Amazon takes on Europe

With the launch today of online stores serving Germany and the United Kingdom, is attempting to establish a beachhead in a difficult market against a homegrown competitor with a sizable advantage.

Amazon.de and Amazon.co.uk launched today in the place of online booksellers that Amazon.com purchased in April. The acquired stores were Germany's Telebook and the U.K.'s Bookpages, respectively the countries' No.1 and No. 2 online bookstores, according to Amazon.

In Europe, Amazon faces the competition not only of smaller players such as the ones it acquired, but of the combined forces of Bertelsmann and Barnesandnoble.com.

Bertelsmann, a German media conglomerate comprising more than 300 companies, has not yet debuted its online bookstore; it plans both European and American storefronts. On that score, Amazon has beaten Bertelsmann to the punch on both sides of the Atlantic.

But with its book clubs, Bertelsmann has established its brand and mastered its markets throughout Europe, a feat that will prove challenging for Amazon to duplicate. Amazon probably will pursue a continued and extensive acquisition strategy, according to analysts.

"There's no way Amazon could independently go into these local markets with the skills base they currently have," said Forrester Research analyst James McQuivey. "In the U.S. and Canada, Amazon has great distribution and markets, but in Europe they mean nothing to nobody."

While Amazon.com can serve the domestic market using one Web site, one language, one currency, one common method of credit card payment, one shipping system, and one set of tariffs and import laws for foreign titles, Europe presents any online bookseller with manifold complications in each of these areas.

The advent of the European Union has alleviated some of the international obstacles for a trans-European bookseller, but it has hardly eliminated them. The euro, a planned common European currency, will do a great deal to lessen e-commerce headaches there--but it remains a goal and not a reality.

Amazon points out that its acquisitions help it address present difficulties and build on proven models of European success.

"We got there because we bought two of the leading online booksellers in Europe," said spokesperson Bill McCurry.

McCurry declined to say whether Amazon was considering acquiring companies in other European countries.

But even if Amazon does buy its way into every country from Italy to Norway, it will wind up with a business model more fragmented, less efficient, and faced with stiffer competition than its domestic business.

"Again, the huge threat they have to deal with is Bertelsmann," McQuivey said. "In addition to Germany, Bertelsmann has direct marketing in a whole host of northern European countries, including Scandinavia and the Netherlands. For Bertelsmann, the online move in Europe is a no-brainer."

In another downside for both Amazon and its European competitors, Internet penetration in Europe lags behind Internet penetration in the United States. Consequently, the European e-commerce pie is, and is projected to remain, a fraction of the domestic one.

European e-commerce revenue for merchandise and services is expected to be $4.6 billion for the year 2001, according to Forrester. By comparison, the same figure for the United States is $17.5 billion. Forrester currently is resizing that number and expects to double it. That means in 2001, the European e-commerce market will be about 10 to 15 percent of the U.S. e-commerce market.

Other projections paint a slightly less pessimistic outlook for European commerce, at least as far as book sales are concerned.

In 1998, online book sales will reach $47 million in Europe, compared to at least $216 million in the United States, according to Jupiter Communications. In 2002, Europe's online book sales will reach about $1 billion in the United States, Jupiter predicts, compared to $2.2 billion for the U.S.

While acknowledging the stiffer challenges Amazon faces for comparatively fewer rewards, analysts agree that Amazon is smart to move on Europe as quickly as possible.

"The challenge for Amazon is to figure out how to expand their revenue potential," said Jupiter analyst Nicole Vanderbilt. "So far, Amazon has done this by going into other product segments, and the other way is to expand into new geographic markets. Clearly there are aspects of their business that they can leverage, but the regulatory and geographic challenges they face are not trivial. Ultimately, however, Europe makes sense for Amazon in terms of expanding revenue potential."

As for leveraging its current product, Amazon has added customer service and editorial features to the homegrown German and British sites and will continue to add more Amazon features over time, according to Curry.

McQuivey agreed that Amazon had no choice but to face its European challenge.

"There's a market to be won, and there's money to be made," McQuivey said. "Amazon's business model in the end will be profitable, as soon as they get enough volume. Will Europe be easy? No. Does Bertelsmann have the advantage? Yes. And that's all the more reason for them to move now, before Bertelsmann gets its act together."