Amazon, the company that changed how we shop
Twenty years ago, a former Wall Street trader sold a book over the internet. With this first sale on Amazon, Jeff Bezos changed the world
Amazon founder Jeff Bezos: ‘Can you improve upon something as highly evolved and well-suited to its task as the book? And if so, how?’ Photograph: Emmanuel Dunand/AFP/Getty
In a garage outside Seattle 20 years ago this summer a one-time Wall Street trader called Jeff Bezos made a decision that would change the retail world.
Terrified he had already missed the internet boat, Bezos decided to sell books online, and spent the guts of a year developing a website to make it happen. His start in retail could scarcely have been less glamorous, and the first sale on Amazon. com was Douglas Hofstadter’s Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought.
Hofstadter may have been an expert in human thought processes, but not even he could have had the mental agility to think up the world Amazon was on the cusp of creating.
Bezos spent the early years developing a folksy image for his company. But as it celebrates its 20th birthday, it is fighting wars on multiple fronts with giants including Google, Apple and the book-publishing industry while selling €1,600 worth of products across multiple sites and platforms every second. Its appetite for acquisitions is almost as boundless as its reluctance to share markets with anyone.
It has moved far beyond the books of its early days and is the world’s largest online retailer by some margin. It now stocks more than 100 million products on its UK website alone and has its finger in virtually every tech pie of substance, including phones, ebooks, video and music streaming and cloud computing.
The company’s success is reflected in its global sales: in 2011 it reached $44 billion compared with $10.72 billion just five years earlier. Last year its revenue was close to $70 billion. It employs over 100,000 people, including more than 1,000 in the Republic of Ireland.
It has consistently innovated and was to the fore in introducing product reviews, personalised offers and a one-click checkout process. It also continues to lose money hand over fist.
“I remember, in the very early days, me and my colleagues in the book trade used to laugh ourselves silly because the company was losing €2 million a year,” recalls Bob Johnston, owner of Gutter bookshops in Temple Bar and Dalkey. “Now it can manage to lose €60 million a year and still go from strength to strength.”
While Johnston may laugh, he is under no illusion as to the threat the online Goliath continues to pose to Davids like him.
“It has decimated book shops, certainly, but I think the relationship we all have with the company has evolved in the last three or four years, and things have kind of settled,” he says.
“I think bookshops have realised what their strengths are, and trying to be the cheapest all the time is not going to work. But we have a browseability that Amazon can’t match. Bookshops are more of a leisure experience and not just about buying something.”
Online buying culture
Much of the groundwork for today’s online buying culture was laid by Amazon. Some 40 per cent of Irish people have spent more than €1.5 billion online, and that is likely to rise fast over the next two years.
Amazon sells many products for less than a bricks-and-mortar retailer, but lower prices come at a cost. Shops employ 47 people for every $10 million in sales, while Amazon employs only 14 people per $10 million of revenue.
“It has had a disruptive impact on retailing, of course, but that creates both threats and opportunities,” says Sean Murphy of Retail Excellence Ireland. “It had a profound impact in the early days, but passing time has proved that there is still a space for experiential shopping, and I think consumers’ quest for value has evolved into a quest for a social experience.
“I think what we are looking at now is an omni-channel world where almost all retailers will have to have an etailing option. We have already seen many of our members going online on the back of the proof of concept offered by Amazon.
“Local retailers can compete on price, certainly, but more than that they can provide a different class of shopping experience. A mother and daughter going into town for the day to shop is not really the same as them huddling over the computer to buy online.”
Not always cheaper
Amazon is not always the cheap and hassle-free alternative to bricks-and-mortar shops. Last week Pricewatch went shopping for four books on Amazon.co.uk and in Eason. The books were The Goldfinch by Donna Tartt; Armageddon Outta Here by Derek Landy; Unravelling Oliver by Liz Nugent; and Five Go Down to the Sea by Enid Blyton. In Eason they cost €38.72, and we were able to start reading instantly. Once delivery was factored in, the cost on Amazon was €46.29, and we had to wait up to five days before they were delivered.
“This is not a surprise to me,” says Johnston. “It is not always cheaper, particularly when you factor in delivery charges.”
However, there was one field in which Amazon was the clear winner: ebooks.
Music has hopped from cylinders to vinyl, to cassettes, to CDs, to a file on your computer’s hard drive, to the cloud; but the book has been more resistant to the advances of technology, changing little in 400 years. Until, that is, Bezos posed a question at a press conference in 2007.
“Can you improve upon something as highly evolved and well-suited to its task as the book? And if so, how?” he asked on the day he tried to answer the question with the launch of the first Kindle.
Today the company has several e-readers and tablets aimed at capturing the fast-growing ebook market. According to Forbes, sales of Kindles stood at roughly 20 million in 2013 and brought in about $3.9 billion in revenue. But the value of the franchise extends beyond hardware sales, and the firm earns more than $500 million a year from ebooks. That’s not huge in comparison to its overall revenues, but the number is only going to grow.
Amazon is well ahead of the competition in ebooks, a medium in which our four titles cost just €23.77. And we got them delivered instantly, without leaving the house.
Prices will fall further if Amazon gets its way, and it’s not afraid of fighting for it. It is in dispute with Hachette Books, the large US book publisher, over the price it can charge for ebooks. It says cover prices of $14.99 or $19.99 are too high, and argues that cheaper ebooks will sell more copies and generate more revenue and more royalties for authors.
Hachette insists the dispute started because Amazon wants more profit and market share at the expense of authors, bookstores, publishers and readers. “Both Hachette and Amazon are big businesses and neither should claim a monopoly on enlightenment, but we do believe in a book industry where talent is respected and choice continues to be offered to the reading public,” Hachette chief executive Michael Pietsch said earlier this month.
It is a row that is likely to rumble on and on.
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