[Case Study]Amazon
Why Start with Books?
When Jeff Bezos open amazon, he wants it to be an online store of everything, so-called “The Everything Store.” But this dream requires a starting point. As he lay down 20 items on the list to sell online, books are on top of the list.
The most important reason he starts with books is the variety. For a typical bookstore, it can only display thousands of books at its maximum capacity. However, there are 3 million books in English available. The only way to display and sell all those books has to be an online store.
Besides, all those enormous kinds of books provide a perfect entry point for establishing a user profile. Every book is unique, and the combination of books people read shows very clearly their taste, habits, and preferences. When the user’s profile is established through the combination of books customer purchased, it is much easier to sell other products to this customer.
User Profile is also crucial for book publishing and sales. Traditionally, publishers are responsible for printing, and retailers are for selling. Since it is challenging to forecast the sales of the books, publishers give retailers as many books as possible and accept unsold books to be returned for credit — which is very inefficient. Retailers, on the other hand, usually stock up too many books to be sure the inventory is adequate. Now with web tools to track book sales, the entire business can be transformed and form then on, forecasts are supported with robust data.
Since amazon doesn’t have inventory, it directly orders books from publishers like IngramBook and then mails to customers. Without inventory and rent costs, the cost of books can be much lower, and amazon is able to provide a discount, 10% to 30% discounts on most books.
Strategic Moves
Become a Marketplace:
The business models of a merchant and a platform are quite different. As a merchant, you have to control all the processes along your production line. For amazon, it means it has to provide all the products and services all by itself; this is quite slow and can not keep up with the user expansion pace. By changing into a marketplace in 2000, the expansion is accelerated and can provide more buying options for customers. By 2017, analysts say 70% of amazon’s sales are through third-party sellers.
Invest in Data:
From an early-stage recommendation system to the emergence of Amazon Web Service (AWS), amazon keeps track of users’ consumptions to advance in sales forecasts and builds data centers to maintain its servers and develop data analytics abilities. With AWS, it is also able to provide streaming services more efficiently and achieve its “The Everything Store” dream.
Build Warehouse:
In the beginning, the local stores may have the advantages of convenience since amazon’s delivery time is much longer than the local store’s instant pickup. But with a more robust and advanced logistic system, the gap in delivery is diminishing, and amazon is increasingly dissolving one of the few competitive advantages local stores have.
