Why the analysts are wrong about Amazon

It was only a matter of time before the latest craze of dot.com bashing turned its attention to e-commerce thoroughbred Amazon. Even with $1bn left in the bank, not even Amazon could escape the scrupulous analysts' attention to detail that leads investors getting the jitters, and can effectively make or break a company.

It was only a matter of time before the latest craze of dot.com bashing turned its attention to e-commerce thoroughbred Amazon. Even with $1bn left in the bank, not even Amazon could escape the scrupulous analysts' attention to detail that leads investors getting the jitters, and can effectively make or break a company.

The power behind Lehman Brothers' in-depth report on Amazon's business model was staggering: other analysts (including Mary Meeker; famed in the UK for her bullish talking up of Lastminute.com's ridiculously high issue price) waded in with more damning indictments, and then journalists, who weeks before were hailing Amazon as untouchable, took the rare opportunity to question Amazon's cash-flow situation. There were even suggestions Amazon was now a candidate-in-waiting for the growing roster of dot.com disasters.

Then the unthinkable happened: Amazon's share price took its worst beating to date, dropping by a fifth, and taking other e-commerce stocks along with it for the ride.

Poor old Jeff Bezos, last year's icon of e-commerce, must be feeling a tad irked by the extent of the persecution. Words such as "extremely weak and deteriorating" were bandied around far too freely by analysts who, focusing on Amazon's burn rate, said the company is on course to run out of money in a year's time.

Having been busy throughout 1999 building eight costly distribution centres, Amazon now has a sound fulfilment operation which should soon start paying for itself, a great brand, first-mover advantage, oh, and the princely sum of $1bn left in the bank; these are things that should not to be sniffed at.

The problem is that it's currently open season on retailers, no matter in which market they operate. The simple fact is that they're just not making enough money due to increased competition and drastic cost-cutting measures. Profits are down, overheads are higher because of inflation, but still consumers expect bargains - the nail in the coffin for retailers has been the "buy one get one free" phenomenon. No one is safe, and once people have doubts, the share price goes a-plunging.

It's worth bearing in mind that analysts can sometimes be wrong, and Amazon is certainly not going to give in too easily, or kowtow to the analysts who think the only way out is for Amazon to sell off assets it has assiduously built up over the past few years. While the perfect picture of an e-commerce darling has been tarnished, I wouldn't put it past Amazon to prove everybody wrong.

Yahoo's coup

Yahoo's acquisition of group e-mail service eGroups for around $430m in stock is one of those type of interesting and wide-ranging deals that come along every so often. Interesting because the deal adds a compelling, community-driven service to Yahoo's portfolio, and wide-ranging because of the viral nature of eGroups' e-mail lists - a bounty for Yahoo and its deep-pocketed advertisers.

The statistics speak for themselves: eGroups, in its two-year life, has racked up 17 million members who have spawned 800,000 active e-mail groups, which fire some 3.6 billion messages each month. The service enables people to set up e-mail groups around a common interest, create a customised group home page, and share a group events calendar. The fact that Yahoo will be able to offer targeted advertising opportunities through e-mail is the driving force behind the deal - think of the revenues.

Cost per thousand (CPM) rates for e-mail sponsorships range from £80 to £350 per week because of the high rate of opt-in niche participants. In addition to the advertising revenues, eGroups gives Yahoo those good-for-traffic sticky users, which can be translated into yet more page impressions for its portal. Don't put it past Yahoo to send out regular monthly promotional e-mails to eGroups users that encourage them to use the site. Weighing in at just $25 per registered user (a bargain in Web terms), the tie-up is quite a coup for Yahoo, and should do wonders for its bank balance.

IBM's hyperdrive

IBM has started a song and dance about its new Websphere brand, on which it has already spent $1bn and plans to spend a further $1bn this year alone. Having flown a herd of journalists to Paris to hear its mission statement (myself included), IBM gave an upbeat, slick presentation about how the integration of all its services (Web development, voice recognition, ready-made trading networks and fulfilment software) into Websphere is going to enable it to dominate the Web space.

Four hours of technology (from everyone and his grandmother) later, and I was praying for Jocelyne Attal (VP of the business) to come back on and do her unintentional impression of a Eurovision Song Contest presenter - the highlight of the show. I especially liked the buzzwords that kept coming out: "it's an epiphany" and "we're going to replace the dot in dot.com with a dollar sign" and something about leaving the competition miles behind.

Essentially, Websphere is about repositioning IBM as a web-centric business, ensuring that it doesn't lose out on those trillions of pounds that everyone is saying will be spent on developing business-to-business websites in the coming years. With Microsoft and Oracle doing much of the same thing in the same space, it all boils down to being able to survive in an increasingly internet-driven, competitive marketplace. Microsoft, having once being wrong-footed by the Web, is now pulling out all the stops to extend its monopoly to the internet.

Wheeling out partner after partner to sing IBM's praises was all well and good, but someone at IBM forgot to tell other partners present at the launch not to tell journalists that IBM's product wasn't as good as competitor BEA. One IBM partner said that BEA's product was far superior (albeit for the voice recognition software) but that they had no choice but to go with IBM because of its sheer size.

Closer to home, IBM works with HMV on its website, which has taken a bit of a beating recently for its shoddy fulfilment and customer service. Looks like the first thing on IBM's "to do list" should be smoothing out the edges on its so-called solid infrastructure and placating customers.

amy@wagswell.co.uk