WH Smith targets Amazon territory

Try punching in “Internet Bookshop” on Yahoo!’s UK search service, and you will understand immediately why WH Smith pounced last week to buy the nascent online bookseller for 9.8m.

Any attempt to locate the Oxford-based business on the Web using obvious keywords may, or may not, generate a reference for the bookseller’s site (www.bookshop. co.uk).

But what is also certain to appear is an unmissable banner icon for Seattle-based Amazon.com, inviting the surfer to visit its US site and perhaps its newly-acquired UK subsidiary, before scrolling down the search results and making their way to the competing site.

The word on cyber-street is that Amazon.com is planning to do in the UK what it has largely achieved in the US: commit major funds to obtaining exclusive, or at least preferential, promotional rights on the busiest Websites.

Obtaining a stranglehold over e-commerce through such promotional deals is an inexact science, where total dominance over rivals is probably impossible to achieve.

But Amazon.com’s aggressive promotional stance, plus its purchase of the Internet Bookshop’s main online UK rival Bookpages, earlier this year, clearly provoked some hard thinking at both the Internet Bookshop (IBS) and WH Smith. Although it operates a Website, WH Smith has so far largely resisted the rush to counter new entrants online.

So was WH Smith’s purchase, at a price nearly five times IBS’s annual sales, a panic move?

It is easy to write off the deal as an overpriced sale of an underfunded business to a 19th century retailer which doesn’t understand the 21st century.

The purchase price may prove doubly overvalued if Amazon.com succeeds in winning the battle to establish sweetheart deals with the bulk of top UK Websites in the months to come.

But Ross Beadle, marketing manager at IBS, denies his business has been lax about negotiating its own preferential deals with UK sites.

IBS has signed its own deals with high-volume audience deliverers such as AOL UK, the UK arm of international search service Lycos, Yell, and a number of other Websites. It is offering “themed” information to audiences which have a high interest in buying specialist books. With a quarter of its sales made in the US heartland of Amazon.com, Beadle firmly believes IBS can compete with the big boys, and its sale to WH Smith will help it accelerate its rate of sales growth ahead of the e-commerce average of 100 per cent per annum.

Although he accepts exclusive or preferential advertising deals are becoming an important factor in the e-commerce sector, customers are ultimately impressed by speed of service and pricing.

WH Smith’s move has generally been viewed as astute rather than misguided, by both the book trade and online operators.

Ronnie Williams, chief executive of The Publishers Association, which represents British book publishers, says: “It’s a perfectly cogent strategic move. Looking at how quickly online buying has grown, you would expect high street rivals to be positioning themselves at least defensively, to protect their market share by going online.”

He adds that established retailers will reap efficiency gains in their high street operations, through making an investment in the improved IT systems required to accommodate online retailing.

And Roger Green, managing director of EMAP Online, comments: “Amazon is very serious about this territory, and I think it’s fantastic that there’s a major UK company prepared to join it.”

He adds: “But if WH Smith is prepared to compete vigorously with Amazon, it will have to spend a lot of money. If it doesn’t, it will end up being all dressed up with nowhere to go.”

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