Amazon: Armed to Beat the Recession

Analysts say the e-tailer's new iPhone shopping app, among other high-tech tools, will help it outperform rivals amid weak consumer spending

By Douglas MacMillan

Gary Bacon II had bargain-hunting on the brain when he visited his local Barnes & Noble (BKS) in Jacksonville, Fla., on Dec. 7. But he didn't make any purchases. Instead, the Web designer whipped out his smartphone, snapped a few photos, and headed for the exit.

Bacon was using a new feature, released by Amazon.com (AMZN) on Dec. 3, that lets users take mobile photos of items they want to buy, store them in an online shopping cart, and purchase them whenever they want—typically at a discount—via the online retailer. The application, designed for Apple's (AAPL) iPhone, gives bargain hunters on the go a quick reference for prices and customer reviews of all the items sold by Amazon, as well as one-click purchasing.

Tools such as the iPhone application are among the reasons Bacon and millions of other consumers will flock to Amazon this holiday season, even in a bleak period for retailers. In November, online shops saw their first-ever drop in sales from the previous year, a sign that e-commerce sites won't be immune to the consumer-spending slump.

Analyst Outlook

Some analysts have raised their outlook on Amazon, the leading U.S. online retail site, saying the company will be in good shape when consumer spending rebounds. "When we come out of this and there is less competition, their business is going to grow at an accelerated rate," says Scott Devitt, an analyst with Stifel Nicolaus.

Devitt cites Amazon's scale, strong reputation, and broad product offerings as the reason. But like other analysts, Devitt is also enamored of Amazon's large stake in research and development, which has led to new, technology-driven customer services like the iPhone application. Since its launch as an online bookstore in 1995, Amazon has widened its selection to span electronics, apparel, digital media, and numerous other retail categories. Along the way, it has also implemented technology to make online shopping easier. "Amazon has spent almost $4 billion on R&D over the past 10 years, which is vastly greater than the investment by its online competitors," says Cowen & Co. analyst Jim Friedland. This investment has been "a key factor in gaining share of consumers' wallets," he says. By comparison, Friedland says, online auction site eBay (EBAY) has spent some $2.7 billion on research and development.

"We like to do a lot of experiments," says Amazon spokesman Craig Berman. "Sometimes they work, and sometimes they don't work."

Limited-Time Specials

Lately they've been working. In recent months, Amazon has unveiled several new ways to shop, all powered by high-tech design. Its Universal Wish List feature includes a browser "widget," a button users can click when they see a product they want anywhere on the Web, creating a list they can retrieve via Amazon. The Gold Box highlights special deals by the day, hour, or availability. And a new feature for the holiday season, "Windowshop View," lets visitors browse products in a sleek Adobe Flash-based viewer that uses a 3D-simulated environment to capture the look of walking down an aisle at a toy store.

"Amazon has done a good job of adding innovative elements to the site," says Ken Cassar, vice-president of industry insights at Nielsen Online. But according to Cassar, few of the innovations Amazon has released in the past have the promise of the iPhone application. "The ability to be able to take a snapshot of a product with a phone and see a full database of prices completely changes the game—particularly when a consumer is in a brick-and-mortar store, where the consumer still makes over 95% of purchases."