by Dana Blankenhorn
Volume III, No. XLVII
For the Week of November 22, 1999

This Week's Clue: The Noble Experiment

This Week's Clue: The Noble Experiment

SSP (Shameless Self-Promotion)

Poke Fever: The Empires Strike Back

Not A Journalist

The Story for 2000 Is XML

Clued-in, Clueless

It seems impossible these days to get away from Amazon.Com. If you're talking about strategy, they're the high wire act. If you're talking about technology, they're the ne plus ultra . If you're talking about the Web vs. The World, in this corner it seems we have our champion.

Or do we? Amazon says it's spending $1 billion on marketing this quarter but here it is a month from Christmas and I haven't seen the ad. Amazon is building a network of warehouses to handle its own fulfillment, but the bottom line has seen no benefit from them. Amazon dominates the online marketing of books, and leads in CDs and video, but it has little share in gifts, toys or hardware, and its auction business is still just a pimple on eBay's butt. So what's the big deal?

The big deal is, in a word, audacity. Jeff Bezos is in a race against falling expectations to build his infrastructure. The key isn't the P/E (there's no E) but the P/S - the price to sales ratio. At its recent price of $73.50, Amazon's market capitalization is about 20 times its sales. (The ratio for Wal-Mart, by contrast, is about 1.5, for Toys R Us about .40.) Amazon's P/S also looks good against other Internet retailers. (CDNow carries a ratio of 2.91.) But the insanity has definitely moved elsewhere - eBay's current P/S is 108. When you look at retailers, P/S should stand for psst! You crazy or sumthin?

The music will stop when Amazon's P/S approaches that of Wal-Mart. At that point Amazon will have reached its growth limit, and Bezos will have to compete for money directly against the Waltons. That will happen inevitably as Amazon grows, although the Street can end the game at any time with just a few grumbles. So the chart that really keeps Bezos awake at night is this one , a listing of recent analyst recommendations on the stock. On October 28 three downgraded the stock, mostly to "hold" status. (Stock analysts almost never scream "sell.") Investors are currently ignoring the analysts, but if the Christmas quarter is at all disappointing - if sales growth slows - it's game over. It's also a lot harder to double $1 billion than $100 million.

How will Amazon do it? I got a nice note this week about a woman who got an unsolicited e-mail noting that she likes the books of Neale Donald Walsch and he had a new book out, at a 40% discount! Some might call this a spam, but it was relevant, offered a real benefit, and came from a trusted source, so it closed a sale.

Another way to grow is to expand the line. I got a spam this week from Amazon advertising their new toy store, offering a $10 discount coupon good through December. Amazon's new home improvement store is another way to grow. You can argue they're spreading themselves thin, but a WorldWide Internet Tracking Study shows that except for books (where Amazon dominates) most e-tailing markets have minimal penetration. Fewer than 5% of online users have bought a ticket, a toy, a ball, or a hammer online in the last three months, the study showed. In other words, Amazon really is entering into fairly virgin territory here, and the trust consumers place in it (one-fourth of those surveyed had bought a book online in the previous three months, the study showed) gives it an advantage almost everywhere.

Two hurdles must be crossed, beyond price and the complexity of a shopping cart, before visitors hit the buy button. You need to believe the item will be in stock and get to you (I was burned on that by Brainplay, now KBToys, last Christmas) and you need to trust the buying process, meaning the merchant needs a reputation. Amazon scores high on both counts.

Does this mean Bezos will succeed? No, it does not. He succeeds only if the music doesn't stop before he reaches his goal, which is to become Wal-Mart. In the last 12 months Wal-Mart had sales of $156.2 billion, against $1.2 billion for Amazon. If you're buying Amazon at $73, you're betting Bezos will reach the goal before the ball is over. But there's a long way to go, and the clock is ticking.

SSP (Shameless Self-Promotion)

I have begun my adventure at Voxcap.Com, discussing how next year's elections might impact the future of the Internet. I had two features in a recent special section of the Chicago Tribune  as well.

I write daily for ClickZ, and appear on TechEdge Radio. I write monthly columns for  NetMarketing, Boardwatch, and  Intellectual Capital. Once every other month I'm in CLEC Magazine. The lead item here is also the Monday e-commerce column of Andover.News. You can still buy my book . Subscription instructions are at the bottom of each issue.

Remember that it's still journalism that keeps the Clues coming. Give me a call at 404-373-7634. (Yes, I do some commercial writing.) Now back to the show...

Takes on The News

Poke Fever: The Empires Strike Back

Yes, my kids have seen the Pokemon movie, despite its horrid reviews. (My daughter loved it and even cried near the end.) Pokemon fever is everywhere, especially on the toy aisle. That spells trouble for Internet retailers.

It's trouble because Nintendo controls Pokemon, and Nintendo is the most retrograde technology outfit imaginable. Their site for the phenomenon  has no free games, just commercials. Thanks to Pokemon, the hottest toy this Christmas is "Pokemon Yellow," a color Gameboy bundled with a Pokemon game. Go online, however, and you'll find that eToys is out of stock , but you can get it at KBToys . (Toys R Us claims it's so burdened with buyers it can't serve new ones.)

You can also learn a lot about the underlying reality by looking at the sites' merchandising. The eToys home page is pushing hobbies, finds from small toymakers, and top toys for under $20. The KBToys home page is filled with Poke-stuff. The eToys site only lists two Pokemon items among its top ten sellers. A click to its "hot list" page features Hot Wheels.

Toys are a fashion business, and the maker of a hot toy determines who'll win the season. This Christmas, the winners will be those shops Nintendo has most amply supplied. Poke fever will give others a headache .

Not A Journalist

Washington was abuzz over Matt Drudge's stunt of trying to show a spina bifida operation on a fetus as a living ad against abortion. What interested Washington was the split between Drudge and Fox' Rupert Murdoch. What should have interested the profession was the split between Drudge and journalism.

It was about time, because the fact is Matt Drudge has never been a journalist. His page is mainly a collection of links. His "stories" are usually just the passing of tips from one corner of the political spectrum. One such tip passing (Newsweek had passed on the Lewinsky story) made him a star, and the question remains why his 15 minutes of fame lasted as long as it did.

There are two reasons. Conservatives enjoyed having someone who would do their dirty work for them. Journalists enjoyed having a "poster boy" who could discredit Internet journalism (and thus the idea of competition). In the short run both sides got what they wanted. Drudge never knew how he was being used (or maybe he didn't care).

The fact is that Internet journalism can be the most credible, not just the least credible, of all media. Its credibility comes from linking. Abortion is Murder! Abortion is a responsible choice which must not be taken away! Any claim can be referenced, and that reference can be checked in a second. You don't have to believe what you read. You can check it out and decide for yourself what to believe.

Drudge had a good idea in his links page. The shame is he came to believe that linking and talking to journalists made him one. What makes a journalist is a continuing effort to build credibility - credibility with readers and credibility with other journalists. This is a lesson Matt Drudge never learned, and good riddance to him for that. (Oh and I'll take my hat back. Thank you.)

The Story for 2000 Is XML

Want to get ahead of the game? Take a course on XML. I haven't read the current crop of XML books but I do know the subject is important, for two reasons.

First, XML is the new glue the Web needs to reach its next level. Right now the best Web pages are collections of objects - calls to various outside programs like database calls or streams. We need new definitions in order to make more calls standard, and XML gives us that. Extensions to XML - like cXML for business-to-business commerce - extend the standard in new, important directions. They will enable any business the chance to become a part, not just of the Web, but of instant commerce.

Second, XML is the new battleground between Internet standards and Microsoft standards. Place XML alongside Linux and Apache and you have a bigger threat to Microsoft's dominance of the future than whatever Judge Jackson may decide to do. Microsoft's rivals have awoken to this fact, which is why IBM and Sun have both placed their XML parser codes in Apache's XML  project. The race is on between this effort and Microsoft's BizTalk to create XML development tools, and Apache doesn't have to win, either. Anything approaching a draw, even a close game, will force Microsoft to adhere to standards and not wander off on its own. That would be a major story.

Clued-in, Clueless

Clued-in is Bill Bradley's campaign , for its artful use of e-mail in alerting reporters to an ongoing difference with Vice President Al Gore.

Clueless is Steve Forbes's campaign which spammed his biggest contributors to tell them they were maxed-out on contributions. Your Clue in both these cases is that e-mail is a personal medium, and people need to be on top of it.

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