Amazon.com complements, not replaces

THESE days it seems almost everyone has heard of the world’s largest bookstore business, Amazon.com. That is remarkable testimony to a business that did not exist in 1994.

What is also well known is that Amazon has yet to return a profit.

The business plan for Amazon was developed in 1994 by young Wall Street investment whiz Jeffrey Bezos, who was determined to develop a successful web-based business.

Bezos has been quoted as saying that “the three main attractions that would bring buyers to (his) website would be selection, selection, selection.”

The company commenced operations in July 1995. In the first 18 months (to Dec 1996) its turnover was $16 million. From July 1997 to June 1998 that figure grew to $240 million.

In 1995-96 the company employed 35 people. By December 1998 the staff had grown to 610 people.

The way business is conducted at Amazon gives the company a number of marketplace advantages.

There is no ‘walk in’ premises for customers as all sales are conducted online. It is open for business 24 hours a day, 365 days a year. The size of its market is massive.

Visitors to the site can search for books just as they do in a library’s catalogue: by author, by title or by subject.

However, Amazon’s proprietors have discovered the key to selling lots of books is not just to supply what readers are looking for but to generate demand for titles readers might not know about.

The sales system is highly automated. Amazon orders direct from the publisher after a customer’s request is placed, limiting investment in stock. Warehouse space is used only for handling, not storage.

Perhaps the most powerful aspect of the Amazon model is the effectiveness of its customer to customer and customer to author interaction, together with the quality and size of their database on its customers’ preferences.

With all these highly publicised advantages, it is timely to consider a reality check.

• Bezos and Amazon do not expect sites such as theirs to put traditional booksellers out of business. Some customers use the Amazon database to search for books they want and then buy them locally

• A website, no matter how sophisticated, can never replicate the sensory experience of being in a bookstore

• Despite the 30 per cent to 40 per cent discounts offered, exchange issues often neutralise Amazon’s price advantage for international customers

• Outside the US, unless the customer wants to pay a significant premium, it takes too long for the books to arrive for many of Amazon’s customers.

Amazon.com has changed the nature of retailing books. However this does not mean all retailing must imitate Amazon.com, nor that all bookstores will go out of business if they do not become a clone of Amazon.



• Mal Bryce is chairman of Dow Digital and a former Deputy Premier of WA.