Amazon's Secret Weapon

Amazon.com (Nasdaq: AMZN) may be slightly late to the digital-downloading party, but there are signs that it's catching up quickly. For example, its Digital Locker feature seems to promise many good things to come. Many Amazon investors seem eager for the Internet giant to enter the digital-download business, which looks tailor-made for the company's strengths.

Investors were none too pleased with Amazon's outlook in its latest earnings release. However, it's clear that Amazon does have a few tricks up its sleeve -- as I reported in my Take, Amazon head Jeff Bezos did hint at new features that might eventually help lure customers back to the online superstore.

Back in August, there was also much speculation concerning Motley Fool Stock Advisor pick Amazon's talks with recording industry executives about licensing music for the download section of its site.

As it stands now, Amazon offers free downloads of some songs, obviously a savvy piece of marketing. And of course, Amazon has long provided snippets of songs from CDs that users could sample, a concept swiped by Apple's (Nasdaq: AAPL) iTunes. Amazon users can also view video trailers to help them decide if they'd like to purchase DVDs.

Most interesting, perhaps, is Amazon's Digital Locker, where users can purchase and store e-books and $0.49-a-pop short stories. Those aren't the only ways Amazon plans to let customers use their lockers. One of the technology's more obscure new features lets customers who preorder upcoming CDs download a streaming digital copy of the album before their physical copy ships. In addition, customers who order electronics receive digital copies of owners' manuals in their Digital Lockers before the products arrive.

You can find clues to these elements on the company's help wanted page. In fact, many Amazon watchers have been keeping a close eye on Amazon's job openings to get an idea of what the company is branching into. It stands to reason there will be more and more examples of ways for loyal customers to fill their Digital Lockers as time goes on.

When it comes to digital music, Amazon not only has to contend with market-leading Apple, but also with strong contenders like Yahoo! (Nasdaq: YHOO), Microsoft (Nasdaq: MSFT), RealNetworks (Nasdaq: RNWK), and Napster (Nasdaq: NAPS). To succeed, Amazon needs to focus on its retail strengths and differentiate itself from its competitors. Investors should keep an eye on Amazon's Digital Locker -- which will likely evolve rapidly over the next few months -- as they gauge Amazon's ability to turn digital media trends to its advantage.

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Alyce Lomax does not own shares of any of the companies mentioned.