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Grocery Shopping With A Click (AMZN) wants to serve you your next meal.

The e-retail giant's costs to launch an online grocery business, along with investments in media and cloud computing, resulted in a surprise 2-cent loss in the second quarter. Investors shrugged it off. Amazon's 20%-plus top-line growth is hard to come by these days, even for Internet giants.

Internet retailers are riding through the Q2 earnings period with mixed results. Shares of online discounter Overstock (OSTK) and veterinary pharmacy PetMed Express (PETS) rose after results topped estimates. EBay (EBAY) fell on worries over revenue growth. MercadoLibre (MELI) spiked 10% after Thursday's close on its solid second-quarter report.

The combined relative strength among Internet retailing stocks ranked the group No. 7 on Friday out of 197 industries tracked by IBD. A few companies in the group have yet to report. Those include China's Vipshop Holdings (VIPS) and Lightinthebox (LITB), as well as Groupon (GRPN).

The battle among Web-only retailers, which compete against brick-and-mortar chains as well as among themselves, has intensified on many fronts.

Overstock says it undercuts Amazon's pricing, on average, by 9% when they sell the same product. "We're an extreme discounter," said CEO Patrick Byrne on Overstock's Q2 earnings call.

Home Depot (HD), Target (TGT), Wal-Mart (WMT) and others have been bolstering their Web marketing through acquisitions.

E-commerce will account for 8% of U.S. retail this year, excluding autos and food services, expanding to a 10% share by 2015, says Forrester Research.

JPMorgan analyst Doug Anmuth says the e-commerce battle is shifting to groceries, health and personal products — categories where "last-mile" fulfillment is key. Amazon, eBay, and Google are testing new delivery approaches.

1. Business

Size matters. Amazon commands 27% of the U.S. e-commerce market through its own store and marketplace for third-party sellers, estimates Goldman Sachs. It says Amazon's online volume is seven times that of Amazon's revenue, more than $61 billion last year, is three times that of the next 20 online-only retailers combined, the report said.

Amazon has relentlessly expanded its high-volume, razor-thin-margin business model from media and electronics into new sales categories. Online groceries, through AmazonFresh, are next.

Amazon's huge investments in warehouses and distribution, aimed at bringing products closer to consumers, are amping up pressure on traditional brick-and-mortar retailers.

Amazon continues to expand its pick-up-a-package "locker" system in local markets. It has yet to launch a same-day delivery service like eBay Now or Google (GOOG) Shopping Express.

Overseas, muscling into markets that have their own entrenched local players isn't easy.

After 15 years in Germany, Amazon has only a 13.8% share, notes a PricewaterhouseCoopers study. In Japan, Rakuten leads with a 29% share, ahead of Amazon's 15%. It's been tough for Amazon and eBay alike in China, where Alibaba Group dominates.

China-based Alibaba's two websites, eBay-like Taobao and Tmall, account for more than half of e-commerce in China. The volume of gross merchandise sold by Alibaba surpassed that of Amazon and eBay combined in Q4 2012.

Alibaba's reach is huge and growing. It now offers products from 2,000 non-Chinese brands, says Internet Retailer.

Aside from their home-market dominance, what Alibaba and Amazon have in common is a knack for improving the online shopping experience for consumers.

The "Alipay" checkout system provides an escrow service — sellers don't get their money until consumers verify they're happy with a purchase. Alibaba's online chat program lets consumers deal directly with sellers.

Amazon speeds checkouts with its one-click payment system. Its product selection is huge. And, Amazon's new loyalty program provides shipping and other perks.

Name of the game: Creating and localizing shopping features that help consumers research products, track orders, and ease the checkout process pay off for online retailers, says Zia Wigder, an analyst at Forrester Research.

China's Vipshop sells popular brands through "flash" sales that offer consumers big discounts for a limited time. Lightinthebox sells customized wedding dresses around the world using quick-turn production.

In the U.S., PetMed Express sells prescription and nonprescription medications for dogs, cats and other animals.

2. Market

In the U.S., Generation X (33 to 46 years old) and millennials (ages 24-32) are the biggest online spenders, says That's partly because young adults are big users of smartphones and tablet computers.

In Q1, mobile commerce accounted for 11%, or $5.9 billion, of all Internet shopping, says ComScore, up from 6% two years earlier.

Consumers browsing in physical stores can easily use smartphones to compare prices with online retailers. And more people are using smartphones and tablets to shop online during peak holiday seasons, analysts say.

Finding bargains, free shipping, and no sales tax rank the highest in why consumers in the U.S. and other developed countries shop online, says market researcher ComScore.

Convenience — not having to travel to a physical store and getting home delivery — is another reason. The ability to research products is important.

In China, consumers are very interested in customer reviews of products, says a PricewaterhouseCoopers study. Russian shoppers, meanwhile, are said to want detailed technical data on products.

More than half of consumers surveyed by ComScore say that sales taxes would make then less likely to buy online. But states like California, Texas and Pennsylvania began collecting sales taxes from all online retailers in late 2012, says JPMorgan. In all, 13 states will collect sales tax from Amazon and others by year-end.

Brick-and-mortar retailers, saying that they're at a disadvantage, continue to lobby Congress to pass national sales tax legislation.

3. Climate

E-commerce forecasts are rosy, but competition among companies is rife.

China's e-commerce market will grow from $169 billion in 2012 to $356 billion by 2016, says Forrester. Jack Ma, Alibaba's chairman, recently said he expects 30% of China's total retail sales to take place online in five years, up from about 6% currently.

Still, profits are wafer-thin for many Chinese companies. Investor support is often difficult to gauge. The forerunner to China's, 360buy shelved its IPO plans in 2012. Alibaba, in which Yahoo (YHOO) holds a 23% stake, plans an initial public offering, but hasn't decided between Hong Kong or New York.

In the U.S., Austin-based online coupon website operator RetailMeNot (SALE) raised $191 million in a successful July IPO. Shares of "daily deal' originator Groupon, meanwhile, are still well below its 2011 IPO price.

Farther south, Brazil's e-commerce market will nearly double to $23 billion in 2016 from $12 billion in 2012, says Forrester. Argentina-based MercadoLibre garners nearly half of online sales in Brazil, so it stands to benefit. It reported its number of registered users rose 23% in Q2 to 90.2 million, and that gross merchandise volume surged 33% to $1.73 billion. But investors fret over Amazon's possible push into Latin America.

4. Technology

Anybody remember Webvan? The online grocery business went bankrupt in 2001, marking one of the era's biggest flops.

Food retail is still an under-penetrated category, analysts say, making it an attractive target. Both store-based retailers as well as Web-only companies are taking aim, but developing technology and infrastructure poses challenges.

In the U.K., online grocery sales have taken off, says Forrester's Wigder. London-listed Ocado Group is a large British online grocer.

In the U.S., AmazonFresh — being tested in Seattle and Los Angeles — could expand to 20 urban markets in 2014, speculates Citigroup analyst Deborah Weinswig in a report. She says Amazon faces competition with Royal Ahold's Peapod subsidiary as well as Wal-Mart and Safeway (SWY).

5. Outlook

Smartphone use will drive online purchases. Chad Bartley, an analyst at Pacific Crest Securities, says Web-only retailers are moving faster to tap mobile commerce than traditional retailers. Ebay, in particular, is getting a lift from its mobile apps.

Upside: Mobile purchases will rise to 25% of online sales by 2017, up from 15% in 2013, forecasts eMarketer.

EBay has a strong presence in Russia and India, says R.W. Baird analyst Colin Sebastian. Online represents only 2% of Russia's retail sales, he says.

The flash-sale model, which liquidates unsold inventory, is spreading to new categories. Startups include Woot, Gilt Groupe and Zulily.

Risks: Google may team with store-based retailers for a same-day delivery service.

Best Buy recently launched a price guarantee, aiming to eliminate price gaps vs. Amazon. More traditional retailers may follow.

Web-only retailers still face hurdles penetrating the beauty, jewelry, and pharmacy categories.

Goldman Sachs says traditional retailers have stepped up "big data" programs aiming to glean more information on customer buying habits, an area where online marketers have had an edge.