SAN FRANCISCO (08/24/2000) - Amazon.com Inc. (AMZN) said it will launch a new-car buying service on its site Thursday in partnership with Greenlight, a startup that Amazon helped get off the ground in January.
Under the two-year agreement, Greenlight will pay Amazon $15.25 million in exchange for a tab on Amazon's site. The agreement is a significant retrenchment from an earlier deal under which Greenlight had agreed to pay Amazon $82.5 million in exchange for unspecified marketing promotions.
The launch of the new-car tab was expected as Amazon officials had already singled out Greenlight as a special member of its growing network of affiliated retailers, which counts some 15 companies that Amazon has invested in. The other companies in the special group include Drugstore.com, Audible Inc. (ADBL) .com and Living.com, all of which had paid Amazon hefty sums in exchange for heavy promotion on the retailer's site. Drugstore and Living, which went out of business last week, had tabs on Amazon's front page, while Audible provides Amazon customers with audio book downloads.
Greenlight CEO Joel Manby hailed the deal as a way to build brand awareness for his fledgling company, which just two days ago received $39 million in second-round financing. "That's why this [Amazon deal] is great for us," he says. "We just need to get into those people's faces," referring to Amazon's 23 million online shoppers.
Greenlight's investors include blue-chip VC firm Kleiner Perkins Caufield & Byers, and the Asbury Automotive Group, which owns a network of car dealerships. Amazon bought a 5 percent stake in Greenlight in January and obtained warrants to increase its stake to 30 percent during the next few years.
As the recent death of Living.com showed, being a part of Amazon's network is not a guarantee of success. In addition, Amazon CEO Jeff Bezos has announced that other companies in Amazon's network of affiliates are renegotiating the steep fees they had previously agreed to pay the giant retailer for promotion.
Those agreements were supposed to provide Amazon with a much-needed source of high-margin revenue. But the deep discounting in the fees collected by Amazon from Greenlight indicates that Amazon will collect much less than previously expected.
Meanwhile, several Amazon critics have questioned whether Amazon's customers, the bulk of whom buy books and CDs, would easily turn into online buyers of everything from power tools to patio furniture, and now cars. Bezos tried to deflect that criticism during a press conference announcing the Greenlight agreement.
"If you do a good job for customers in one category, as long as you continue to do a good job in the other categories, customers will respond," Bezos said.
Greenlight, based in Livermore, Calif., is building a network of car dealerships that lets customers shop for cars online with no haggling. The company currently serves 27 markets, including Atlanta, Boston, Chicago, Detroit, Los Angeles, New York, San Francisco and Washington, D.C.
But successfully selling cars online has proven a difficult task. A number of companies have tried different business models that include providing car dealers with leads to qualified shoppers and selling directly to consumers, bypassing dealer networks. But while consumers are increasingly using the Internet to research and buy cars, the companies providing the services have not fared well.
Last week, CarOrder.com shut down its online retail operations. Meanwhile, shares of AutoWeb and AutoByTel are down sharply from their highs.
Nevertheless, Internet companies are betting that car buying online will grow.
In addition to Amazon, online auctioneer eBay (EBAY) launched major initiatives earlier this year to sell used and collectible cars on its site. And name-your-price service Priceline has also launched car-buying services this year.