Question for Amazon.com: Why Buy?

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While online bookseller Amazon.com offered few clues to the strategy underlying its acquisition of two Internet companies this week, there was no shortage of speculation.


On Aug. 4, Amazon.com, Seattle, announced it would acquire database technology firm Junglee Corp., Sunnyvale, CA, in a stock swap worth about $180 million, and PlanetAll, Cambridge, MA, in a separate stock swap worth about $100 million.


"What we want to be is the leading e-commerce destination," said Amazon.com chairman Jeff Bezos.


PlanetAll (www.planetall.com) offers Internet consumers an electronic address book that includes a locator, stay-in-touch and reminder service for business associates, friends and alumni groups. According to Amazon.com, PlanetAll has 1.5 million members and is growing by thousands per day.


Bill Curry, spokesman for Amazon.com, would not say what Amazon.com plans to do with PlanetAll or Junglee but said one possibility might be to link the PlanetAll reminder service with Amazon.com's gift service.


"What we do will play out over time, but this is only day one," Curry said.


According to the site's privacy statement, PlanetAll does not sell membership information to marketers. There is, however, banner advertising on the site.


What's puzzling to some is why Amazon.com acquired the companies rather than form alliances with them, as is the common business practice on the Web.


"They got nothing out of this purchase that they couldn't have gotten through strategic partnerships," said James McQuivey, an analyst in online retail strategies with Forrester Research in Cambridge, MA. "Sure, they're assets, but do you need to buy them?"


One admittedly cynical possibility McQuivey offered is that Amazon.com is diversifying while market speculation has Internet stocks still riding relatively high.


"When you're swapping Internet stocks, it's sort of like playing with Monopoly money," McQuivey said. "Maybe [since] they have this excess valuation, they're thinking of ways to use it while they still have it."


Another possibility, McQuivey said, is that Amazon.com wants to get a hand in the development of Internet comparison-shopping engines, which is one application of Junglee's database technology.


"If we do nothing but price compete, eventually we are going to drive each other into the ground," McQuivey said. "They should make sure that Junglee technology starts to compare companies on more than just price."


According to a recent Forrester survey of 120,000 Internet shoppers, McQuivey said, price is second to convenience in factors that drive online shopping decisions.


"That's a narrow view of [the two deals]. Both of these organizations have incredible talent and are just flat out impressive. The value of the Junglee technology is far, far more valuable than simply allowing people to price shop. We want to enrich the customer experience so that they can find almost anything they want to buy on the Net," said Curry adding that people may be less reluctant to supply credit-card numbers online to a company like Amazon.com, "which is an old company in terms of the life of the Internet."


Both deals are expected to close by the end of September.
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