Amazon.com Forms Partnership With WineShopper, Invests $30 Million

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Amazon.com moved yet another step toward its goal of being the Internet's one-stop shop with the announcement April 18 of a $30 million investment in WineShopper.com.


By virtue of this deal, the world's largest online retailer now holds 45 percent of WineShopper, a San Francisco-based marketer whose relationships with 550 wineries and 250 wholesalers will allow consumers to buy wine online in 45 states nationwide.


At the moment, little is known about the marketing ties between Amazon and WineShopper. Amazon CEO Jeff Bezos said the marketing details are work in progress, but refused further information when asked during a telephone conference call and Webcast from San Francisco.


"There will be no marketing before its time," Bezos said.


While fallout from the deal is still shaking out, at least one consultant is not enthusiastic about the direction Amazon is taking


"I think they're doing the wrong thing and I don't think this extension into these other areas is really going to pay off for Amazon," said Al Ries, noted author on focus and branding issues and chairman of Roswell, GA-based consulting firm Ries & Ries.


Ries faults Amazon for neglecting its mainstay bookselling business. He believes that the Seattle-based marketer should first consolidate its overall hold on books, which is an impulse-type business, rather than spread itself thin.


After this deal, Amazon now has investments in such diverse online areas as automotive, healthcare, home furnishings, pet supplies, groceries, sporting goods, luxury products, gifts, consumer credit, and audio services.


This is apart from its 11 stores and one merchant bazaar that appear as tabs on the Amazon site. It has gained over 17 million online customers since it opened doors five years ago as a challenger to Barnes & Noble and Borders in the U. S. bookselling business.


"See, nothing works in marketing quite so much as dominating a market," Ries said. "Intel [has] 80 percent of the microprocessor business, Microsoft 90 percent of the operating system business, Cisco 80 percent of the router business, Amazon 5 percent of the book business.


"Wait a minute - they're a lot more vulnerable to competitive attacks if they're going to sit around with 5 percent. They've got to dominate the book business."


Yet that argument ignores Amazon's openly stated desire: to be the world's most customer-centric company with the largest offerings.


Bezos said his company's strategy is to spot early-stage start-ups like WineShopper.com and invest in them. This way, you can actually see what they are doing, he said.


"We focus on how they're going to improve the customer experience," Bezos said, "and one of the things we can do is evaluating the very straight-forward questions: How is your experience going to be better? How is it going to be better than the physical world? How is it going to be better than the current online offerings?"


WineShopper operates in a strictly regulated, highly differentiated, high margin category that is not typically subject to price competition in a global market of $100 billion, said Peter Sisson, the company's CEO.


"By law in this industry, no producer of wine and no distributor of wine can forward integrate into consumer direct retail, so there's no opportunity for a Dell in the wine industry to emerge and cut out the tiers," Sisson said.


The deal, however, does give WineShopper the ability to tap Amazon's vast customer base, a key advantage over a rival like Wine.com.


"Partnership with Amazon will give us access to their 17 million customers," Sisson said. "Obviously, Amazon is the gatekeeper on how we access those customers because Amazon doesn't want to disturb them. But I think a lot of the consumers will be excited to be introduced to a new way to buy wine."


Unlike other online wine retailers, WineShopper claims to have got regulatory approval from over 30 states before selling its product online. Wine stores in the customer's state will fulfill orders taken online.


Still, Amazon should build a second brand for expansion beyond its core bookselling business, Ries said. This avoids erosion to the Amazon brand. Besides, all brands can share backend infrastructure like finance, sales, fulfillment and equipment.


"You know, General Motors dominated the automobile business for quite a while, but they didn't do it with one name - they had five," Ries pointed out. "In other words, I don't fault Amazon for thinking about these other markets. I just say they should use a different name."
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