A new business model is springing up right under our noses. The big players like Apple (AAPL), Amazon.com (AMZN) and Google (GOOG) have put together a one-stop shop in their app stores.

First off, an app store is just that, a place where you can pick and choose the apps you want to download. The app store is also a place where entrepreneurs can develop an app and with permission place it on the iPhone, iPad or Android device.

I was reading a rather interesting article in The Wall Street Journal (subscription required) about the potential for a holiday toy war between Target (TGT) and Walmart (WMT). The price war centers on toys because "parents will buy stuff for their kids even when the economy is awful."

The article adds that shoppers have attempted to buy the "biggest toy bargains" while "ignor[ing] stores' other offerings." However, the article is quick to point out improving economic conditions suggest that retailers have a reason to believe the shoppers will look around the store a bit more and be quicker to part with some cash. Is this a safe assumption? Yes, I think that it is. However, I have a couple of reservations.

Trading volume is brisk and share price is up, just hours ahead of today's Q3 earnings release expected from eBay (EBAY). The earnings call is scheduled for just after today's close, with company guidance suggesting a result of 37 cents per share on revenue of $2.18 billion. Those numbers are slightly off previous year Q3 results of 38 cents per share on revenue of $2.24 billion.

My question is, will eBay still be a buy after the coming earnings release? My answer is, absolutely.

Traditional retailers haven't exactly embraced online sales channels. Sure, they all have websites, and they sell varying amounts of merchandise through them, but they've been slow to tap into the potential. When I was watching the space as an analyst at a major consulting firm (admittedly, back in 2007), many retailers equated a website to a new store opening. Finally, however, this industry is starting to see the potential of this venue, particularly when it comes to tracking consumer behavior.

When the CEO of Macy's (NYSE: M), Terry Lundgren, says that online sales are only good for 6% of last year's total sales, it's a hint. The translation: "We focus on where the revenue is" is much different from "We focus on where the revenue could be." Aeropostale (NYSE: ARO), on the other hand, sees the upside of playing in the online space, which is where it saw revenues spike 85% last year. Aeropostale has seen increases in traditional venues too, but nothing like what it's realized on the web.

So, maybe there's something to this internet, after all.

Well, the numbers do look nice. Sales rose 18% in the first quarter. Net income increased 20% to $0.41 per share. And free cash flow was said to have rocketed higher by over 80% over the last twelve months. These are impressive stats. And according to this news article, Amazon management beat analysts by a whopping ten pennies. That's a whole dime, my friends! Looks like people are using the electronic shopping cart a lot these days. Perhaps they find value in shopping at home during a recession. Saves fuel costs, and it's a lot easier to research prices and find deals.

Amazon.com Inc. (NASDAQ: AMZN) cheap?

The stock is trading in the mid-$60s, and it's almost doubled off its November low. But Amazon has reached far higher -- around $100 in October 2007, and $110 going back to 1999.

More importantly, AMZN is emerging as a retail leader in a lousy economy. Its Web traffic blew away the competition during the crucial holiday season, and its most-recent earnings number crushed expectations by 33%.

Put simply, Amazon.com has figured out how to grow the top and bottom lines in a terrible environment.

My youngest daughter turned 3 yesterday, and my wife planned a big jungle-themed party for friends and family.

She went all out decorating the house like a rainforest with party supplies and accessories that she spent hours searching for online, primarily at Amazon.com, Inc. (NASDAQ: AMZN). Given the state of the economy, she can't afford to drive from store to store looking for goods. Instead, she is much more efficient and successful in finding a bargain by doing her shopping electronically.

The good news this holiday season is that online spending for gifts is up. Depending on the source, the rise is somewhere between 4% and 9%.

The missing piece of the story not reflected in those numbers is that people are spending much less per transaction. While activity may be up, retailer profitability may be down, way down.

According to The New York Times, the Chase Paymentech's Cyber Holiday Pulse Index tells a depressing story. "Chase's index, which surveys 25 of the largest 150 retailers on its Internet payment processing network, showed that the average shopper spent $7.19 less per transaction on Cyber Monday this year over last."

Online spending is not likely to be the only place where this is happening. Consumers, under financial pressure due to lack of credit and concerns about their jobs, are probably spending less everywhere they go. That would make sense. Getting overextended financially is much more risky this year than at any time in the recent past, perhaps going back decades. Why shell out a lot of money? Who knows how bad 2009 will be.

Retailers work on narrow margins, sometimes as low as 2%. Discounts can wipe that out. Comparisons with last year's shopping activity can be very deceiving.

Douglas A. McIntyre is an editor at 247wallst.com.

When the Bureau of Economic Research declared that the recession had officially begun in December 2007, the entire retail sector shrugged its shoulders and said, "No kidding."

Shares of companies that deal directly with the consumer, except for the deep discount retailers, have known for some time that the economy was struggling. Sales have been declining steadily and, with the deteriorating operating environment, shares of the retail stocks have been absolutely crushed.

The entire retail group is one of the biggest losers in the market this year, with some stocks down 80% to 90%.

That said, those retailers that offer big discounts, including Wal-Mart (NYSE: WMT) and Big Lots (NYSE: BIG), are doing much better on a relative basis.

This morning's Wall Street Journal [subscription required] reports that Providence Equity Partners bought an $830 million stake in a privately-held Internet comparison shopping company. (Click here for my colleague, Tom Taulli's, perspective on this deal.) This could signal a top in the private equity cycle for two reasons:

• Private equity's loosening investment standards. In the past, a consistently profitable Internet company would be best off tapping the public markets in an IPO. NexTag's decision to take private equity instead of the IPO or corporate acquisition -- e.g., getting bought by Microsoft Corp. (NASDAQ: MSFT), Yahoo Inc. (NASDAQ: YHOO), or IAC Interactive Corp. (NASDAQ: IACI) -- markets suggests surprising weakness there, or a private equity market whose lax investment standards make it willing to pay more than public equity investors for NexTag.
• Scrambling out of the comfort zone. Providence Equity has typically made purchases of traditional media companies. Its move into the Internet business could either signal it no longer perceives that traditional media companies are worth taking private, that consumer Internet companies have greater appreciation potential, or that the hidden details of this particular deal were just too good to pass up. But NexTag's market is highly competitive (e.g., there are many competitors such as Lowermybills, Lending Tree, Pricegrabber, Bizrate, Shopzilla, and Bankrate) and these competitors must deal with significant business risks (such as changes in interest rates -- much of NexTag's business is mortgage related -- and disruptive technologies). It is unclear what unique sources of competitive advantage Providence Equity brings to NexTag as it faces these business challenges.

Providence Equity's deal appears to be a rich one. Its 66% stake in NexTag -- which operates sites in the U.S. and U.K. that allow 11 million consumers a month to find the best prices on products and services sold online by Web retailers -- values the San Mateo, CA company at $1.2 billion. NexTag's website claims that it operated profitably in every one of 15 straight quarters through July 2005. But in the absence of specific revenue and profit information it's difficult to know whether Providence Equity's price makes sense.