchy said. "'We have a good audience and a good brand name. So let's generate some revenue by allowing people to sell through that.' It's a smart move."
The poster child for this concept is eBay. The profitable auction house is a darling of Wall Street for leaving the headaches of retailing and inventory to others.
Amazon and eBay have been jockeying for leadership in creating an e-commerce "platform" that will serve as a retail model for the entire Internet. The idea is to create a new model that will serve any preferred way to shop online, whether it be brand-name storefronts, discount outlets, person-to-person auctions or any other form of commerce.
Back in 2000, it was auctioneer eBay that ventured into the fixed-price retail business when it bought Half.com, a marketplace for used goods. eBay also began offering a "buy now" feature on its auctions that allowed bidders to forgo the auction process and buy goods in a more traditional manner.
Amazon's shares closed Tuesday up 9 percent to $18.81. News that Amazon expects a "strong April" triggered a rise in Amazon's stock price.