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Tech Week
Amazon Makes an Investment, But Will This One Be a Winner?
By JASON FRY and TIMOTHY HANRAHAN
THE WALL STREET JOURNAL INTERACTIVE EDITION
IT'S BECOME a Web-marketing cliche: Such-and-Such Inc. is going to
be the Amazon.com of [insert real-world industry here].
What this nearly always means is that Such-and-Such Inc. has next to
nothing to say except that it's ambitious, and can be counted on to become
nothing except another name on the start-up scrap pile. It's also, of course,
testament to the remarkable success story that Jeff Bezos has written with
Amazon.com Inc.
Amazon has become, well, the Amazon.com of books -- and made
substantial inroads into becoming the Amazon.com of CDs and movies as
well. Those three categories go together: They're entertainment
commodities, enjoyable but not essential parts of one's daily life that are the
same wherever purchased.
But this week the Seattle company made a
move into a category that isn't so obvious,
announcing it had bought 40% of
Drugstore.com and strongly hinting that more such acquisitions were in the
works.
Drugstore.com, an embryonic start-up run by a veteran of the Microsoft
Network, wants to put the corner pharmacy online, offering prescriptions
and sundries.
"There are a lot of differences between books and drug stores," Mr. Bezos
said in announcing the deal, "but there are a lot of similarities, too.
Customers want selection, convenience, price and information."
Well, true. But people want those four things about pretty much anything
they buy. At first glance, it's the differences that are more striking. For one
thing, Drugstore.com will have to deal with state regulations on
prescriptions. More fundamentally, the company will have to find out
whether people will really be willing to pay shipping and wait a few days to
get health and beauty items, even if they do wind up saving a bit of money
on the deal. Most people can wait a couple of days for that best-seller
they've been hearing about to show up in the mail, but when you're out of
toothpaste, time is of the essence.
Perhaps Drugstore.com can build itself into a well-known brand, as Mr.
Bezos has done with Amazon. After all, the fact that Amazon keeps
growing even as other online booksellers undercut its prices is a testament
to the power of a good brand in cyberspace. But one can argue that the
competition will be much stiffer for Drugstore.com. There are a number of
other online pharmacies out there, as well as real-world pharmacies looking
to create online footholds.
Normally, those real-world companies' ambitions wouldn't matter. For all
the huffing and puffing that surrounds their press releases and tracking
stocks, bricks-and-mortar companies tend to be pretty bad at setting up
online shops -- provided they're selling things that are essentially
commodities. They underestimate the amount of work involved,
overestimate the crossover appeal that their real-world brand names have,
and deep down, they continue to believe that the risks to their good
corporate names outweigh the possible rewards. Just ask Toys "R" Us Inc.
-- which has been soundly whipped by upstart eToys Inc. -- or ask
Amazon's competitors.
But will the same hold true for prescriptions? Maybe -- after all, mail-order
prescriptions are a thriving business, and any chunk of the $150 billion U.S.
pharmacy market is a pretty nice one. On the other hand, last year's
successful Web Christmas was attended by too many tales of online orders
gone awry. While that's not the end of the world for books or toys, will
consumers really trust their prescriptions to the medium? And then there's
the toothpaste question again.
As for Amazon, it continues to sit on a war chest of more than a billion
dollars raised in a junk-bond offering late last month, and clearly, it
continues to eye opportunities to expand its e-commerce horizons. Those
ambitions have been clear since last summer, when it snapped up
comparison-shopping engine Junglee. They're certainly clear to Wal-Mart
Stores Inc., which sued Amazon (and Drugstore.com) last fall, accusing it
of recruiting Wal-Mart employees in an effort to steal its data-mining
secrets.
How to build a Wal-Mart of the Web is an old problem that still hasn't
been answered. Replicating malls on the Web hasn't worked, and in an
environment where everything is a single click away from everything else,
replicating department stores may not be any more successful. (Despite its
legendary computing muscle, Wal-Mart itself has only a bare-bones site.)
Perhaps the Amazon.com of the future will include myriad links to subsets
of its site that sell everything from health and beauty aids to clothing and
sandpaper. Perhaps it will link to separate sites that it's acquired or
invested in, and perhaps its stellar brand name will be enough to carry
shoppers easily across those chosen links.
It remains to be seen how much any Web links Mr. Bezos offers will help
Drugstore.com, or whether Amazon's money will let the new company
grab the top spot among online pharmacies. The most valuable part of the
deal to Drugstore.com, ultimately, may be something simpler: Mr. Bezos's
know-how. That may be hard to quantify, but if you were starting an
e-commerce site, is there anybody else you'd pick?
In other tech news this week:
Hardware & Software
Intel Corp. demonstrated a computer with a version of its new Pentium III
chip operating at a billion cycles per second, or one gigahertz -- twice as
fast as the 500-megahertz version that went on sale this week. The
one-gigahertz version won't be launched into the commercial market in its
current form, since it requires an elaborate cooling system to prevent it
from melting down (see article).
Baan Co. may lay off more employees as part of an effort to slash costs
and return to profitability, according to a recent internal memo. The Dutch
software maker, which last month said it expects to report a fourth-quarter
loss of $250 million, has already laid off 1,200 employees, or 20% of its
work force. Baan has been hurt by a slowdown in the once-booming
market for enterprise software, as well as its own strategic missteps (see
article).
LSI Logic Corp. agreed to acquire networking-chip developer Seeq
Technology Inc. for about $96 million in stock. Seeq makes Ethernet
products, including media access controllers and physical layer transceiver
(see article).
Platinum Technology International Inc. said it will cut 15% of its staff and
take a restructuring charge of as much as $110 million to try to reverse
years of losses. The maker of business software said it will close 12 offices
and consolidate to three business units from six in hopes of boosting its
operating margin to 20% of revenue by 2000 from 10% last year (see
article).
Compaq Computer Corp., in an embarrassing blow to its efforts to
cultivate Internet sales, said it is suspending shipments of its Presario
personal computers to about 12 Web-based retailers while it drafts new
contract terms (see article).
Desktop personal computers running on microprocessors made by
Advanced Micro Devices Inc. outsold all Intel Corp.-based desktop PCs
in the U.S. retail market in January, according to PC Data's January Retail
Hardware Report (see article).
Acer Inc. said it will halt sales through U.S. retail stores following huge
losses, conceding defeat in a battle against big U.S. PC makers on their
home retailing turf (see article).
Electronic Data Systems Corp. named James E. Daley, formerly vice
chairman, international, at PricewaterhouseCoopers, as its executive vice
president and chief financial officer. Mr. Daley, 57 years old, will join the
computer-services giant effective March 8, the company said (see article).
The Supreme Court declined to decide whether NEC Corp. got a fair
hearing when the Commerce Department concluded that the Japanese
company planned to export supercomputers to the U.S. at illegally low
prices (see article).
Internet & Online
Beyond.com Inc. said it agreed to buy BuyDirect for about $133.7 million
in stock, a deal that would unite two of the biggest software merchants on
the Web. The deal is Beyond.com's first major acquisition since going
public last year and reflects a continuing trend toward Internet
consolidation (see article).
Gateway Inc. acquired a stake in online computer-products retailer NECX
and jointly launched a Web site to sell software, peripherals and computer
accessories (see article). Gateway also said it will start offering free Web
access for buyers of its PCs. The moves follow a rush by computer makers
to open electronic retailing outlets. In January, Compaq Computer Corp.
agreed to acquire online retailer Shopping.com, and Dell Computer Corp.
has begun recently using its Web site to sell an array of others makers'
software and peripherals.
CNET Inc. made two small e-commerce acquisitions during the week, and
said it will raise $150 million through a debt offering (see article). The
online publisher announced plans to purchase AuctionGate Interactive, an
online auctioneer, for $5.8 million in stock. It also plans to buy
WinFiles.com from Jenesys LLC for $15.5 million.
Internet financial-news provider TheStreet.com said it plans an initial public
offering valued at around $75 million. The news of the IPO came just a day
after New York Times Co. said it will pay $15 million in cash and services
to acquire a minority stake in the Web site (see article).
Net-traffic measurement service Media Metrix Inc. filed to sell up to $48.3
million of common stock in an initial public offering. Separately,
iVillage.com filed an amended IPO prospectus that filled in more details
about its proposed offering (see article).
Viacom Inc. said it will consider making a public offering of its new Internet
unit that holds the online extensions of its MTV, VH1, and Nickelodeon
television properties. Viacom announced the creation of the freestanding
New York unit to operate its various Internet businesses (see article).
Charles Schwab Corp.'s Web site went down for the third time in two
months, leaving customers worried about the status of their investments.
The 90-minute outage was the latest technical miscue for the nation's busy
online-brokerage firms, most of which have played down the problems as
simple growing pains (see article).
Earnings
Autodesk Inc. announced an 8.6% drop in net income for the fiscal fourth
quarter. The maker of computer-aided design software said the results
reflected a reclassification of certain acquisition-related charges (see
article).
Intuit Inc. posted stronger-than-expected quarterly profit as sales rose
46%. The personal-finance software firm also said that it is unloading its
stake in Internet portal Excite (see article).
Lycos Inc. posted a loss for its recent quarter, but the portal site beat
analysts' expectations as revenue more than doubled (see article).
Nextel Communications Inc. posted a fourth-quarter loss that was slightly
wider than expected, but the wireless-communications company said its
revenue more than doubled as it added more customers to its network (see
article).
Novell Inc. reported net income that was in line with analysts' expectations
as its revenue climbed 13% (see article).
Tandy Corp. reported a 50% drop in net income in the fourth quarter to
$48.4 million, or 46 cents a diluted share. The drop was mostly due to
charges related to restricted stock awards and reserves for write-downs
associated with the sale of Tandy's Computer City chain. Without those
provisions, the telecom products and consumer-electronics company's net
would have topped analysts' estimates (see article).
Telxon Corp. announced it will restate earnings for the past three years and
the first two quarters of fiscal 1999, news that sent its battered stock even
lower. The planned restatements go far beyond the company's earlier
announcement that it would restate second-quarter 1999 earnings. Telxon's
book-keeping problems come as the SEC is investigating the company's
accounting practices as well as unusual trading in its securities before its
announcement in December of the planned second-quarter restatement
(see article). |
