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." |
