Mark Mahaney's Stock Takeaways from Internet Retailer 2006

Citigroup analyst Mark Mahaney attended Internet Retailer 2006 in Chicago on June 6th and 7th; here are his takeaways on Amazon (AMZN), eBay (EBAY), Google (GOOG), IAC (IACI) and Blue Nile (NILE):

Amazon (AMZN) was remarkably quiet at this one, although we did note at least one AMZN person from the merchant services biz making the rounds. We did some digging in merchant services and came out of the show more negative on that part of AMZN’s business. As many will recall, AMZN announced a host of new services deals last April (Marks & Spencer, bebe, DVF.com, Sears.ca) but to our knowledge none of these sites have gone live. So we endeavored to find out why.

We talked with public and private e-commerce store front enablers like GSI, Marketlive and Venda to get a sense of how long it takes them to get customers up and running. From what we heard, most fall in the 4-9 months range; we didn’t hear anyone say a year or more. So we checked further with industry contacts and what we hear is that within AMZN it’s hard for the services biz to get resources (i.e., staffing), and that the best developers want to work on projects that will launch on the main site as opposed to partner sites. That may be just as well for shareholders since the main site drive’s AMZN’s business but it bodes ill for the services business. A further impediment is that AMZN doesn’t share all of the shopping data with partners the way some competitors do.

And in our review of the Internet Retailer Top 500 Guide we couldn’t help noticing an interesting dichotomy in customer satisfaction and performance metrics for AMZN vs. AMZN-powered sites like Target.com and Toysrus.com. To wit: AMZN’s customer satisfaction score from ForeSee Results was 83 while Target.com was 73 and Toysrus.com was 71. And Gomez’s performance-based analysis showed that AMZN’s site consistency was rated “Good” vs. “Poor” for Target.com and “Fair” for Toysrus.com.

Other items of note: AMZN may be aggressively underbidding competitors to win services business; Timex is apparently quite happy with AMZN and should go live this fall (we’re surprised given the delays with other deals); and AMZN is selling a package of software providers (including Omniture) as part of its services package making it a convenient onestop shop (at least in theory).

eBay (EBAY) –We believe that PayPal will soon be launching with Travelocity and possibly Sabre, potentially another big win for PayPal. A while ago Travelocity indicated it was exploring alternative payments and from what our contacts say it should be rolling out soon. We believe Travelocity has already been testing PayPal and has seen nice growth, which is a positive dpoint for EBAY. And the Sabre piece could be big if airlines agree to it too, although those discussions would likely be on a carrier-by-carrier basis. Plus we think EXPE would likely follow Travelocity at some point. We also learned a little more about the VeriSign gateway from competitor CyberSource, who indicated that VeriSign had more limited authentication capabilities (e.g., fewer criteria checked). Perhaps PayPal can help VeriSign improve its security features.

Google (GOOG) – GOOG will start charging search engine marketing agencies fees for services like reporting or adding keywords as part of its AdWords API program. (We believe YHOO already does this.) This isn’t new but it’s the first we’ve heard folks talking about it. The fee is $0.25 per 1,000 units, with different actions “costing” a fixed number of units (e.g., adding a new keyword goes for 50 units while some reports go for 1,000 units). The full rate card is located at http://www.google.com/support/adwordsapi/bin/answer.py?answer=37445. From what we can gather the charges are geared at agencies only, many of whom hammer GOOG’s servers continually. We think principals (i.e., the companies themselves) are exempted from the charges. We don’t have a clear read on how this will shake out – charging agencies to add keywords sounds counterproductive to us – but we’ll stay tuned to the July 1st change.

IAC/Interactive (IACI) – IACI CFO Tom McInerney said that IACI is looking to leverage its ShoeBuy acquisition to get bigger in the virtual retailing business (i.e., little-to-no inventory with suppliers drop-shipping products directly to consumers), and specifically pointed to NILE and Liberty-owned Provide Commerce as the models of what it will try to do here. Given all of the macro dpoints about large multichannel retailers taking share, increasing competition, etc., we’re a little skeptical. (And that goes double for IACI’s entry into auctions in the U.K. with iBuy.) Granted the investments are small – McInerney said e-commerce shopping application Pronto was launched for the single-digit millions – but sounds like a “day late, dollar short” strategy to us.

On HSN, McInerney cited HSN’s work in video (HSN TV Live), observing that HSN can leverage around 156 hours of video per week, and that video could help drive high ASP items. We agree with the impulse but all of the tactical tips highlighted at the event make us think that HSN should focus on improving more of the easy stuff first (design, account registration, taxonomies, etc.). Video is a great complement to a great site, but we don’t think HSN is in that category at present.

BlueNile (NILE) – During YHOO’s social commerce presentation they highlighted a NILE blog for “Dads and Grads Gift Ideas.” Might be one of the new marketing tactics NILE is looking to explore to lessen its dependency on paid search.