Amazon tries on hosting hat
The Seattle-based company's move toward hosting storefronts is a major shift in its business that analysts say may prove troubling for the retail giant.
Along with hosting other retailers' stores, the company announced today that it plans to let consumers search for products across the Internet. The company is beginning to look less like a simple retailer and more like a shopping portal, analysts say.
"This makes them an e-commerce hub on the Internet," said Jill Frankle, e-commerce analyst with Gomez Advisors. "They're trying to become the starting point for people looking for goods and services."
But what Amazon is doing isn't new. Portals such as Yahoo and Infospace are currently hosting merchant Web stores, and Yahoo now has some 6,000 shops including Tower Records and Barnesandnoble.com in its Yahoo Stores area.
To date, Amazon has steadily expanded away from its book-selling roots, opening music and video stores last year and an auction site earlier this year. Two months ago, the company launched a toy and electronics store; and it has invested in a slew of merchants in other industries, including Homegrocer.com, Pets.com, and Drugstore.com
Last year, Amazon launched a product search service called Shop the Web after it bought Junglee, a shopping technology company. In recent months, one of the founders of Junglee left Amazon and the feature has become virtually hidden on the site.
Despite this, Wall Street reacted favorably to Amazon's news, pumping the stock up to levels it had not seen since early May. As of 2:05 ET, the stock was up almost 22 percent to 80.31.
But not everyone was impressed. Mike LeConey, Internet analyst with Security Capital Trading, said that although investors have wanted Amazon to broaden its product base, this was not the best way to do it. Smaller merchants may be desperate to sell online, but they've already found better ways to do so, such as through eBay, LeConey said.
"I would like it if [Amazon chief executive] Jeff Bezos stuck to his original model," LeConey said. "I don't think they've figured it out yet."
John Briggs, director of e-commerce at Yahoo, said he isn't worried about Amazon's entry into the merchant hosting business. Briggs said that the number of stores on Yahoo has grown from 1,000 to 6,000 in the last year and those stores now carry some 3.75 million different products.
Although Yahoo charges merchants more to host their sites--about $100 a month versus $9.95 a month on Amazon--Briggs said retailers on Yahoo don't have to worry about whether they are competing for sales with Yahoo.
"We're pretty focused on what we're doing," Briggs said. "It will be interesting to see because we don't sell stuff and they do."
The vice president of marketing for Amazon, Jaleh Bisharet, however, said Amazon's zShop service differs from what Yahoo and other companies offer. Not only is the service less expensive, but Amazon merchants also will be able to promote their goods on Amazon's product pages--even if it means that a used bookseller is promoting products on a new book page, Bisharet said.
Amazon also can offer customers access to its 12 million customers, the largest e-commerce customer base.
"People come to Amazon in a shopping frame of mind," Bisharet said.
News.com's Greg Sandoval contributed to this report