AMAZONIAN CHALLENGE

By MICHAEL KRANTZ

It was one of those ideas that are so inspired, you're amazed no one thought of it sooner. In July 1995 a Seattle-based start-up called Amazon.com Books launched a Website billed as "Earth's Biggest Bookstore," a million-title database that let Internet users search for any in-print book written in English, then use their credit card to have selections mailed to them.

The service, brainchild of ex-Wall Streeter Jeff Bezos, 33, is widely considered the hottest retail site in cyberspace. Few book lovers would forgo entirely the joys of browsing an actual bookstore, but Amazon offers considerable pleasures of its own. The site is so fast and responsive it almost feels alive; it's thrilling to have every title in the language at your fingertips, and reader-produced reviews add a layer of egalitarian interactivity. In the past year everyone from Business Week to the New Yorker has sung Amazon's praises. Bill Gates buys books there, and he doesn't even own the company (yet).

In fact, the only relevant constituency that Amazon hasn't yet conquered is Bezos' ex-colleagues in lower Manhattan. So two weeks ago he made his big initial-public-offering play, announcing his intent to sell 2.5 million shares of stock for $29 million.

Will Wall Street buy? New York's big-money mandarins have been snubbing Silicon Valley of late, a chill exemplified by Wired Ventures' humiliating failure to float its own IPO last summer. "The new-issues market is not particularly strong right now, particularly for tech stocks," says Standard & Poor's analyst Robert Natale. "Amazon will be an indication of whether bellwether technology stocks can find an audience."

Or whether bellwether technology stocks deserve one. Though Amazon isn't yet profitable (what self-respecting Internet IPO candidate is?), its revenues have soared from just half a million in '95 to $16 million in '96. But high-tech veterans laugh, often bitterly, at the idea that bringing a superior product to market early might guarantee success. A good Web concept draws sincere flatterers like flies. Already the Complete Guide to Online Bookstores Web page offers links to some 200 sites, from biggies like the British-based Internet Book Shop to fringe dwellers like Tales to Tell and Bloody Dagger Books.

The only company likely to hinder Amazon's attempt to become the Barnes & Noble of the Web, however, is Barnes & Noble itself. In January the industry goliath announced plans to begin selling its estimated 1 million titles via America Online and a Website. Amazon countered by more than doubling its stock, to 2.5 million (including, a bit disingenuously, a million out-of-print books it will try to locate for you, an offer B&N quickly matched), and slashing prices up to 40% to surpass the bookstore's 30% hardcover discount.

Bezos scoffs at the B&N challenge, assuring the world--before descending into his required pre-IPO cone of silence--that Amazon's paper-thin overhead and laser-like Web focus will make it difficult for anyone to match it on price. Amazon doesn't carry the hefty cost of those comfy B&N superstores; for the most part, it just orders titles from warehousers and publishers on your behalf.

Still, the Web's radical efficiencies present Amazon with a classic start-up's dilemma: if the service offered is so easy that a couple of hundred computer jocks can pull it off, it should be equally easy for a billion-dollar behemoth to shoulder you off the road--so better stay ahead every mile of the race.

And so begins the great Web retailing bout: nimble new-media entrepreneurs in this corner, lumbering old-media giants in the other. The Amazon IPO, nervously timed to precede Barnes & Noble's online debut, will help divine which contender Wall Street expects to land the first blow.