Whether or not you agree with the increasingly voiced assertion that
is just another retail company, you've got to give it credit for doing all it can to prove that it's not.
A number of Amazon bears have argued that as more companies such as
augment their online presence, the online/off-line border that separated Amazon from other larger retailers has become blurred, if not meaningless. In that case, Amazon's insistence on beefing up spending even as its margins deteriorate is risky at best and reckless at worst.
But the investments that are driving down its margins this year are aimed at keeping Amazon the innovative company that investors liked in the first place. Its purchase of
this week and the launch of its A9 search engine probably will ensure that if Amazon is a retailer, it's a fast-evolving one that's positioned to continue to reshape the way goods are sold.
Each of Amazon's new initiatives brings a long-term promise of changing how and what is bought online, as well as a risk of becoming a disappointing use of precious financial resources. Take Amazon's recent purchase of BookSurge, a Charleston, S.C., company that prints hard-to-find books on demand.
Not only will BookSurge help Amazon to sell more titles without adding to its inventory, but it also could strengthen the company's catalog of niche titles -- a growing part of the online book market.
Sounds promising, but BookSurge faces a potential threat from
In its quest to organize the world's information, the company recently launched Google Print, a means of searching book content online. Google could easily let searchers have instant access to the books in Google Print for a fee. So far, Google hasn't been interested in collecting fees from users, but it already faces low-entry barriers into the digital-book market.
Another area in which Amazon is tinkering is online DVD rentals, a market pioneered and still led by
. Seattle-based Amazon already rents DVDs in the U.K. market, and CIBC analyst Paul Keung expects the company to bring DVD rentals to the U.S. in the coming year.
"DVD rental is only one piece of a long-term media and entertainment strategy, as they seek to improve ROIC
return on invested capital by expanding depth, loyalty, and monetization of the user base," Keung wrote in a research note. "Management is looking beyond near-term economic benefits or costs, as they see the potential linkage of DVD rentals with a broader, more robust entertainment portal or community," wrote Keung, whose firm has no banking relationship with Amazon.
Here again, Amazon's potential benefit is significant. It already has a loyal base of consumers who are often only too happy to publish their reviews of movies and other entertainment for free on its site. The company also owns the Internet Movie Database, the most complete film resource online. And it already has a fulfillment platform for selling DVDs that easily could be expanded to include rentals.
It also would benefit from the higher operating margins for DVD rentals, which have been around 40%, compared with the 20% margins Amazon has been posting. But Amazon's own entry would be sure to worsen a price war that is already being waged by Netflix, Wal-Mart and
Perhaps even more significant for Amazon's future plans is its secret search subsidiary, A9. Amazon declined to discuss how A9 would fit into its retail strategy. At the very least, A9 should help supplement Amazon's retail revenue with money from sponsored links on the site of its search engine, and from licensing its search technology to other sites.
Earlier this year, Amazon introduced its Visual Yellow Pages search function through A9, which presents 20 million photos of storefronts in 10 cities. With each storefront photo, A9 has essentially created a default home page for small retail operations across the country, making it easy for each to join the 900,000 members of the Amazon Associates program.
In late March, CEO Jeff Bezos unveiled another A9 application, called Open Search, that's less a search engine than a way of keeping a range of tailored searches in one place. Users simply choose the specific databases they want to search. It's very much like visiting 10 sites and conducting the same search. Only it involves one search, and it can be performed regularly.
Search engines aren't mind readers: Just because you're a lawyer, it doesn't mean that when you do a music search, you automatically want results on music piracy. The company's plans to syndicate its search technology could give it a powerful entry into the search-licensing market.
In the same way that a search tool such as SideStep snooped all airlines' Web sites for flight and fare data, allowing travelers one-stop access to flights from
, A9 could easily evolve into a shopping search engine that delivers more coherent search results than other e-commerce engines. Froogle, Google's e-tailing search engine, delivers broad results, but having to sift through the debris of fly-by-night sites to get to trusted retailers can be a big deterrent.
"Amazon said A9's primary mission is to develop the best possible commercial-oriented search," says Chris Sherman, an editor at search news site
. "Amazon could theoretically expand its specialized searches into every category, like video."
With A9, though, Amazon could become a victim of its own success. The more successful it becomes at tailoring search to improve online retailing, the more it's likely to draw the attention of Google and
-- and draw them further into Amazon's retailing home turf.