Profile Amazon.com: From its small scale literary origin, Amazon.com has moved into digital music and is facing a dog-fight with Apple, writes Brian Boyd
How many windows are there in New York City? This is the question Amazon.com founder Jeff Bezos used to ask people applying for a job at his online store.
Obviously you didn't need to know the answer (no one really does) but you did need to know how to handle the question. These days Bezos - a multi-billionaire thanks to Amazon's commercial popularity - would be more concerned with scanning NASDAQ figures than sitting in on job interviews. The question, though, is emblematic of how Bezos values what Americans distressingly refer to as "blue sky" or "out of the box" thinking. It's the sort of thinking that led Bezos, back in 1995, to set up a literary magazine on the web that provided readers with informative content while encouraging them to buy books.
Eleven years on and Amazon has 45 million customers and reports an annual profit of $588 million from its $5.26 billion turnover. At this stage how much of that profit comes from book sales is a moot point. The one-time "literary magazine on the web" now resembles a more rapacious strain of Wal-Mart. In effect, Amazon has become the world's first online shopping mall. It stocks everything. Power drills? It has them. Gourmet food? Yup. Domestic animals? Yes, and how would you like to pay for your moggie? Rival e-retailers long ago gave up even pretending to rival Amazon and instead they just link their pages to this electronic behemoth. More than 900,000 third-party sellers now use the Amazon site to sell their products, making up more than a quarter of last year's sales. Even if you are a traditionalist who wants to buy a book from the Waterstone's website, you'll find yourself redirected automatically to the Amazon page.
'EARTH'S BIGGEST BOOKSTORE' was Bezos's dream when he launched Amazon from his garage in Seattle courtesy of a $300,000 loan. He had got the idea for the site on a cross-country journey in the US. He had read somewhere that web traffic (at the time) was increasing by 2,300 per cent a year. His first choice of web selling product was music but early negotiations with the major record labels stalled over his plans to sell cut-price CDs. He looked instead to the book world and found that by dealing directly with distributors and publishers he could offer customers discounts of up to 40 per cent. The company began with just 25 staff members who were charged with writing honest and informed reviews of all the books available for sale on the site. Bezos encouraged his staff to showcase more "literary" works on the company's home page - at the expense of big-selling "popular fiction". For the first few years the company trundled along, selling mainly to people who were looking for out-of-print books, rare first editions or other récherché tomes.
Like many internet set-ups of the time, Amazon had a sense of pioneering idealism - it was helping to make the world a more literary-friendly place. Bezos located it in Seattle simply because one of largest book distributors in the US, Ingram Book, had a large warehouse in the city. The company's name is a reference to the world's most voluminous river.
In 1998 Bezos received an e-mail from a customer who was impressed by how they had tracked down a book that was difficult to find. "Would you consider selling music this way too?" asked the customer. Within months, Amazon had become the web's biggest music retailer.
Local Amazon stores opened in Britain, Germany, France and Japan. Amazon began selling DVDs, consumer electronic goods, video games, hardware, toys, kitchen goods, clothes, watches, sports equipment and magazine subscriptions. The larger the company got, the more discounts it could offer its customers.
In 1999, Bezos was Time magazine's "Person Of The Year" and he had carefully cultivated a Richard Branson-style hippy-turned-successful entrepreneur image. His company had ridden out the dot.com bust, had successfully gone public and was growing at an exponential rate.
It wasn't until 2003 that Amazon first started to draw stinging criticism. A former employee, James Marcus, wrote a "tell-all" book about the company called Amazonia: Five Years At The Epicenter Of The Dot.Com Juggernaut which detailed just how far the company had travelled from its "literary magazine on the web" beginnings.
MARCUS DETAILED HOW, after the company went public, "the MBAs, the bean counters and the PR operatives" instigated radical changes. The company devised a new piece of software, a "truncating widget" that would cut off book reviews after 150 words - unless the customer clicked to see the whole review. This left more space on the home page to advertise new products such as garden hoses and lingerie.
Amazon began to accept "co-operative advertising allowances". The reviews themselves began to be outsourced - to readers. These "readers' reviews", as everyone now knows, can be written by friends of the author - or even by authors themselves using pseudonyms.
"Personalisation" was introduced, meaning that Amazon's home page was replaced, if you were a registered customer, by your "own" page - where every click and twitch of the mouse is recorded and used to construct your own "store". It is still one of the most irritating aspects of using Amazon: buy one lousy industrial-goth CD and you'll be forever besieged by unsolicited "Check out our other industrial-goth CDs" messages.
Marcus recounted how a new phrase began to be heard in the corridors of Amazon's Seattle headquarters: "monetising the eyeballs", ie squeezing the most money ("monetising") out of people browsing on the web page ("the eyeballs").
Marcus wrote about a meeting he had with one of the vigorous new MBA types who told Marcus that if a customer came to the site looking for a book, they should be nudged into buying a DVD, or even a DVD player, as well. "What if the customer doesn't want a DVD or a DVD player?" asked Marcus. "If you want to be a good corporate citizen," the manager replied, "you'll push the DVD player." The book's most telling moment is when Marcus, out of some form of lingering loyalty, decides to give Bezos an advance manuscript of his book. He finds out that Bezos is in New York at a presentation and makes his way down to meet his ex-boss. Bezos is with the tennis player Anna Kournikova who has "designed" a shock-absorbing sports bra that is to be distributed exclusively on Amazon. Marcus can't get near Bezos because of the bodyguards.
Bezos may well need some form of shock-absorbing device over the coming months.
AMAZON IS ON the brink of its boldest move yet - doing away with physical media. More than 70 per cent of Amazon's 2005 sales were from physical media - CDs, DVDs, books. However, to maintain its dominant position, the company has now to cater for the increasingly popular digital delivery of these products. And for the first time in its existence, Amazon is facing a dog-fight.
Remember, Bezos's original idea in setting up Amazon was to sell music over the internet.
With the physical CD losing ground to the digital MP3 file, the company now wants to cut into Apple's 80 per cent market share of the digital music market. Bezos has recently been in talks with the bosses of the four major record labels - and this time they are co-operating with the company.
Now Bezos has advanced plans for an Amazon-branded portable music player which would play heavily discounted music from the Amazon site. It is understood the service will be launched this summer.
The Amazon portable music players will be very cheap (possibly even free) but the company will charge a long-term subscription rate - this is similar to the model mobile phone providers use whereby the cost of a new phone is drastically reduced if the customer commits to a certain length of contract.
Amazon's entry into the digital music market will severely dent Apple's hegemony. Whether Apple will still allow its iPods to be sold on the Amazon site remains to be seen. The battle between Amazon and Apple over the lucrative digital music market will make the vicious rows between Coca-Cola and Pepsi look like a mild disagreement.
It shouldn't be a problem for Bezos - after all when you've already made the leap from the collected works of Balzac to the Anna Kournikova sports bra, anything is possible.
The Amazon File
What is it? Amazon.com - a massive internet shop where you can buy anything. Even things you didn't know existed.
Why is it in the news? The company has just announced it is to create 450 new jobs in Cork in a call centre to support its websites for the French, British and German markets.
Good news: It's good for Cork. Loads of new jobs, and they're all going to be in Minister for Enterprise, Micheál Martin's constituency.
Bad news: It's very bad for Slough in England where the call centre is currently located. First the town was verbally assaulted by John Betjeman: "Come friendly bombs and fall on Slough" and then Ricky Gervais mocked it in the TV programme The Office.
What to order from Amazon: "A copy of Ulysses and a bra, please."
What not to order: An Apple iPod/Jeff Bezos's soul.