Anyone who has ever heard Jeff Bezos speak in public must admit the Amazon.com CEO has a way with audiences. And as his keynote address at this year's PC Expo in July demonstrated, he hasn't lost any of his power. Bezos usually likes to show he's "one of the guys" by using himself as an example to illustrate everyday consumer behavior. In this instance, the topic was personalization -- "the key to the future of the E-commerce revolution," according to Bezos -- and one of his favorite subjects. Using his own Amazon account, he took those attending the computer-hardware industry's conference on a personal tour of the "friends and favorites network," his company's latest twist on targeted merchandising.

Personalization -- the idea of content that's custom-tailored to a site's every visitor -- has long been touted as the Web's coup de grace, the quality that differentiates it from how business is done in the real world. Some call it customization. Others say it's only a fancy term for direct marketing. But whatever its moniker, personalization may represent the best chance for survival by online merchandisers in the ongoing Internet shakeout. Says Marc Singer, author of Net Worth and an analyst with McKinsey & Co.: "Getting [personalization] right will be the difference between life and death for a lot of the online pure-play commerce companies."

Portals have long let users choose the kinds of information they wanted to see when they arrive, be it weather reports, news headlines, sports scores, or stock quotes. And commerce sites have offered wish lists and registries. Today, however, the goal is to anticipate what users want and personalize the content for them in real time rather than making them follow the tedious process of detailing their preferences, which can't be implemented until they revisit the site.

DAUNTING COSTS. Few sites are doing a good job when it comes to personalization, analysts say. "Most companies haven't been able to harness their data in order to get a coherent view of their customers," says Paul Hagen, an analyst with Forrester Research. One key reason: Most personalization schemes require expensive software and take months, even years to implement.

Another unavoidable obstacle is cost. Personalization has always been and continues to be an expensive -- and laborious -- process for sites to implement. "The average personalization system costs about $1.5 million, no matter what the size of the site," says Michele Rosenshein, an analyst with Jupiter Communications. "There's really no such things as getting the basics."

Several new companies are working to solve this problem for smaller businesses. Manhattan-based Yo! Networks, which recently received $2.6 million in funding from Macromedia, offers smaller sites a performance-based personalization system. Following a one-time $5,000 set-up fee, sites pay small percentage-based commissions tied to incremental increases in revenue. Through something called a Yo! Box, sites can also allow their affiliates to add personalization features. Other companies, such as Kurion in Austin, Tex., are developing personalization technologies that combine a site's content with other syndicated material.

GOOD SON. At PC Expo, Bezos logged onto his Amazon home page, which featured the regular fare of database-generated purchase recommendations. But then, based on a list of Amazon-shopping colleagues and family members he had compiled, he could get more recommendations and reviews from people who knew him best. He demonstrated how he could find out what his friends recently purchased and how they ranked those purchases. Finally, he accessed his mother's wish list, which indicated those items that had already been purchased, and he bought her a pair of walkie-talkies.

Bezos quickly impressed the audience as a good son (the walkie-talkies weren't exactly cheap) and a ongoing leader in Internet innovation. But then again, Amazon prides itself on being the Net leader in personalization. Analysts estimate the company has spent several million over the past few years continually updating its software that suggests new products to customers based on previous purchases. Somewhere in its Seattle headquarters, Amazon has shuttered away an entire team of personalization experts who spend their days tweaking algorithms and analyzing data on customer behavior.

Bezos is perhaps more secretive about his company's personalization formula than any of his other strategies -- an indication that the concept really is crucial to the execution of his business plan. "Our goal is to provide our 20 million users with 20 million different stores," the New Economy icon is fond of saying.

TOUGH TO MEASURE. Ample evidence shows that personalization might be a much-needed shot in the arm for online e-tailing. In a recent McKinsey survey, 81 online retailers said a mere 1.3% of their customers returned to make second purchases. "They all said they thought some form of personalization could dramatically increase return buyers," says Singer. "But there'll be some form of backlash in the next six months because so much money is being poured down the tubes." He estimates that more than 400 vendors are selling one "personalization solution" or another.

"It's very hard to measure the return on investment with most personalization strategies because successful ones are implemented in stages," Singer says. Indeed, Amazon has spent years on adding layers of personalization. At first, customers could only write reviews and rank products. Since last October, they could create wish lists. Today, Amazon has nearly 3 million customer reviews and more than 2 million wish lists. The site uses a process called collaborative filtering to recommend products to return visitors based on the purchases of other customers who have bought the same or similar products. Collaborative filtering uses complex mathematical formulas to predict consumer behavior based on buying patterns and site usage.

IBM has also created new collaborative filtering and rules-based applications as part of its new WebSphere product. Still, the percentage of users who choose to customize sites or personalize certain site features is small compared with the total number of visitors -- even for Amazon. While people are more likely to remain loyal to a personalized portal and stay on the site longer, according to the Web data-measurement firm Nielsen/NetRatings, most users don't actively personalize their Web experience.

POOR EXECUTION. For the month of June, 5.3 million unique users visited My.Yahoo.com, which is NetRatings' top personalized site, compared to the 44.8 million unique visitors to Yahoo!. My.AOL.com came in second with 2.5 million unique visitors, compared to the 48 million visitors of the AOL network. "Personalization was expected to take off more with commerce sites because people automatically registered when they bought something," says Sean Kaldor, an analyst with Nielsen/NetRatings. "But it has been harder to track whether someone buys something as a result of site feature that was personalized for them, and most sites haven't executed well on their personalization promises."

Jupiter's Rosenshein agrees: "There's still a long way to go before most sites will have the breadth of data for good personalization." Amazon is by far the leader, she says. "Amazon has basically spent the equivalent of buying its own personalization company, and they're one of the only sites that unites their supply chain with their customer-demand information."