Wal-Mart is adding three outsiders to its sales mix, which it says will add an additional one million items to its inventory, and the company plans to add more in the future. Is this a problem for either Amazon (AMZN), which features some third-party sales, or eBay (EBAY), which offers nothing but?

Maybe one day, but not in the near future. That’s primarily because Wal-Mart is so far behind the big guys. The $1.7 billion Wal-Mart did in Web sales last year makes it the 13th biggest online store in the U.S. Chart via JP Morgan’s Imran Khan:

And even if Wal-Mart’s new partners do boost sales significantly, the ecommerce market is likely to grow even faster. Bernstein analyst Jeffrey Lindsay expects U.S. online retail to grow by $13 billion in 2010 and another $19 billion in 2011. So don’t expect to see Wal-Mart’s Web foes wiping their brows just yet.

[Image credit: PinkMoose]

Here’s the text of his mea culpa, posted at a company-hosted bulletin board:

This is an apology for the way we previously handled illegally sold copies of 1984 and other novels on Kindle. Our “solution” to the problem was stupid, thoughtless, and painfully out of line with our principles. It is wholly self-inflicted, and we deserve the criticism we’ve received. We will use the scar tissue from this painful mistake to help make better decisions going forward, ones that match our mission.

With deep apology to our customers,

Jeff Bezos
Founder & CEO
Amazon.com

If you’re feeling petty, you can note that this apology took six days to arrive. But that would make you petty. A bigger person would say that Bezos’ self-flagellation is pitch-perfect in every aspect and a rare admission of fallibility from an American leader.

Great, right?

Almost. Now all we need is for Amazon (AMZN) to promise that it won’t go into your Kindle and take away something you bought, ever again. But the e-commerce giant won’t say that.

Instead, it’s left open a big, worrisome loophole that it refuses to close. Amazon says it won’t forcibly remove your content from your Kindle “in these circumstances.” But it won’t say what circumstances would prompt it to take back product it’s sold.

That’s dumb. And doubly so coming from Amazon, a company that succeeds in large part because of its well-deserved reputation for kick-ass customer service.

And let’s be honest: Very few Kindle buyers are worried about losing their e-books in the middle of the night. And if Amazon wants to reserve the right to do this again, for specific reasons, well, that’s cool, too. Just spell it out, one way or another, and we can all move on.

I ask this because while Amazon has said it won’t repeat what it did last week, it hasn’t actually sworn off remote book-removal–or  remote anything-removal, for that matter–altogether.

Which means the e-commerce giant can do it again.

On Friday, Amazon told me that it yanked the George Orwell novels from customers’ e-book readers because they were “illegal”–bootlegged copies it never should have sold in the first place. “We are changing our systems so that in the future we will not remove books from customers’ devices in these circumstances,” the company said in a statement.

See the problem? It’s the, big, gaping “in these circumstances” loophole.

I’m still holding out a tiny bit of hope that Amazon (AMZN) is never going to delete a book, or anything it sells its customers, ever again. And that its oddly worded nonpromise is just an oddly worded nonpromise.

But I’ve repeatedly asked Amazon PR folks to mollify me, or at least spell out the circumstances in which they would delete a book again, and I haven’t gotten any response. So I’m fearing the worst: Amazon reserves the right to yank books out of your Kindle, but won’t tell you why or when until it happens.

If you want to play devil’s advocate, you can note that other e-commerce companies have similar abilities. Apple (AAPL) has disclosed that it has a “kill switch” that allows it to remotely wipe out apps from iPhones, ostensibly for security reasons.

And theoretically, the ability to wipe out a rogue iFart app should be as disconcerting as the ability to make a book disappear–intellectual property is intellectual property. But it just doesn’t rankle in the same way.

What to do? Slate columnist Farhad Manjoo wants new legislation to tackle the problem. But even if you like that approach, it’s not going to happen anytime soon–our lawmakers have full plates these days. My suggestion: Demand that Amazon, Apple or whoever else has remote access to your gadgets spell out exactly when, if ever, they will forcibly take back what they sold you. Or don’t buy from them at all.

Amazon has explained why it has been deleting some novels from its customers’ Kindles: It shouldn’t have been selling them in the first place.

Amazon (AMZN) says the copies of George Orwell’s “Animal Farm” and “1984″ it removed without warning from some Kindles this week are “illegal” because the publisher didn’t have the rights to sell them.

Won’t happen again, the e-commerce giant says. Sort of:

These books were added to our catalog using our self-service platform by a third-party who did not have the rights to the books. When we were notified of this by the rights holder, we removed the illegal copies from our systems and from customers’ devices, and refunded customers. We are changing our systems so that in the future we will not remove books from customers’ devices in these circumstances.

Here’s the thing: I refrained from making any Orwell references when I wrote about this earlier today. But doesn’t this statement have a hint of Newspeak to it?

If Amazon wanted to reassure customers worried that digital media they buy from the company might disappear, unannounced, it could do so very easily. It could just say: “We won’t be taking away stuff we sell you ever again. You buy it, you own it. Doesn’t matter if it’s a book, a CD, or a collection of bytes.”

Because, as I noted before, that’s basically what the Kindle license already says: Amazon says it “grants you the non-exclusive right to keep a permanent copy of the applicable Digital Content.” The company doesn’t seem to add any caveats that I can see.

I’m hoping Amazon’s language here is just an awkward bit of PRspeak, and not a lawyerly way of reserving the right to pull stuff off Kindles sometime down the road. But I’ve asked, and will let you know if I hear back.

What happened? The details are fuzzy, but apparently, a publisher that supplied Amazon (AMZN) with two George Orwell titles has decided that it doesn’t want to sell them via Amazon anymore. So away they went.

Readers described their experiences at this Amazon forum, and one of them included this note she said she received from Amazon customer service explaining what happened:

The Kindle edition books Animal Farm by George Orwell. Published by MobileReference (mobi) & Nineteen Eighty-Four (1984) by George Orwell. Published by MobileReference (mobi) were removed from the Kindle store and are no longer available for purchase. When this occured, your purchases were automatically refunded. You can still locate the books in the Kindle store, but each has a status of not yet available. Although a rarity, publishers can decide to pull their content from the Kindle store.

Normally, I’m pretty cavalier about the complaints that people make about the evils of digital rights management–the locks and restrictions distributors often attach to digital media like music, movies and books–but this is the sort of incident that gives those gripes some gravitas. If you’re buying bits, you ought to own those bits, just as you would when you plunk down dollars for a CD, a book or any other physical item.

Doubly confusing: As far as I can tell, Amazon’s license terms don’t have any loophole that allows for this. The section on “digital content” explains that I don’t have the right to “sell, rent, lease, distribute,” etc., the stuff I buy from Amazon. But it sure looks like stuff I buy, I keep:

Upon your payment of the applicable fees set by Amazon, Amazon grants you the non-exclusive right to keep a permanent copy of the applicable Digital Content and to view, use, and display such Digital Content an unlimited number of times, solely on the Device or as authorized by Amazon as part of the Service and solely for your personal, non-commercial use. Digital Content will be deemed licensed to you by Amazon under this Agreement unless otherwise expressly provided by Amazon.

So, what am I missing here? I’ve asked Amazon for comment, but if anyone has any bright ideas, sound off in comments below.

UPDATE: Amazon says the copies it sold were “illegal”, because the publisher never had the rights to them. But it says that going forward, it won’t be removing books from customer’s Kindles “in these circumstances”.

Mahaney’s argument is simple: 1) Media sales represent half of Amazon’s North American business and 2) They have been slowing consistently for a while. Here’s what the numbers look like (click to enlarge):

Why are media sales slowing down? Mahaney, an Amazon (AMZN) bull, throws out some ideas:

This may well be the most discretionary/recession-sensitive segment of Amazon. That surely explains part of the slowdown. But three other factors may be material. First, this segment includes Books, Music, and Videos (in addition to Video Game Software)–products that have had inherently slow overall retail growth over the last few years. Second, this segment includes products that are over-indexed in terms of Internet penetration. And third, this segment contains products that are being rapidly digitized–even the plain old book, thanks in part to the Kindle.

The last point is the most interesting one to chew on because Amazon bulls usually argue that the company is the best-positioned player to adapt to the digitization of media. And they’re probably right. But it sure does increase the pressure on the company to get it right, which will probably involve charging more for the digital music and books than it does now.

It’s progress, at least: Amazon (AMZN) had much longer outages, multiple times, when it rolled out the first Kindle in 2007.

Amazon doesn’t say a peep about things like actual sales numbers, so no idea how many of these things it sold in the first few days. I would guess, though, that the company didn’t expect gangbusters sales of the device, for a couple of reasons:

• Newspaper and magazine readers are one of the major target markets for the gadgets. And publishers, including the New York Times (NYT) and the Washington Post (WPO) are supposed to offer discounts on the machine for (some) digital subscribers. But unless I missed it, no one has actually rolled out any discount programs yet.
• The really big market for the DX will be college students, but it’s going to be quite some time until you see many of these on campus. There’s not much point to buying a DX for school until you can get your textbooks on it, and that won’t happen until schools (and, crucially, faculty) buy in. But Amazon is conducting a test with just six colleges, and a few hundred students, this fall.

One bit of good news for folks who absolutely have to have a DX in the near future: There should be a few more in stock in the next couple weeks, when folks like me who got a review copy for 10 days need to return them.

But the lawsuits have yet to be resolved.

Confusing? Of course.

Here’s Project Playlist’s description of the deal, which references layoffs at the company to eliminate redundancies with the new acquisition, but doesn’t specify how many folks are being let go. Given that Total Music only employed about 30 folks at its peak and was essentially shut down last winter, it’s hard to see how many Total Music employees are coming aboard–I’m guessing fewer than a dozen, and am trying to confirm.

We recently acquired assets and employees from TotalMusic LLC, a digital catalog management and reporting system. This acquisition is an important platform that will allow us to host a streaming music service, help us with e-commerce solutions and provide a set of application programming interfaces that will be invaluable to us as we offer next generation digital music services to our users.

Today we are integrating the assets of TotalMusic into our Playlist operation. As a result we have to address some overlap in certain areas and let some employees go both from Playlist and Total Music. This is no reflection on the talent of the people we had to release, rather a responsibility we have to run a lean organization with no redundancies and clear lines of reporting.  This often happens when two companies merge, but it is never easy.

On a positive note, we are very excited about the progress we are making. With the Total Music acquisition and our recent licensing agreements with Sony ATV and EMI Publishing, we are developing new features and services everyday that will form an even deeper bond with our 45 million loyal users and create new revenue opportunities for our company as well as our music content partners. More to come, watch this Space!!

Total Music, which Universal started in the fall of 2007 and shut down this February after joining up with Sony along the way, was supposed to be a subscription music service that got bundled in with devices or with ISPs/cable guys/telcos, etc. Given that it never, to my understanding, streamed a single song or collected a penny in revenue, it’s interesting to see that Project Playlist thinks there’s something there worth buying.

The bigger picture: It’s hard to see how this company can move forward until new CEO John Sykes, who replaced Owen Van Natta when he decamped to run MySpace for News Corp. (NWS), can clear up lawsuits with Universal and Warner and then get Facebook and MySpace to let it back onto their respective sites. The social services were crucial to Playlist since they generated the majority of its visitors, but they cut them off last fall, presumably under pressure from the labels.

Given that Van Natta is now running MySpace and that Playlist was at least able to negotiate an asset purchase from Universal, perhaps there’s a shot at getting all of that accomplished. Then the service could concentrate on the even tougher task of trying to make money in digital music.

This is an embarrassing and ham-fisted cataloging error for a company that prides itself on offering complete selection.

It has been misreported that the issue was limited to Gay & Lesbian themed titles–in fact, it impacted 57,310 books in a number of broad categories such as Health, Mind & Body, Reproductive & Sexual Medicine, and Erotica. This problem impacted books not just in the United States but globally. It affected not just sales rank but also had the effect of removing the books from Amazon’s main product search.

Many books have now been fixed and we’re in the process of fixing the remainder as quickly as possible, and we intend to implement new measures to make this kind of accident less likely to occur in the future.

That isn’t going to mollify Amazon’s most vocal critics in the blog- and Twitter-spheres or the ones who ascribe the screw-up to either homophobia or nefarious hackers. But it’s almost certainly going to be the last word from Amazon (AMZN), which is about as tight-lipped as a publicly-held retailer can be.

Wall Street analysts have to beg Amazon to part with even basic financial details. If you think Jeff Bezos and company are going to get into the workings, and failings, of their online catalog, I admire your optimism.

The free program that Amazon (AMZN) created for Apple’s (AAPL) phone is a powerful tool, and from what I can tell, it works equally well on Research in Motion’s (RIMM) devices.

My BlackBerry 8830 doesn’t have a camera (maddeningly), so I can’t test out the photo-match feature, where users submit a picture of something to Amazon and the retailer tries to find something similar in its catalog.

But I can testify that it’s dismayingly easy to buy something using the app, which is why I’m on the hook for an Aretha Franklin CD headed my way right now.

Aside: Play with the Amazon app for more than a couple of minutes, and you can start to get an idea of how mobile advertising, currently in the “should be big one day” phase, could actually be big. Combine digitally delivered coupons–for stuff I actually want–with powerful e-commerce apps like these, and there might actually be a market for mobile ads.

Add February’s numbers to January’s data, which showed the same two percent growth rate, and you can make the case that we’re seeing “marginal growth” in online sales, Fulgoni said this morning at the OMMA Global Hollywood.

Best-case scenario? “Maybe we might well have bottomed out with consumer spending,” Fulgoni offered.

Now, all the caveats: ComScore (SCOR) isn’t telling us what people bought, or at what prices, so all we really know is that dollars were exchanged for goods on the Web. And while you can imagine that this data point is good news for Amazon (AMZN), since the online retailer is crushing the competition, it’s hard to point to other likely winners. And I worry that the economy has many more aftershocks, in the form of layoffs, ahead, and that’s going to drag down consumer spending again.

But I’m so starved for good news that none of these asterisks are going to keep me from enjoying this.

Meanwhile, if you have any questions for Fulgoni, email me as soon as you can: In an hour or so I’m moderating an OMMA panel with him, Citibank (C) analyst Mark Mahaney, MySpace marketing SVP Angela Courtin, tech/finance blogger Paul Kedrosky and Michael D. Kelley, a partner at PricewaterhouseCoopers. There should be some sort of blog coverage here.

[Image credit: rileyroxx]

Amazon’s data-free claim that it posted its “best ever” holiday season this month has gotten a deservedly skeptical reception. But here’s one vote in favor of Jeff Bezos’s e-commerce giant: A customer satisfaction poll that singles out just Amazon and Netflix for praise.

Forsee Results says that Amazon (AMZN) and Netflix (NFLX) were the clear winners in its annual survey of Web shoppers. And Amazon was the only company in Forsee’s Top 5 that got higher rankings this year than it did in 2007.

Even mighty Apple (AAPL), whose customers were generally fairly happy with their online shopping experience, saw its ranking drop one point over the last year. Here’s a list of results (click to enlarge):

You can spin this stuff any way that you’d like: It’s sort of interesting, for instance, that brick-and-mortar chains like Wal-Mart (WMT), Target (TGT) and Staples (SPLS) improved their scores. And not that surprising that Circuit City (CC), which is in the midst of a Chapter 11 filing, fared poorly. Click here for the full report (ignore the part about this being a U.K. survey). But the real report cards–tallies of what customers actually spent at the stores in the last two months–are just getting finalized now.

Jeff Bezos and company won’t say. Amazon (AMZN) is only doling out a handful of statistics to quantify its success. Like the number of items ordered on its peak day–6.3 million–and the number of items shipped on its peak day–5.6 million units.

Those numbers don’t give you any sense of what kind of stuff consumers were ordering, and what prices. Observers will eventually get a better handle on that over time as Amazon releases its financials, but don’t expect too much disclosure: The company is famously reticent about letting outsiders peek inside.

And in any case, Amazon was supposed to do well over the past few months. The real surprise would be if the company had said it hadn’t crushed the holiday season, which is why Amazon’s shares are only up by two percent or so today.

Yup, more of the same: Holiday sales from Nov. 1 through Dec. 19 are down one percent compared to the same period in 2007. Which is right in line with comScore’s (SCOR) prediction of flat online sales for the holiday.

If you’d like a rosier glow to these numbers, comScore tries to oblige, by noting that average online spending between Thanksgiving and Dec. 19 is actually up five percent per day. But since there are fewer days between Thanksgiving and Christmas this year compared to previous years, that won’t help retailers’ top or bottom lines.

What are people buying on Amazon (AMZN) and other electronic storefronts? Fewer flat screen TVs, ComScore says, either because promotional discounts have tapered off or because those who need a 42-inch LCD on their walls have already got one.

Meanwhile, I’m not sure what constitutes an online “Sports and Fitness” purchase, but ComScore says people have been making many more of them this year, because the category is up 31 percent. Music, movies and videos are much more familiar, and much less popular. Sales are down 24 percent, which mirrors what Best Buy (BBY) said about its brick and mortar sales for the same goods earlier this month.

The logic here is straightforward: Mahaney believes the numbers that comScore (SCOR) put out about Monday’s e-commerce totals are accurate. But he also believes comScore’s continued prediction of no growth for the holiday period. So he now predicts that Amazon will post revenues of $6.1 billion this quarter, below the Wall Street consensus of $6.5 billion; he’s also knocked down his 2009 estimates by five percent.

Mahaney goes out of his way to stress that he thinks Amazon is a great company for the long haul: “We view AMZN as Core Holding–given management team, market opportunity, market share position/gains, business model & level of innovation. We view its current valuation (5% ‘09 normalized FCF yield) as undemanding. Macro environment is materially negative, however.”

Translation: Even the best retailers get beat up in a lousy economy. And people who bought up Amazon after comScore’s release this morning–the stock jumped 10 percent today–may regret it tomorrow.