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Web 3.0 & Amazon (Part 4)

Posted on Thursday, Dec 13th 2007

Acquisition Targets

Amazon has been slow to acquire companies. Amazon acquired dpreview.com, a London-based digital photography review site in May 2007. Amazon needs to use acquisitions to enter businesses that have a higher profitability dynamic in their business models.

For example, Amazon could consider acquiring on-demand, customized product creation company CafePress. CafePress.com is a growing network of over 4.5 million members. CafePress is a privately owned, profitable company. The acquisition will enable Amazon to move into customized e-commerce. The CafePress.com site averages 11 million unique visits per month and approximately 2,000 new, independent shops join the CafePress.com network each day.

CafePress has raised $15.50 million in VC funding from New Millenium Partners, PacRim Venture Management, Staenberg Venture Partners, August Capital and Sequoia Capital. Amazon could also consider acquiring Zazzle. Zazzle, a competitor to Cafepress, has raised $46 million in funding primarily from Kleiner, Perkins, Caufield & Byers and Sherpalo Ventures.

Of late Amazon has been trying to diversify and this is visible from the launch of Endless.com, Amazon MP3, Unbpx, Kindle, A9, etc. Amazon realizes that it needs to improve its product offering and move into branded lifestyle products to improve margins. Here, I feel it could consider acquiring other e-commerce retailers like Zappos and FigLeaves.com, which retail branded luxury products.

Zappos.com is an electronic commerce company specializing in footwear. Amazon could acquire it to expand its Endless.com offering. Zappos grossed $597 million in merchandise sales in 2006, and is projecting $800 million in 2007. Zappos has raised $20 million in equity funding from Sequoia Capital, and sells major brands such as Stuart Weitzman.

Figleaves.com retails lingerie sportswear, swimwear hosiery and men’s underwear from international brands including La Perla. In 2006, Figleaves was named the 31st fastest growing online retailer by Internet Retailer Top 500 Guide.

Another good acquisition target for Amazon will be BlueNile, an online retailer of jewelry, including diamonds. It is traded on NASDAQ and is a profitable company with revenues of $207 million for the nine months ended September 2007. Blue Nile has a market cap of $1.11 billion.

Amazon has entered the online music download business through Amazon MP3. It is entering into the territory of Apple and needs to compliment its service with a very good community to pull consumers away from Apple. It has done a smart thing by investing in social music site AmieStreet, a digital music store that prices music based on its popularity among visitors to the site. In the future Amazon could acquire AmieStreet or other players like MyStrands, Songbird, MOG, etc. and if it really wants to take the plunge then it could consider acquiring IMEEM.com.

MyStrands is a music discovery platform and recommendation site. The site recently raised $25 million in its second round of venture capital financing, led by Grupo Zeta CEO Antonio Asensio along with Debaeque and Sequal. In October 2006, Songbird, a San Francisco-based start-up with a smart music player that searches and plays music raised about $1 million in funding, from Sequoia Capital and Atlas Ventures. MOG has raised $1.41 million in first round of funding from a group of angel investors, led by Steve Simon.

On a different note, Amazon, like eBay, could reduce its customer acquisition costs and increase traffic to its site by acquiring vertical search engines. Today vertical search engines like Retrevo, Wize, TheFind, etc. are becoming increasingly popular among the online shopping community. Amazon can use these vertical search engines to drive traffic to its sites.

Wize and Retrevo focus primarily on Consumer Electronics. TheFind focuses on Lifestyle shopping. There are many others. The user experience these sites offer, have unique value propositions.

Retrevo is a web service that helps consumers with shopping and support of tech products. Retrevo has received $3.2 million in second round funding from Norwest Venture Partners. The Company had earlier raised less than $1 million from Alloy Ventures in last fall.

Wize, a San Mateo, Ca-based product reviews startup, has received $4 million in first round funding, from the Mayfield Fund and Bessemer Venture Partners.

Mountain View based shopping search site TheFind raised $15 million in a third round of venture capital, in July 2007, bringing their total capital raised to $26 million. Bain Capital Ventures led the round. The Company has previously raised $11 million from Redpoint Ventures, Lightspeed Venture Partners and Cambrian Ventures ($7 million Series A, $4 million Series B). Redpoint and Lightspeed also participated in third round.

Finally, yesterday, Amazon has announced an investment in Bill Me Later, a payment alternative to credit cards. Does this forebode an entry into the online payment market which eBay’s Paypal currently dominates?

(To Be Continued)

[Part 1] [Part 2] [Part 3]

This segment is part 4 in the series : Web 3.0 & Amazon
1 2 3 4 5

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Interesting series so far. I feel Amazon’s FPS (Flexible Payment Service) was already a step into the online payment market (though targeted at developers).

n Thursday, December 13, 2007 at 8:48 AM PT

[…] In August 2007, Amie Street raised an undisclosed amount of Series A round of funding led by Amazon. […]

Deal Radar 2008: Amie Street and the Twenty First Century Renaissance - Sramana Mitra on Strategy Friday, January 25, 2008 at 12:33 PM PT

[…] at 20% – 30% per annum over the next five years the company is a good acquisition target for Amazon. It could also be an interesting one for Zappos, which we discussed […]

Deal Radar 2008: Figleaves and Specialty e-Tail - Sramana Mitra on Strategy Tuesday, January 29, 2008 at 1:01 PM PT

Sramana,

Your suggestion for Zappos materialized in July 2009.
Right on !!

Inspires me to check your older articles
and invest in those stocks 🙂

This article itself was thorough with good potential targets. Keep up the good work.

@sampathmanda

Sampath Friday, July 31, 2009 at 2:40 PM PT