The sites that stole Christmas

By Sandeep Junnarkar
Staff Writer, CNET News.com
December 9, 2002, 4:00 a.m. PT

With two children under 3, it's a struggle for Sawa Yamamoto to find the time to load her kids into a stroller for a walk to the nearest shopping strip about a mile from home.

Instead, the first place she goes to buy things is eBay--not just for the odd collectibles that made the company famous, but for the kind of big-ticket and brand-name items usually associated with large department stores. If she doesn't find what she needs there, Yamamoto comparison shops at Amazon.com and on a handful of other sites.

"I buy pretty much everything online--from clothing to baby products," said the stay-at-home mother, who lives in Flushing, N.Y. "We've always had a pretty tight budget, so I always look for bargains online."

Unbeknownst to millions of harried consumers this holiday season, a quiet revolution is transforming the way people shop online. Despite the erratic evolution of e-tailing, maturing strategies from a few key survivors of the dot-com meltdown are allowing consumers like Yamamoto to visit just one or two sites for all their shopping needs.

As a result, after years of experimentation and fierce competition, the business of e-commerce is finally settling into a pattern that will define the online shopping experience of the Information Age. And ironically, today's e-tailing industry has come to mirror its counterpart in the brick-and-mortar world, relying on that most American of consumer institutions: the mall.

Driving this concept are two Internet giants that have origins far from the mall concept, virtual or otherwise: Amazon and eBay. Morphing well beyond their respective roots as an online bookstore and a mom-and-pop auctioneer, the two leaders are on course for a head-on collision that will further shape the e-tail experience by establishing bargain outlets and other ways to offer reduced prices as the foundation of their businesses.

"In retrospect, eBay and Amazon made all the right moves," said David Kathman, a stock analyst for financial services company Morningstar. "First they established themselves and got all the customers, and now eBay and Amazon are capitalizing on the mall model."

In the early days of Internet commerce, the proliferation of Web malls seemed inevitable. Names such as iMall, ShopNow.com, ShopperConnection.com and Webtailer.com all invited retailers to set up shop on their sites, promising to attract customers through a central, well-advertised Web site. But these businesses proved too far ahead of their time, when consumers were not yet ready to accept e-commerce as a trustworthy way to shop.

As those companies failed, Amazon and eBay continued to invest heavily in building technology infrastructure for shopping that has been tested under duress. Although their addition of a storefront is now a mere "plug-and-play" procedure, the move can exponentially increase a retailer's exposure overnight: The combined monthly traffic of Amazon and eBay exceeds 40 million visitors. In return for the spotlight, these virtual malls receive a share of the sales revenue without the burdens of a traditional retailer.

The prolonged economic slump, with its dampened consumer confidence, has served only to hasten the trend by driving more shoppers to Amazon and eBay, much the same way people flocked to outlets such as Wal-Mart and Kmart in previous recessions. Accordingly, well-known retailers and manufacturers are seeking partnerships with the two companies in an effort to unload excess inventory that has piled up during the latest economic uncertainty.

Just last month, eBay launched an electronics storefront dubbed eBay Electronics, which will sell new, refurbished or used products such as digital cameras, computers, video games and flat-panel displays. Hewlett-Packard opened a shop within eBay Electronics, where it will sell refurbished servers, computers, printers and handheld devices. Other large companies, such as IBM, Eastman Kodak, Sears and Samsonite, also have a presence on eBay.

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Amazon, too, has acquired such recognition, as evidenced by its anticipated deal with Bertelsmann to run the German media conglomerate's CDNow Web operations. The agreement represents a clear capitulation by Bertelsmann, which at one time planned to take on Amazon with a site called bol.com to sell books, CDs, DVDs, games and software.

In addition, Amazon last month introduced an apparel site that features such brands as Gap, Lands' End and Nordstrom. The e-commerce giant already runs the online operations for Toys "R" Us, Borders Group, Target and Circuit City, and it added a program called @Merchants that exposes small sellers to Amazon's traffic.

"This is a way to make Amazon more relevant," Amazon spokesman Bill Curry said. "Our longer-term vision is to be the place where people can discover or find anything they want to buy on the Net."

The strategy has changed the definition of the once-pejorative phrase "getting Amazoned." When it first entered Wall Street's vocabulary around 1998, the term conveyed a fear among traditional retailers that online newcomers would steal business. Today, it is used to describe the retailers' desire to outsource online operations to e-commerce veterans.

"For some companies, that is the best thing that could happen to them right now," said Chris Kelley, an analyst at Forrester Research. "'Getting Amazoned' today means not having to worry about your customers' shopping experience and not having to worry about the cost of technology. You may have to split the revenue with Amazon, but at least you still have dollars flowing in the door from online commerce."

That thinking was reinforced by research contained in a recent study by Goldman Sachs, Harris Interactive and Nielsen/NetRatings. According to their eSpending Report last month, consumers said their top reasons for shopping at a particular site were price, convenience, brand recognition and free shipping.

Although the importance of pricing dropped slightly this year, the study found that price remained the No. 1 factor for shopping at one site over another. Further reflecting the importance of price, free shipping showed the largest increase in importance from the previous year. Amazon is credited with lowering the bar for free shipping in the past year, a strategy that forced rivals to take note. eBay now highlights merchants that offer shipping cost incentives.

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"The portals' leverage that once allowed them to charge $8 million marketing deals has evaporated," said Scot Wingo, chief executive of ChannelAdvisor, a company funded partly by eBay that helps brand-name merchants and manufacturers set up shop in online marketplaces. "Retailers are looking for transaction-oriented opportunities, and that fits the marketplace model much better."

In playing catch-up, AOL is developing an Internet marketplace that will allow retailers to sell discounted surplus items throughout its proprietary network. Playing it safe, AOL has a $100 million investment in Amazon and a marketing relationship with eBay.

"The vast majority of shoppers don't go to a portal when they shop online," Forrester's Kelley said, adding that when it comes to shopping, millions and millions of "consumers have established relations with eBay and Amazon."