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Amazon Takes a Hammer to the B2B Competition

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The Web's biggest retailer adds another half million products to its inventory. Plus, Microsoft and Facebook play the patent game, and more.

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MINYANVILLE EXCLUSIVE: Amazon (AMZN) has discovered a new world to conquer: business to business. Newly-unveiled AmazonSupply.com launched Monday with a stock of 500,000 industrial and scientific tools and supplies in 14 categories, from nuts and bolts to microscopes. The look and feel of the site is pure Amazon, complete with free shipping on orders of $50 or more, but minus the consumer glitz and the house ads.

The site stomps on all kinds of competitors' toes. For starters:
  • One of AmazonSupply's categories is devoted to office products, competing directly against Staples (SPLS) and its own recently redesigned B2B site, StaplesAdvantage.com. The B2B unit accounts for about 60% of Staples' sales, and more than 90% of the unit's transactions are made online, according to InternetRetailer.com.
Staples really didn't need the grief in its already intensely competitive space; witness the troubles of Office Depot (ODP), now struggling to cut costs and restructure.
  • More broadly, Amazon's closest competitor may be W.W. Grainger (GWW), the venerable Chicago-based wholesaler. Founded in 1927 to sell electric motors, Grainger's current catalog of 900,000 items is wide-ranging enough to make it an industrial bellwether. In its most recent quarterly earnings, the company announced a first-quarter profit of $187.5 million on revenues of $2.19 billion, a 16% increase driven by stronger volume. It also raised guidance for the full year.
Some analysts attribute Grainger's earnings growth in part to a trend among businesses and institutions toward consolidation of suppliers for the sake of savings and efficiency.

At the very least, Amazon's latest move looks relatively risk free, since it already has most of the infrastructure to support the expansion in place. The only new piece appears to be a separate customer service department that takes telephone orders, added in response to Amazon research that showed some purchasing departments prefer to have the option.

But what's the up side? ZDNet thinks Amazon "just knocked its competitive edge up to a Spinal Tap '11.'

Amazon shares fell 2%, to $186.27 on Monday, a generally down day for stocks. Staples lost a bit more, falling 2.3%, to $15.29. Grainger dropped 3.9%, to $211.24.

AmazonSupply.com probably won't be at the top of investors' minds on Tuesday when Amazon reports its earnings for the first quarter of 2012. They're more likely to zero in on the numbers for digital content sales, as they search for early signs of success for the company's strategy of selling its Kindle tablets at below-cost prices in 2011 in order to boost media sales in 2012. Amazon reported media sales growth of about 19% for all of 2011.

Microsoft Flips AOL Patents to Facebook
It turns out that Microsoft (MSFT) didn't even want 650 of those 925 patents it just bought from AOL (AOL) for $1 billion just two weeks ago. It has already sold them to Facebook for $550 million in cash, plus the rights to the patents it will retain. Facebook is expected to get most of the patents for mobile, Web, and instant messaging technologies, while Microsoft will keep the search-related patents.

What is the point of this patent swap-a-thon? For starters, Microsoft and Facebook are stockpiling intellectual property weapons to deploy in the patent war games, which is sweeping the industry. Further, the New York Times points out, this is another aggressive move by an alliance of two against Google (GOOG), which increasingly is butting into the core businesses of both companies.

More News on the Frenemies
The week's other hot gossip on this dynamic duo is the report that Facebook might buy Microsoft's Bing search engine. An amusing story on SFGame.com traces how the story came out of nowhere in particular and went viral overnight, presumably because it made sense to a lot of people.

Unfortunately, there is no reason to believe any of those people have any connection to Microsoft or Facebook.

But the best spin on the story comes from Forbes.com, which suggests that Microsoft should swap Bing for another batch of Facebook shares. Microsoft now owns about 2% of the social network.

If it's hard facts you want, Facebook's last pre-IPO financial numbers are out. In a nutshell: Revenue was up 45% in the first quarter, but earnings declined due to increased spending. Net income was $205 million for the quarter, down from $233 a year ago.

This also was the quarter that Facebook surpassed the 900 million user mark, meaning it reaches nearly one in every seven people on the planet.

Are Pinterest's 15 Minutes Up?
It's not your imagination. The life cycle of a hot startup has become alarmingly short. Photo-sharing site Pinterest.com passed the 10 million users mark in numbers released in February by comScore, making it the fastest growing standalone site ever, according to TechCrunch. In March, its active users numbers apparently peaked at 1.1 million. Now that number is back down to 930,000.

BusinessInsider points out that most Pinterest users sign up through Facebook, using it basically as a photo-sharing app for Facebook's Timeline. To be fair, it also suggests that casual users responding to the burst of publicity inflated Pinterest's numbers temporarily, while its base of real devotees may well stick around for the long haul.
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