Online retailer Amazon.com (Nasdaq: AMZN) today effectively opened up its pharmacy full-time, signing a deal with Drugstore.com(Nasdaq: DSCM) that gives the e-pothecary a full-time shopping "tab" on the Amazon.com web page for three years.
Financial details of the deal include a $30 million investment in Drugstore.com by Amazon.com -- raising the Rule Breaker and NOW 50 component's stake in the Internet druggist to nearly 28% -- and $105 million in payments to Amazon.com over the length of the arrangement.
So while Amazon.com owns just about a third of Drugstore.com, the company still becomes its de facto pharmacy site not only through the establishment of a permanent tab -- like those that sit atop the company's site and read "books," "music" and the like -- but through total integration into the Amazon.com shopping setup. Use of Amazon.com's one-click shopping feature, a shared shopping basket and other gimmicks are planned.
It's the first time Amazon.com has inked so broad a pact, and it shouldn't surprise anyone that it was with one of Amazon.com's own investment partners -- how else would it be possible for another company to snag three years of top billing on Amazon.com plus $30 million in outside funding for about what it would cost you to buy out the Super Bowl's ad time this year?
And the deal really raises the bar as far as what Amazon.com is willing to do for its partners, which the company likely believes cannot only supply it with investment income but additional users as it cross-promotes.
"We chose drugstore.com to be our first partner with this level of tight integration because they obsess over customers the way we do," Amazon.com CEO Jeff Bezos said in a statement, "and we expect more arrangements like this when it makes sense for customers."
As noted in Friday's Rule Breaker portfolio report -- good timing, Jeff! -- Amazon.com has invested in several online startups the company believes can add to its product mix without compromising its reputation for service. We wrote about one such deal, the December purchase of a stake in Internet luxury goods company Ashford.com(Nasdaq: ASFD), right here in Fool News.
Investors no doubt noted the news late last week that Amazon.com dipped its e-toes into the online car buying business through the purchase of a 5% stake in Greenlight.com. Certainly nontraditional automotive retail efforts, from dealership consolidation to one-price used car superstores, have for the most part represented hard-earned lessons for investors up to now, and through this stake Amazon.com gets exposed to the market without committing too much in the way of resources.
Not all of Amazon.com's investment partners are publicly traded, but that's something that will almost surely change given the market's general enthusiasm for dot-com opportunities. In fact, that's probably a large part of Amazon.com's plan: to profit from investments in and associations with well-run, tightly focused e-commerce startups and investors' fervor for them rather than get involved in the businesses themselves. The best of the breed, Fool Jeff Fischer notes, might very well find themselves bought out by Bezos' bunch.
Though there's no guarantee that any Internet business will be an immediate hit or even an eventually profitable enterprise, that certainly hasn't hurt Amazon.com shareholders over the last several years and there's no reason why the company's balance sheet shouldn't benefit from that as well.
