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E-commerce results tell the tale

So far, the quarterly numbers from e-commerce companies are confirming the predictions of last fall: Americans are streaming onto the Net to make purchases.

A spate of earnings reports today from e-tailers and online payment firms confirms much of the pre-holiday hype--Internet shopping went mainstream last fall.

Today reported $252.9 million in book, music, and video sales in the final three months of 1998, outstripping in a single quarter all of its sales for 1997, when revenues totaled $147.7 million. For 1998, money-losing Amazon reported $610 million in revenue.

Other e-tailers checking in today with fourth-quarter revenue figures were eBay, the person-to-person auction site that remained highly profitable, online software store, which reported 77 percent growth in online sales over the year earlier, and Net payments firm CyberCash, which continues to gush red ink.

For research firm Jupiter Communications, today's earnings reports confirm its holiday commerce predictions.

"November and December purchases by U.S. users amounted to about $3.1 billion, including travel," said Nicole Vanderbilt, a Jupiter e-commerce analyst. Last fall, Jupiter had projected holiday sales of $2.8 billion. For all of 1998, Jupiter sizes the online shopping market at $7.1 billion.

As significant as Amazon's sales figures, Vanderbilt said, are the 6.2 million customers that have done business with the online retailer since its inception. Amazon added more than 1.7 million customers in the last three months of last year, even more than the 1.25 million first-time shoppers that America Online reported earlier this month.

"The number of customer Amazon has now is a pretty good indication of future revenues. The customer base is immense as opposed to just about any other online player," Vanderbilt said. Customer acquisition or marketing costs are a key measure for most online retailers.

"The success of customer acquisition campaigns will often determine who will be the leaders going forward. Amazon continues to separate itself from many competitors," she added.

James McQuivey, an online retail analyst at Forrester Research, said Amazon's 1998 revenues included about $550 million in books and $47 million in music, a business it entered June 11.

"Amazon started music half way through the year, and in that time, they were able to do nearly $50 million in music sales--which is exactly what Music Boulevard did for the entire year," McQiuvey said. "That puts even more pressure for Music Boulevard and CDNow to complete their merger."

Amazon's sales report also indicates there's no contest in the online book-selling category, said McQuivey of Forrester, which put the 1998 online book market at $650 million. With Amazon at $550 million in book sales, that leaves just $100 million for rivals, and other online book sellers.

CyberCash's earnings report, which came early in the day, indicates the online payments firm still hasn't found much traction in the market, said Scott Smith, e-commerce analyst at Current Analysis.

CyberCash's InstaBuy Service, a one-click payment wallet launched in August, generated almost 10 percent of CyberCash's revenue last year while its electronic check product, PayNow, which was marketed aggressively for the entire year, accounted for just 5 percent of the company's revenues.

Several analysts suggest eBay's profitable quarter should be separated from money-losing online merchants because they run different businesses. Instead of owning an inventory of merchandise, eBay creates a marketplace, then collects a fee for what others sell.

In the end, said Jupiter's Vanderbilt, online retail watchers can focus on two players.

"It's become pretty clear that AOL and Amazon are two pretty good benchmarks for the overall market," she said. Earlier this month, AOL announced its retailers grossed $1.2 billion in holiday sales, somewhere between a third and half of what all online retailers booked.

Vanderbilt says the most interesting data about online shopping may remain hidden because it comes from the catalogers and real-world retailers that opened online storefronts. She thinks apparel makers and department stores did particularly well, in part because they face virtually no online-only competitors.

"The most interesting players that we'll never know is the online initiatives in larger retailers," Vanderbilt said. "The J. Crews and Gaps of the world, and in come cases like eToys, which is not required to disclose revenues because it's private.

"J. Crew has been very pleased with its online initiatives, if only because they found the online customer is more valuable, the return rate somewhat lower, and the sales cost is quite a bit cheaper than the traditional catalog," she said. "It's not only in revenue, the usual measure, but the incremental profitability from online operations."

Although today's reports create benchmarks for comparison, Kate Delhagen of Forrester thinks it's still to early to determine, especially for investors, which online retailers are doing well and which may fall by the wayside.

"This is a traffic record on what revenue growth should look like. Each quarter that's gone by, a handful of retailers report, showing who gets traction and has a pattern of growth," Delhagen said. "Then we can develop a list of leaders and laggards according to the norm. We probably won't see that level of differentiation among online retailers until after the next four quarters."