Amazon.com’s “Brand” is Important

Internet Retailer magazine, is reporting that Amazon is one of the most trafficked Internet sites this holiday season. The site is referencing a research study done by Majestic Research holiday shopping survey. Amazon is still proving its power as the gateway to e-Commerce transactions much like Expedia is to online travel, Google is to online search, eBay is to finding value on the web, and Yahoo is to portal like services (personals, email, news, finance, gaming, etc.). Amazon’s huge selection, innovative technology, low prices, free shipping, and easy to navigate website combine to create a brand that has been unappreciated. What I mean is “brands” are huge on the Internet and are often ignored in analysis of barriers to entry. This is one reason why Amazon (and the other names mentioned above) will have staying power over the next 10 years while competition in online retail gets hotter. See the text from the article:

Amazon, Best Buy, Wal-mart, eBay and Target were among the web sites most often visited by consumers during the holiday shopping season, according to Majestic Research Corp.’s Holiday Shopping Survey released yesterday.

More than 50% of the 300 consumers surveyed by Majestic reported visiting Amazon.com, regardless of whether they made a purchase. More than 45% said they had visited eBay, Wal-Mart and Best Buy.

85% of visitors to Amazon and eBay said they went directly to the sites, while 82% of visitors to Victoria’s Secret and Target said they went directly to those sites, according to Majestic.

More than 50% of visitors to eBay and Amazon said they had completed at least one transaction since the beginning of the holiday season, compared to the average 22% among all web sites included, according to the survey. Among those responding to the survey, only 10% of eBay’s and 17% of Amazon’s customers were first-time buyers.

The survey also found that shoppers who were aware of shipping discounts on a site were more likely to make purchases at the site. While 54% of Amazon.com visitors made holiday purchases at the site, 70% of visitors who were aware of shipping discounts completed at least one purchase. At Overstock.com, the proportion of visitors making purchases rose to 41% from 23% among those who were aware of shipping discounts, Majestic said.

Shipping promotions on Amazon.com were the most commonly noticed, with 63% of visitors saying they were aware of shipping promotions on the site. 47% of Overstock visitors indicated they were aware of shipping discounts—which were as low $1—at the site.

eBay EachNet Offers “Free” Listings

In what some say is a response to heightened competition, eBay EachNet has eliminated Fees on stores and inventory listings.

Those listings will now show up in search results after auction and Buy-it-Now items. In addition, eBay EachNet will waive fees for a seller’s first three listings each month and will waive the final value fee for any transaction that uses PayPal or eBay’s escrow system Au Fu Tong.

Wonder if eBay EachNet will eliminate fees entirely and head towards a paid listings model?

Google Cubes; Akamai Drops 5%

Bear Stearns Internet analyst Robert Peck published a report and held a conference call on Google Cubes, which is both a new and interesting idea about Google creating mini networks in the home. The call caused the stock of Akamai to fall 5%, after the guest speaker (Robert X. Cringely) stated that Akamai is in “big trouble” ahead when Google enters its space. He also stated that Apple is developing a comparable service and will drop Akamai as a partner. Read more for exerts on the report.

Here are some parts from his report. It's quite interesting, if true.

GOOGLE, THE HARDWARE COMPANY. In a recent conversation with renown technology pundit, Robert X. Cringely, we discussed some very intriguing potential hardware moves by Google that could have a profound implication on not only Google, but potentially the Internet and media in general. We particularly find these potential products interesting, as most investors think of Google as a software / programming company, and little discussion has taken place on Wall Street regarding Google as also a hardware company. Should these potential products from Google materialize, this will change.

GOOGLE DATA CENTER CONTAINERS – At Google’s investor conference earlier in the year, we had a chance to ask Eric Schmidt about Google’s job posting for someone to help in purchasing dark fiber. Many investors were unclear as to why Google would need dark fiber, but the obvious answer was Google was looking to connect its data centers cheaply. This made sense, but we were left wondering if there was more to the job search. Since then Google has been very active buying up fiber, and Mr. Cringely has hypothesized (http://www.pbs.org/cringely/pulpit/pulpit20051117.html) what Google may be experimenting with: building a data center that fit with in a standard shipping container. The 20’ x 40’ container could be packed with almost 5000 Opteron processors and over 3.5 petabytes of disk storage. While this packs a lot of power, it wouldn’t outsize any of Google’s current 64 data centers (up from just one only 2 data centers 2 years ago). So what would make these data center containers so special? They could be dropped off literally overnight to any of the 300 Internet peering points globally. Many may wonder what benefit so many access points would bring to Google besides redundancy. The answer is speed – or reduced latency. Google could be closer to the end user than anyone ever was before. There are many applications that would benefit from this: Google Videos and IPTV sitting just a hop or two from the user, virtual office applications with robust features (i.e. running desktop applications on the Internet itself with very fast interactive features like interactive 3D maps), servers would never “go down”, and data would never get “lost”. In essence, the company could build its own Google Net, which would sit right on top of today’s Internet. Google would basically have an access point in every major city which would add two other benefits: 1) it could prioritize its own VOIP, for premier telephony experience; 2) it would reduce Google’s dependence on other 3rd parties for trunking or access. But could Google afford it? To build and operate the containers annually, it would only cost about $2-3B, readily done with over $7B of cash on the balance sheet, (and still plenty of room even if Google invests in AOL for $1B (see below)).

GOOGLE CUBES: THE LAST MILE – In our conversations with Mr. Cringely, it appears that this may not be all that Google has up its sleeve on hardware. While Google is potentially thinking “big”, it may also be thinking “small”, “very small”. Through our conversations, we have learned that Google may be considering developing Google Cubes (we have dubbed them this, as we are not sure what they could be called). Basically the device would be a small box with many connections ports on it, in addition to wireless (Bluetooth / WiFi). Its potential purpose: it could connect to your TV or PC, or PVR, or stereo. As long as one of them is connected to a broadband connection, the Cubes could form a mini mesh home network. What could this enable? Many things – the obvious applications would include: enabling IPTV to easily connect from the web to your TV and enabling the transfer of video downloads from the computer to the TV, enabling easy transferal of MP3s on your computer to your stereo (or vice versa), and VOIP connection to all existing phones in your home. However, the cubes could potentially work with your home security or even your home climate controls (imagine turning your air conditioning on in your home right before you leave work so that your house is cooler when you arrive, and you didn’t waste money cooling it all day). Now imagine that you live in an apartment complex and the neighbors wanted to share 1 broadband connection – all the neighbors cubes could “talk” to each other (if desired). However, should this be in Google’s plans, it would take a lot of network support – enter another role of the widely distributed data center containers. One could even fathom the cubes (or one main cube) talking directly to a nearby data center container, which could eliminate the “last mile” problem completely. The idea sounds intriguing but what would it cost? The cubes would be designed to be as “dumb” as possible (which is the whole point of making the network the computer), and Google would probably subsidize them so that they cost <$20 or maybe even free (like AOL CDs).

HARDWARE CONCLUSION: We underscore to investors that for now, any potential development by Google of data center shipping containers and Google Cubes has not been confirmed. However, one could see how these ideas could prove interesting to Google, should they be feasible. Further, we think that at minimum investors should takeaway from this that Google is not just a software / programming company. In fact, Google could over time become more of a hardware company than anything else. At the very least, we think investors should at least consider these possibilities.

Answers.com on the rise

I’ve been taking a look at Answers.com (ANSW) (http://www.answers.com/) over the past few weeks and I am starting to warm up to the story. For those of you who haven’t heard of it, Answers.com is an answers and reference based search engine.

Recent wins with the NY Public library and FireFox increase my conviction that this company can one day rise from relative obscurity. The acquisition of Brainboost should help the business model evolve. I assume the NY Public library win will encourage other public library systems across the country to work with the company. Answers.com has an unofficial relationship with Google, which I think may lead to a formal relationship or an acquisition down the road. The stock has been somewhat volatile, trading between 9 and 14 over the past few months. But I think with the recent news there will be more stability in the stock price. Over the next year, the stock will trade largely on catalysts instead of fundamentals. After that I think that fundamentals will start to drive the stock as the rapid revenue growth, which I think looks sustainable, will start to add to the bottom line. Keep this stock on your radar.

3Q Results are highlighted below:

In the third quarter, the company generated $563,576, compared to $424,552 in the second quarter of 2005, or 33% sequential growth, and compared with $53,163, for the corresponding quarter a year earlier. The net loss in the third quarter of 2005 was $1,090,355, compared to a net loss of $1,601,986, for the second quarter of 2005, and compared to a net loss in the corresponding period of 2004 of $2,168,527. Management expects fourth quarter 2005 revenues to climb sequentially by 42% - 55% from the third quarter of 2005 to approximately $800,000 to $875,000. Of this, over 95% will be from Answers.com proprietary traffic and distribution channels. The remainder will be from subscriptions previously sold and other income. Further, the company expects to increase its operating expenses relating to growing its business and internal operations and therefore anticipates the fourth quarter net operating loss to approximate or be moderately higher than the third quarter.

eBay Admits Growing Fraud Problems

The Designtechnica News has a good artilce on the growing fraud problem on the eBay U.K. site. Even as eBay touts celebrities using its service this holiday season, the company is facing growing online fraud and complaints of foot-dragging. advertising The end-of-year holidays are important for Internet retailers, and eBay definitely wants access to the spending frenzy as it issues press releases touting celebrities' successful purchases, including consumer electronics grabs by Jessica Simpson, Sela Ward, and Eva Longoria. However, a less pleasant side of eBay is emerging: strong increases in hijacked member accounts, auction fraud, and counterfeit goods being sold over the service. According to the BBC, eBay's director of trust and safety Gareth Griffiths admitted to "extreme growth" in the number of account hijacking and fraud incidents during 2005, and another company spokesperson refused to deny that the number of compromised and hijacked accounts might number in the tens of thousands. Naturally enough, the BBC's reporting focuses on the U.K., reporting that eBay is drawing the ire of both brand manufacturers and law enforcement officials for the amount of fraud on the site and the amount of time eBay takes to respond to requests for information or reports of criminal activity. For instance, Adidas told the BBC up to 40 percent of 12,000 auctions for its goods the company monitored were selling counterfeit items, and clothing brand Ben Sherman said eBay took five days to close a series of counterfeit auctions, by which time many of the items had been sold. Law enforcement officials have reportedly characterize eBay's slow response times as "obstructive;" North Yorkshire Trading Standards claimed eBay took two months to provide information on suspects. Some of the problems faced by eBay are created by criminal enterprises and fraudsters, rather than by eBay itself. So-called "phishing" schemes trick eBay members into revealing their account information, and eBay in part characterizes the growing problem as external to the site and the fault of its users for responding to schemes and not maintaining up-to-date security software. "Phishing" attempts usually take place via email purporting to be from eBay, requiring users to update their account details. However, the links embedded in the message take the user to a site controlled by the fraudsters, who collect the requested account information and use it to take over the user's legitimate eBay account, or sell the information to those who will. (And these phishing email messages are very common: my personal spam folder contains more than 600 such messages I've received since July, 2005—and those are just the ones the spam filtering on the mail servers didn't block outright.) These people then use hijacked accounts to sell counterfeit materials or commit other forms of online fraud. Other legitimate eBay account holders may have their account information compromised by keystroke monitoring programs or other spyware on their computers which relay the details back to fraudsters. Still other accounts may be accessed fraudulently because of weak, easily-guessed passwords. For its part, while admitting fraud problems are increasing, eBay claims to have food relationships with major retail brands and describes law enforcement as very satisfied with the company's level of cooperation. eBay maintains an online security center with tips on how to protect information and accounts, along with means to report fraudulent auctions, suspected scams, and spoof email messages. The security center also features a members forum where security issues—and the BBC's reporting—can be discussed.

Google Wins

The Wall Street Journal and the New York Times reported that Google has won the race to partner with AOL. Google has reportedly agreed to invest $1 billion dollars for a 5% stake in AOL. The transaction values the entire AOL unit at $20 billion. Google will promote AOL's Web properties among the sponsored links in its search results, and will include AOL's collection of online videos among its search results. Google's arrangement to provide search technology for AOL, which was set to expire at the end of next year, would be extended for five years. The transaction should be finalized at the board meeting on Wednesday.

The Knot (KNOT), one of my favorite content stocks was mentioned in the Business Week article as a possible takeover candidate by the likes of a Target. While this falls within my thinking that the Big Six Internet players will continue to dominate (Google, Yahoo!, Amazon, eBay, IAC, Expedia) everything online, it would be nice to see some of the smaller players rise to huge prominence as the aforementioned companies. So I wonder if every new entrepreneur creates/innovates with the hopes of being acquired. This I believe distracts from the competitive spirit. Also, it makes the bigger companies lazy on the innovative front as they think that they can acquire new technologies and business models rather than build in-house. Capitalism at its best. I guess.

The full article is listed below:

NEWS ANALYSIS By Steve Rosenbush

Internet Mergers: Who's Next?

As the Web matures, the pace of deals is picking up again, spurred by reasonable price tags on some of the smaller outfits

Dealmaking has returned to the Internet sector with an intensity not seen in years. Web companies have shaken off the stigma associated with the Nasdaq crash of 2000 and are attracting big buyers from both the on- and offline worlds. In the past year, News Corp. (NWS ) has announced plans to buy Intermix (MIX ), parent of social-networking site Myspace.com, for $580 million in cash. New York Times Co. (NYT ) purchased search site About.com for $410 million in cash. And Dow Jones (DJ ) bought news site Marketwatch.com for $519 million in cash. But the acquisitions may have only just begun. One media executive says investment bankers are making the rounds with a list of potential targets that includes a dozen or more Internet companies. BIG FISH SNAPPING. One possibility: Theknot.com, (KNOT), a wedding-planning site, which is on the block and has held talks with a number of potential suitors, BusinessWeek Online has learned. The leading potential buyer is retailer Target (TGT ), according to one company insider. While no one knows for sure whether they'll combine, the companies have had a business partnership since April, cooperating on a bridal registry service. Both declined comment for this story. Such a deal would follow a recent pattern of large, traditionally bricks-and-mortar companies snatching up small and midsize Internet outfits. Of course, Web giants like Yahoo! (YHOO ) and Google (GOOG ), with market caps of $48 billion and $80 billion, respectively, would cost far too much to acquire -- but other, smaller candidates abound. Theknot.com, for one, has existed since the 1990s and posts a net profit. But it's a relative bargain, with a market cap of $230 million -- a pittance compared with Target, worth nearly $50 billion. THE PRICE IS RIGHT. "There has been a real bifurcation of value among Internet companies. The big ones are out of reach, and some of the smaller ones look cheap. That tends to drive activity," says D. Jonathan Merriman, CEO of investment bank Merriman Curhan Ford. While the bank has worked with Theknot.com in the past, Merriman says he had no knowledge of its immediate plans and declined to comment on whether it was on the block. The hottest targets tend to have valuations well under $1 billion. Although it's known that news site CNET (CNET) is up for sale, with a valuation of $1.9 billion, it has had little luck finding a buyer. The same holds true for gaming site IGN (see BW Online, 8/22/05, "IGN Entertainment: Where the Boys Are"). The privately held company is looking to get close to $1 billion. With no takers in sight, it may head for an IPO. But the price of many well-regarded sites is just right. With a valuation of $440 million, the women's-oriented media site ivillage.com will likely find a buyer, investment bankers say. One possible outcome: a merger with rival Lifetime Entertainment, a venture of Disney (DIS ) and Hearst. LESS STIGMA. Industry watchers consider privately held movie-listing service Fandango.com a logical partner for AOL's Moviefone.com. "But the buyers are almost never who you expect them to be," cautions Jack Flanagan, senior vice-president at Internet researcher comScore Networks. "They tend to come out of the blue, like New York Times and About.com." The current round of M&A activity dates back all the way to October, 2003, when Time Warner's AOL (TWX) said it would buy Advertising.com for $435 million. The deal signaled that Time Warner had recovered its equilibrium after combining with AOL in a merger sometimes derided as the worst of all time. The AOL-Advertising.com deal anticipated a huge runup in the online ad business. And a clear trend has emerged: The Web is drawing ad dollars from traditional media. Global online-ad revenue is expected to rise nearly 40% this year, to $13 billion, from $9.6 billion in 2004, according to Ken Marlin, managing partner of Marlin & Associates, an investment bank and adviser to media companies. That's more than five times the pace of growth in most traditional categories. REGARD WITH SUSPICION. Global growth is driving Internet M&A, too. China ranks as particularly important. The IPO of China-based search company Baidu.com (BIDU ) earlier in August drew attention to the sector (see BW Online, 8/22/05, "There's More Where Baidu Came From "). Yahoo has made an investment in China's Alibaba.com. "We have held Chinese Internet companies for a long time. They are an important source of future growth," says Ryan Jacob, CEO of the Jacob Internet Fund, which has $70 million invested in Internet companies. Jacob regards China's Sohu.com as a likely target because of its search technology. And he considers its price reasonable. From a strategic point of view, he likes instant-messaging site Tencent.com. He says an IM deal won't arouse the ire of regulators in the Middle Kingdom, who tend to regard with suspicion Western-owned news and media ventures. And IM can be used as a platform for all sorts of services that generate ad revenue. FAR MORE BUZZ. Across the Pacific and U.S., big media companies are waking up to the fact that the Internet is evolving into a mainstream form of distribution for news and entertainment. The Live 8 fund-raising concerts generated far more buzz on AOL than they did on cable TV. Hence MTV is planning to broadcast its next award show on its Web site. All in all, the environment is light-years away from that of the recent past, when Internet deals hinged on a hope and a prayer. The values of Net companies then were based on page views and other assorted metrics. Now the froth has been skimmed. The survivors are generating ad revenue. "Now it's about money," Merriman says. And that's why this boom looks as if it's going to be around for a while.

I am back

I've been traveling for a while now. I am back and will provide daily commentary on Internet stocks. During my hiatus, Google has added close to $80 billion in market cap, eBay has rebounded and has purchased Shopping.com, Amazon.com has also rebounded, and IAC made a bid for Ask Jeeves and has monetized its VUE stake. Also, other media stocks such as Scripps are buying growth with the purchase of Shopzilla and FindWhat changed its name to Miva. The Internet is dynamic and forever changing. In fact, at the Bear Stearns Technology conference, eBay’s CFO stated that the biggest challenge that eBay faces today is the rapidly changing and evolving Internet space. He thinks that there will be more changing in the Internet space in the next three years than has changed in the past 10 years. I think he is right. So lets sit back, enjoy the ride and try to make money.