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Online Extra: Is Amazon Out of Its Depth?


Bill Fowler is well aware of Amazon.com's key dilemma. As the Web site adds product offerings, such as outdoor grills and camcorders, to its original books business, the longtime Amazon.com customer wonders if it's going too far afield. "They're trying too hard to become the Wal-Mart of the Internet," says Fowler, an advertising-agency art director in Huntsville, Ala. "I don't think people want that."

Or do they? Despite his reservations, Fowler has bought merchandise ranging from a digital camera to toys from the e-tailer. And as Amazon prepares to add even more products, such as personal computers, he figures he'll go along: "Sooner or later, I'll be buying all kinds of things at Amazon."

While Amazon hopes its more than 30 million customers will follow suit, the eventual outcome remains far from certain for the company that once billed itself as "Earth's Biggest Bookstore." "Amazon has a brand image as a purveyor of books and CDs," says David Schehr, a research director at market watcher Gartner Group Inc. Yet the pioneering e-tailer, under intense pressure to make its huge investments pay off, is rapidly expanding into everything from toys to tableware as it attempts to achieve a promised operating profit by yearend.

VIRGIN TERRITORY. The problem: The expanding range of goods may confuse both longtime customers and new ones -- something that might potentially dilute its brand, which still ranks above those of Shell, Heineken, and Federal Express. "If you want to be everything for everybody, it's hard to build a brand like that," says Jan Tindemann, global director for brand valuation at the consultancy Interbrand. That's just one reason the value of Amazon's brand fell 31% to $3.1 billion this year, after more than tripling in 2000 to $4.5 billion, according to Interbrand. While there is ample precedent -- from General Electric to Virgin -- for a brand being stretched into a broad range of categories, Amazon's expansion has worked to make its business model less certain because the new products on which its growth depends carry lower profit margins, according to Interbrand's analysis.

Not surprisingly, Amazon.com Chief Executive Jeffrey P. Bezos sees his company's brand doing "better than ever." Bezos' goal is for Amazon to represent more than limitless selection -- he also wants it to provide customers with a focused, satisfying, and personalized way to shop. Says Bezos: "We've created what we think is recognized as the best shopping experience online." His acknowledged model: Virgin, whose brand successfully encompasses everything from airlines to soft drinks.

Bezos' expansive goal isn't completely wishful thinking. Amazon has sold more than $500 million worth of electronics, kitchen gear, and tools in the past year. More recently, by forming alliances with bricks-and-mortar retailers like Toys 'R' Us, it has managed to add products at minimal cost.

THE PRIMARY FOCUS. But investors aren't yet convinced. Over July, 2001, Amazon fluctuated from as low as $11 to around $17 -- way below its peak of $106 in December, 1999. That makes maintaining its brand an even more critical goal than it is for other technology companies: By Interbrand's reckoning, Amazon's brand equity represents much more of the company's overall value than at many other technology companies -- more than half its $6 billion market capitalization. By contrast, AOL's brand is relatively less important, says Tindemann, because it has a more stable revenue base of subscriptions and can reach those subscribers directly.

Of course, Bezos doesn't have to be told that. More than anyone, he realizes that time is tight for expanding the reach of Amazon's brand. "Brands are like quick-drying cement," he says. And Amazon's, while impressive in its value, is rapidly setting. By Robert D. Hof in San Mateo, with Diane Brady in New York


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