Will Amazon Acquire Blue Nile? (AMZN, NILE)

Legg Mason Internet analyst Scott Devitt says that Amazon should acquire Blue Nile (ticker: NILE). Here's his argument, and why he's probably wrong:

...in a report, [Legg Mason analyst Scott] Devitt said that [Blue] Nile would be a perfect fit for Amazon.com (AMZN), which also sells diamonds. That lifted the stock from 32 to 35 in a day. It is now at 33. ``It's rare that we'd recommend an acquisition for Amazon,'' says Devitt, but Nile is a unique example of a logical buy for Amazon. Nile's business model is akin to Amazon's, which focuses on inefficient markets, he notes.

(via Business Week)

Quick comments:

• "Amazon... which focuses on inefficient markets". Really? Books? Music? Tools and gardening? Apparel? Amazon blankets a large chunk of retail categories. How can they all be "inefficient" markets?
• Blue Nile has presented itself to Wall Street as an inventory-less, just-in-time retailer and claims that characteristic gives it a strategic advantage over other jewelry retailers. But not holding inventory is common in the diamond business, and Blue Nile's competitive advantages are therefore limited to the standard benefits of any Internet retailer.
• The competive environment for online jewelry sales is intense. Blue Nile sticks out largely because it is one of the few firms that investors in publicly-traded stocks know. But there are numerous others. Take a look at Shoppping.com's listing of diamond engagement ring online vendors, for example. Barriers to entry are actually low.
• Amazon's emphasis - correctly - is in virtualizing its business by expanding third party sales and sources of inventory-less income. Purchasing another online retailer to strengthen its own direct sales would run counter to that strategy.

Related:

• All Internet Stock Blog articles on Blue Nile.
• Amazon.com and the Used Book Business (AMZN)
• Amazon discusses its Long Tail strategy (AMZN 2Q05 conf call quotes) touches on the key strategic point for Amazon here: how fast can the company grow its third-party sales?
• Is Amazon the loser from the EBAY-SHOP deal? (AMZN, EBAY, SHOP)
• Amazon on paid search and comparison shopping (1Q05 conf call quotes)
• Amazon loses leadership in website design (AMZN)
• The complete list of Internet stocks (and links to articles about them) covered by The Internet Stock Blog.

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