Analysts: Amazon Will Survive

In a world where Internet-only players are flying off the screen at an alarming pace, Amazon.com (Nasdaq: AMZN) is likely to succeed where other pure-plays have failed, analysts from Jupiter Media Metrix told the E-Commerce Times.

The e-tail giant itself said this week that it is on track to deliver pro forma profitability in the fourth quarter of 2001, and expects to be profitable on the same basis for all of 2002.

However, according to Jupiter's analysts, the reasons why Amazon will succeed go beyond the current state of its ledgers, which right now carry more than US$2 billion in debt.

Jupiter senior analyst Ken Cassar told the E-Commerce Times that Amazon has had opportunities that competitors lack, because the e-tailer was able to garner more free publicity and raise more money than those coming late to the dot-com party.

However, Jupiter research director Michael May did note that Amazon cannot reach profitablity through retail sales alone.

"It needs other ways to support its retail side," May said.

Get Real

Amazon "may be the only exception" to the trend away from Internet pure plays and toward brick-and-click operations, Cassar said, but he added that even Amazon seems to realize it cannot live without brick-and mortar alliances.

Both May and Cassar believe that Amazon will continue to leverage its technology to run e-tail operations for brick-and-mortar retailers.

The Amazon and Toys 'R' Us' co-branded site launched almost a year ago has proven quite successful in driving sales for both companies. Moreover, the two expanded their alliance in May and will soon be integrating the Toys 'R' Us-owned Babiesrus.com site into Amazon's pages.

Amazon also inked a deal with brick-and-mortar bookseller Borders to operate the Borders.com site. And, earlier this year, Amazon was reportedly in talks with Wal-Mart and Best Buy to take over their e-tail operations.

Split Decision?

"I would not be at all surprised if during talks, Amazon tried to negotiate a physical presence, at least to return merchandise," Cassar said.

Even so, Cassar pointed out, Amazon might have better luck leveraging its technology if it split its operations, with one company being a technology provider and the other an e-tailer.

The analyst said that there are some companies that would "love to partner" with Amazon as a technology provider, but are hesitant to do so because their e-tail operations are in direct competition with Amazon's.

Taking a Cut

Nevertheless, Amazon is busy turning its technology into a revenue stream. Earlier this year, Amazon launched the Amazon Honor System in an attempt to leverage its 1-Click payment technology.

The payment program lets participating Web sites charge for access to premium content and collect other types of payments from users. Amazon takes a cut from every transaction.

Cassar said that despite Amazon's best efforts, he does not know how successful the payment plan will be. Cassar said if he had to choose between the Amazon Honor System and person-to-person e-payment service PayPal, he would choose PayPal.

Amazon has also taken steps to become more like a portal by launching an movie-listing site supported by online ads.

Mr. Bezos' Wild Ride

Although Amazon is likely to reach operating profitability this year, some analysts still believe it will face a cash crunch before long.

According to Cassar, Amazon's "high mark" was 1999 -- the year Bezos was chosen as Time Magazine's Man of the Year.

"After that," Cassar said, "people started to question its business model."

Setbacks suffered by Amazon in the past year include the failure of several companies it had backed, including Pets.com, Living.com and Kozmo. Amazon also has been engaged in a highly publicized debate with some Wall Street analysts over its accounting practices.

Law and Order

Moreover, a spate of lawsuits, filed in recent months are applying pressure on the e-tailer.

The suits charge that Bezos and other executives misled investors in the way they accounted for the equity investments made in other e-commerce startups that eventually failed.

Bezos himself has been the subject of an insider-trading investigation by the U.S. Securities and Exchange Commission. Bezos sold about 800,000 shares of Amazon stock, valued at approximately $12 million, in February. The sale was questioned by the SEC and others because it came days after Amazon received a preview copy of a negative analyst report.

All Is Well Enough

The company has denied any wrongdoing, saying that the analyst report did not provide any information it did not already know.

In the end, May said that none of the issues afflicting Amazon will cripple the e-tailer permanently.

"Amazon is big enough and has enough reach to continue to exist in some form," May said.