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But Amazon's new strategy is anything but a cinch. There are significant obstacles that Amazon must overcome first, beginning with its discomfortingly crowded Web site. Shoppers are drowning in a sea of links as more and more partners parade their products there, says Forrester's Johnson, an experience that's much less pleasant and convenient for the consumer. The sheer overload of products has made Amazon's store messy—as much a turn-off to shoppers in cyberspace as it is in the real world. To get a sense of Amazon's clutter, try searching for Bill Gates. Besides the 32,000 results in books, you can thumb through 34 in video, including Hoop Dreams (William Gates is the name of a basketball player in the movie) and nearly a dozen completely irrelevant items in medical supplies, lifestyle and gifts, and scientific supplies. In perhaps the strangest result, the Microsoft Corp. chairman's name is linked to the menu of the Flytrap Restaurant in San Francisco, because the words Bill of Fare and Golden Gate appear on the page.

Conditions like these spook potential partners too. While Amazon management boasts about the ever-increasing number of third-party sellers on its site—its recently opened apparel shop, for instance, contains more than two dozen retailers—even companies that are already doing business with Amazon are complaining about the terms of the arrangement. Echoing Gap's Williams, some say that the sales are negligible. Others, according to Forrester's Johnson, go further and say that revenue is disappointing. In fact, the apparel shop, which Amazon executives point to as a model for the future in which the site will shelter numerous retailers under one category umbrella, has been a lightning rod for discontent among Amazon's partners. Two key complaints: Amazon's technology sometimes makes it difficult to upload content to the Web site, and Amazon lacks the expertise in the apparel business to provide adequate account management.

"With the venture into the world of online apparel sales, Amazon.com may be overreaching," said Geri Spieler, a Gartner Inc. retail services analyst, in a report.

For a company that is built on technology, ironically, Amazon is no shoo-in to win over retail customers that want to outsource their Web sites. It's competing against some heavy-hitters, including GSI Commerce Inc., IBM Corp. and Microsoft, all of which have a head start on Amazon and the advantage of being independent and not a rival retailer. And in the portal business, Amazon is just as vulnerable. Other big online names, including MSN, Yahoo! and Google, have similar growth strategies and excellent technology. In time, they'll likely precipitate a bidding war over retailers for their sites.

Amazon management declined to discuss specific retail partner complaints or the performance of Amazon Services. But in past interviews, Amazon executives have pointed to a weapon that, they say, trumps any concerns about the company's ability to succeed at its new strategy: 35 million active customers who, according to Forrester, spend 10 percent more online than the average of all online shoppers. That's a powerful card to play, because it gives partners an instant audience for their products, with no significant promotional efforts on their part, Bezos claims. "Amazon Services offers retailers the opportunity to tap into our industry-leading shopping experience," Amazon's chief says. "These retailers can grow their online businesses faster and less expensively by taking advantage of what we've learned."

As for the somewhat skittish relationships with retailers, Amazon executives dismiss the problems as growing pains. "It's in the early stages of development," says Owen Van Natta, Amazon's vice president of worldwide business development. "We've proven that we get successful over time."

He and Bezos point to the continuous introduction of new technologies—from 1-click checkouts and personalized recommendations to the recently launched Search Inside the Book, an option that lets people search for books by phrases or words contained in them—as Amazon's greatest skill. That focus on new technologies and innovation, says Bezos, "drives customer experience" and ultimately is the competitive advantage that ensures its success.

Forrester's Johnson recommends that Amazon clean up the shopping experience in 2004 by limiting the amount of content that consumers see and hiring account managers with expertise in retailing sectors like apparel and sporting goods to help mend fences with antsy third-party partners. After that, she says, Amazon should focus on adding about 20 new partners a year and providing reasonable commission terms and excellent service. If Amazon does this while continuing to squeeze the most out of its books, media and electronics businesses and applying its technological expertise to develop cross-selling programs among all the items on its site, the retailer's annual revenues could skyrocket to nearly $16 billion by 2008, more than four times last year's sales.

But if Amazon fails to fix relationships with its partners, Johnson warns, its annual revenue in four years could dip below $8 billion, with diminishing sales from third-party retailers.

Few companies ever stand at such a distinct crossroads as Amazon does now. Outwardly, the company seems to be poised within easy grasp of its goals as it embarks on its strategy of transformation, carrying the same Bezos-inspired "can't fail" confidence that has driven the e-tailer for eight years. Amazon, like the performance of its shares, has always required a suspension of disbelief. But shifting from a retailer to a portal, from a bookseller to a technology services company, is the biggest trick that Amazon has yet attempted—and perhaps the one that ultimately will determine whether Amazon survives. It could take a lot more than tall tales and devoted followers for Amazon to pull it off.

Mary E. Behr writes about business and technology issues.

This article was originally published on 11-01-2003
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