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Amazon loses faith in wireless Web

Few U.S. mobile phone users are dialing in orders--from Amazon or elsewhere, according to sources and surveys.
Written by Nick Wingfield, Contributor
When Amazon.com CEO Jeffrey Bezos addressed a wireless-industry conference early last year, he made a bold prediction: Within a decade, Bezos said in a keynote speech, all of Amazon's customers would purchase books, compact discs and other goods from the company's Web site via wireless devices.

It's too soon to say whether Bezos's forecast will pan out, but it's clear that mobile commerce--"m-commerce" to the digerati--is off to a rocky start. In the U.S., few consumers are shopping over the Internet from wireless devices, in part because of the limitations of the miniature displays on most cell phones that connect to the Web. At the same time, suddenly profit-minded Internet companies, including Amazon, are frantically conserving capital. The result is that online merchants are placing a low priority on developing and marketing futuristic services like mobile commerce.

Amazon had some of the grandest ambitions for wireless sales. Now, those efforts have been dramatically scaled back.

By the end of January, as Amazon was laying off some workers as part of its profit drive, the bulk of the engineering and business-development team that the Seattle company had assembled as part of its "Amazon Anywhere" mobile initiative was gone, most of them hired away by other technology companies or other departments within Amazon. The team once numbered about 30, according to three people familiar with the project, though Amazon insists the number was that high only when interns and other Amazon employees working on Amazon Anywhere part time were included.

A company spokeswoman says the Amazon Anywhere team still exists, though with fewer members (Amazon won't say how many). And Amazon continues to offer a version of its Internet shopping site that's accessible to users of Internet-ready cell phones and other wireless gadgets like the Palm VII hand-held computer. The company recently extended its mobile service to Japan.

"Yes, we did scale the team back as a lot of companies did when they realized that the bold predictions for penetration (of mobile commerce) in the market were not panning out," says Patty Smith, the spokeswoman. "We made a decision to focus on the business areas where we would have the most bang for the buck."

Like many of its peers in Internet retailing, Amazon launched its mobile-commerce efforts in late 1999 as excitement began to grow about the possibilities for the technology. In an industry not yet humbled by the dot-com collapse, the "wireless Web" was seen as the next sensation. Market research firms predicted that millions of Americans would soon begin making impulse book purchases and stock trades sitting on the bus or in a taxi. IDC of Framingham, Mass., forecast that revenue generated from mobile commerce would explode to $21 billion in 2004 from an estimated $29 million in 2000.

But Amazon had bigger plans than most. Amazon Anywhere assembled partnerships with most of the largest wireless carriers, including Sprint PCS, Verizon Communications and Nextel Communications. The carrier arrangements typically called for Amazon's Web site to be given prominent placement on the screens of mobile phones, critical because of the difficulty users have in navigating the Web by punching a phone keypad.

Amazon Anywhere also had more unique technology than most companies embarking on mobile commerce, including a variant of Amazon's patented "one-click" system, which lets customers buy merchandise with a single tap on the PC mouse or phone keypad. The team also assembled software that would recommend purchases to customers over their cell phones, much as the Amazon Web site does for shoppers surfing on a PC.

The spinoff idea
As a result of its mobile technology assets, Amazon seriously considered spinning off the Amazon Anywhere group as a separate company whose goal would be to license the technologies to other Internet companies, according to five people familiar with the effort. Amazon met with several venture-capital companies to discuss funding the spinoff, including two well-known firms in Silicon Valley, Kleiner Perkins Caufield & Byers and Barksdale Group, as well as with Ignition, a Bellevue, Wash., firm founded by former Microsoft executives.

But despite interest from the firms, the spinoff plan was scotched late last year by Amazon executives, several people said. Part of the problem stemmed from disagreements between Amazon and at least one of the firms over the valuation the company would have and the extent of its rights to Amazon's patent portfolio, these people said.

Amazon declined to confirm or deny that it was planning a spinoff. "Yes, we did have discussions," says Brad Silverberg, chief executive and partner at Ignition. We have a "very good relationship and we hope to work with them in the future."

Voice recognition orders
Amazon also sought to develop a version of its Internet store that was to be accessible through voice commands to anyone with a cellular or home telephone. The company worked last year with a high-profile Silicon Valley start-up, Tellme Networks of Mountain View, Calif., to create the service, which used voice recognition technology to interpret verbal requests to purchase merchandise.

People familiar with the situation said Tellme's voice-recognition technology didn't perform well initially when Amazon tested it. The system could recognize titles from the top 1,000 best-selling books and other items on Amazon's site, but it was often stumped by the names of less-popular items, sometimes misinterpreting them as bestsellers.

The voice recognition improved in later tests after Tellme helped Amazon tune the technology, but then the project stalled after most of the Amazon Anywhere team disbanded. Amazon and Tellme began working on voice services again in recent months, including an automated customer-service system.

Wireless shopping still not big in U.S.
In the end, though, Amazon's mobile-commerce efforts produced minimal results. A person familiar with the matter says the company had roughly $1 million in sales last year from its wireless efforts, a number Amazon doesn't dispute, compared with $2.8 billion overall for the company.

Some Internet retailers say they are pleased by the progress of their mobile-commerce moves and are optimistic they will begin to take off in the coming years. In the meantime, many people expect shopping from cell phones will become mainstream much more quickly in Europe and Asia, where the handsets have better displays and work over zippier mobile networks.

In the United States, though, the market is still meager. Boston Consulting Group last November found that 68 percent of owners of devices with wireless Internet capabilities in this country had never used mobile-commerce services. More recently, the same firm found in a survey of electronic retailers conducted for Shop.org that only 10 percent of respondents said they had a wireless version of their Web site.

Apparel retailer Lands' End is one that is sitting out mobile commerce despite serious Web efforts. "It's a zero market for us," says Bill Bass, Lands' End's senior vice president of electronic commerce. "If there was demand, our customers would have told us."

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