The Great Rivalries of E-Commerce

Recent history has shown that there are no sure things in e-tailing. And with eyes looking to the future, analysts are hesitant to hail even today's strongest companies as sure long-term victors.

Indeed, in some of the most heated e-commerce rivalries, clear winners still have not emerged.

"I have not seen anything that indicates that one has a leg up on the other," Giga Information Group analyst Andrew Bartels told the E-Commerce Times, acknowledging the step-for-step battle raging between Travelocity.com and Expedia.com.

As in online travel, adversaries in the book and grocery arenas are engaged in hand-to-hand combat. But even Amazon.com (Nasdaq: AMZN) has not secured certain triumph over BarnesandNoble.com; and it is too early in the grocery clash for either Albertson's (NYSE: ABS) or Safeway (NYSE: SWY) to pull away from the other, said analysts.

Travelocity vs. Expedia

In the momentum game, Expedia (Nasdaq: EXPE) may have a slight edge over rival Travelocity. In the fourth quarter of 2001, Expedia reported net income of US$5 million, slightly ahead of Travelocity's $4.9 million, and $704 million in total bookings versus Travelocity's $630.2 million.

"Expedia is in better shape and more profitable, but do not count Travelocity out," Morningstar.com analyst David Kathman told the E-Commerce Times, maintaining that Expedia's advantage is a short-term one.

"They are still neck and neck in terms of market share," he said.

Parental Control

The pedigrees of their parent companies may be the most significant differentiator between the two firms, analysts agreed.

Sabre Holdings (NYSE: TSG), soon to be sole owner of Travelocity, wields deep travel industry connections and expertise that might work to Travelocity's advantage, said Kathman.

"Travelocity may offer deeper integration," added Bartels.

But when the travel industry falters -- as it did in the fall of 2001 -- Travelocity will feel the effects of a slowdown more directly, Kathman cautioned.

For its part, principal Expedia owner and media giant USA Networks (Nasdaq: USAI) lacks Sabre's industry connections but could bolster Expedia with its television marketing outlets, according to Kathman.

In addition, with its media know-how, Expedia may outpace its rival in terms of usability and design, noted Bartels.

Three's Company

In the end, there probably will be room in the online travel market not only for Expedia and Travelocity, but also for Pricelinesaid Kathman.

Bartels suggested that Expedia and Travelocity should be more concerned with other airline sites than with each other.

"Additional discounts that travelers can only get at these sites pose a competitive issue," he said. "As travel agents, both companies are vulnerable to being disintermediated."

Amazon vs. BarnesandNoble.com

On the surface, it may appear that the online bookselling race is anything but the nail-biter that is ensuing in the travel space.

"Amazon has a bigger customer base than BarnesandNoble.com and sells more than just books," said Kathman. "It has become more fiscally prudent over the past couple years, doing better than BarnesandNoble.com in keeping costs down."

But some analysts insist that the two firms compete much more evenly when only the book category is considered.

"In an apples-to-apples comparison, it is not clear that Amazon is winning," said Bartels. "It is hard to determine the forward momentum in Amazon's book business. Amazon could be losing market share to BarnesandNoble.com."

All for One

Barnes & Noble (NYSE: BKS) could dramatically improve the performance of its online arm by reabsorbing it into the parent corporation, analysts suggested.

"Barnes & Noble should never have separated" from its online arm, said Bartels. "BarnesandNoble.com could leverage multiple sales channels much more effectively and boost its market share."

Some reports indicate that a buyout may already be in the works. If this occurs, Kathman said, BarnesandNoble.com could escape the harsh spotlight of the public market and turn around its fortunes.

"There is room for both of these online booksellers, as long as BarnesandNoble.com can stop bleeding cash," added Kathman.

Albertson's vs. Safeway

Unlike books, groceries have already failed once as an online commodity. Remember Webvan? As a result, a sense of urgency underpins the standoff between Albertson's and Safeway.

Their relative success may depend directly on how quickly consumers adopt the online grocery shopping model, said analysts.

With a central warehouse fulfillment model, Albertson's is betting on quick uptake among consumers in the northwestern United States.

In the past, customer volume was not high enough to make the warehouse fixed-cost model viable, said Bartels. But if adoption takes off, the scale-dependent warehouse system will have superior economics and will become profitable as customer volume swells.

Adoption Acceleration?

On the other hand, Safeway's UK-based partner Tesco (Nasdaq: TESOF) has ridden its in-store order-picking model all the way to profitability in the United Kingdom.

"The question is whether they can import that success into the U.S.," said Kathman.

A long-standing consensus had been that fulfillment costs through an in-store "pick, pack and ship" system would be too high, said Bartels. But Tesco managed to earn sufficient margins on customer fees to cover these variable fulfillment costs while avoiding fixed capital expenses for warehouses.

In the long term, the Albertson's warehouse model may scale better and solidify profitability, but if customer ramp-up lags between now and then, the company could struggle, said Bartels.

The dense population of affluent consumers in Oregon and Northern California -- initial proving grounds for Albertson's and Safeway -- bodes well for Albertson's bet on rapid consumer adoption, suggested Bartels.

And the Winners Are...

In each of these rivalries, the future is far from ordained. Consistent cost control, customer acquisition and multichannel sales execution will determine the winners.

The good news is that in many industries, there will be room enough at the top for two.