With Amazon Deal, AOL Remains King of the Jungle

America Online is staking out its turf.

Monday's plan to sink $100 million into Amazon.com (AMZN) illustrates how the nation's biggest online service provider continues to expand its reach, though perhaps with a different strategy in mind.

The strategic shift at the AOL unit of AOL Time Warner (AOL) is this, says one analyst: While past investments focused on capital appreciation, recent transactions seem to establish a claim on various technologies and services.

The Amazon investment, linked to an alliance in which Amazon will provide technology for Shop@AOL and other AOL shopping services, "marks AOL's territory," says Jordan Rohan, media analyst at Wit SoundView. "Amazon becomes a close partner of AOL," he says. Now, as a result, Amazon "really can't become a close partner of Yahoo! (YHOO) or a close partner of [Microsoft's (MSFT)] MSN to the same degree," Rohan says.

In that respect, Rohan says, the deal is similar to other investments and purchases the company has made in recent times. Since the January 2000 announcement of the deal to create AOL Time Warner, America Online's investments have ranged from a $200 million purchase of TiVo (TIVO) stock to participation in a $12 million venture investment in a Web content-recognition company.

Shop@AOL Recent investments by America Online
Date	Company	Investment Size, Nature	Business
July 2001	InfoInterActive	$28.2M acquisition	Sells Internet call waiting device & other communications products
March 2001	GoldPocket Interactive	Undisclosed venture capital investment	Develops interactive software
October 2000	SmartBargains	Part of $33M v.c. investment	Online retailer
September 2000	TiVo	$200M for minority stake; AOL now holds 17.7% of TiVo	Digital television recording service
September 2000	Cybiko	Undisclosed	Consumer electronics for teens
September 2000	iAmaze	Acquisition, undisclosed price	Dynamic HTML developer
August 2000	Quack.com	Acquisition, undisclosed price	Voice portal
August 2000	RuleSpace	Part of $12M v.c. investment	Web content recognition technology
April 2000	FastForward Networks	Part of $30M v.c. investment	Internet broadcasting technology
March 2000	Metastream	Investment in MetaCreations subsidiary	3D software for online shopping
Source: America Online and AOL Time Warner press releases; SEC filings

Most of the investments appear to be related to new services AOL is developing related to shopping and new Internet technology. In a recent article, TheStreet.com columnist Adam Lashinsky, for example, speculated that one recent AOL purchase suggested the company was muscling in on the voice mail services offered by local phone companies.

America Online didn't respond to a request for comment on the strategy behind its Amazon investment.

AOL's early investments, says Rohan, "had an eye toward real capital appreciation -- real liquidity value, getting out of an investment." (Rohan has a strong buy on AOL Time Warner and a hold on Yahoo!; his firm has a strong buy on Microsoft and a buy on Amazon. Wit SoundView hasn't done underwriting for any of these firms.)

But recent investments seem "a little more protective in nature," the analyst says: "'Let's make sure that no other portal or ISP cements a relationship with this company in an integrated fashion.'"

Just like in the animal kingdom: The biggest member of the pack always keeps a vigilant defense of its territory.

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