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Stock Analyst Update

Could Amazon Become the Coca-Cola of the Web?

Maybe, but spinning off distribution operations might be an ill-advised move. (AMZN) CEO Jeff Bezos suggested at a Monday Goldman Sachs e-tailing conference that the online retail giant might spin off its distribution operations in order to focus on its brand name. He said that this strategy could make Amazon "the Coca-Cola (KO) of the Web," a reference to Coke's spinoff of its bottling operations in the 1980s. That move allowed Coke to take fixed assets off its balance sheet, pumping up its returns on equity while letting it concentrate on making syrup.

Though Bezos was careful to say that such a move isn't in Amazon's immediate future, the mere suggestion is surprising, given the company's business model. Unlike Coke, which makes a proprietary product with a carefully guarded secret recipe, the products Amazon sells are commodities. A consumer can get the same book, compact disk, or toy from countless other sources. The main advantage Amazon offers is convenience, and over the past year, the company has spent millions of dollars building warehouses to facilitate more efficient distribution.

Spinning off the distribution operations would mean that Amazon would give up control of the primary thing that sets it apart from its peers. If Amazon wants to maintain its dominant position in e-commerce, it's difficult to see how it can avoid the costs of distribution, hard as that may be on the bottom line.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.