Dell and Amazon Link Sites, and Possibly Fortunes

E-commerce giants Dell Computer (Nasdaq: DELL) and Amazon.com (Nasdaq: AMZN) are linking their content and online sales strategies, starting with a new co-branded Web site infrastructure announced on Wednesday. The joint venture will be linked from Dell’s and Amazon’s checkout pages and, will provide consumers with a customizable interface, featuring content and product offerings from the two companies.

Amazon.com is the first company Dell has linked to from its www.dell.com site, and Dell is the first computer systems company Amazon.com has linked to.

“Dell and Amazon.com have a shared vision of the future of online shopping,” said Michael Dell, chairman and CEO. “That vision is to use the Web to deepen direct relationships with customers… Dell and Amazon.com will each offer our mutual customers customized services, competitive price, and easy navigation.”

Impact on the Industry pWhile the new co-branded site, per se, is of marginal significance to the industry, the companies are reportedly viewing this first step as a prelude to a more extensive partnership that, in our view, could impact the balance of power on the broader e-commerce landscape. Competitors like CDW and Gateway will, most likely, find themselves scrambling to form their own broad-reaching alliances with leading consumer-oriented sites, to prevent consumer-base erosion.

At this point, the competitive dilemma does not arise as a result of today’s co-branded sites announcement, but out of fear of what form the Dell-Amazon alliance will take in the near term. So far though, Dell and Amazon have declined to comment on their future plans.

The Big Picture

Dell

Dell recently launched www.gigabuys.com, an online superstore for computer-related products. Today’s announcement with Amazon.com is a further indication that the company is moving to expand beyond its corporate target market and into the consumer arena.

Dell reports that it currently sells more than $14 million (US$) in products each day over the Web, which accounts for 25 percent of its total business. The company announced that it intends to derive 50 percent of its business online by the end of 2000. The Dell Web site, www.dell.com, reportedly attracts more than 25 million visits per quarter.

Amazon.com

Amazon.com claims to be the Internet’s No. 1 video, No. 1 music and No. 1 book retailer. Nevertheless, it has also reported the largest loss of any e-commerce company to date, totaling approximately $500 million (US$) in 1998. The company recently purchased a 47 percent ownership of the new Drugstore.com, an e-commerce site which primarily sells health products to consumers. Drugstore.com has signed large-scale marketing deals with e-commerce powerhouses Yahoo! and America Online, and its performance could have a significant impact on Amazon’s valuation.