in case glenn didn't beat me to it
Amazon takes on Europe
By Paul Festa
Staff Writer, CNET News.com
October 16, 1998, 1:15 p.m. PT
news analysis With the launch today of online
stores serving Germany and the United Kingdom,
Amazon.com 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." |
