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who’s afraid of amazon.com?

In the late 1990s and early 2000s, Amazon was the industry killer. According to critics, Amazon would wipe out entire entire industries and monopolize online trade. That did happen, but only to one industry. Chain booksellers were destroyed by Amazon. Of the many giants of late 20th century book selling, only one remains – Barnes and Nobles.

Once you move away from chain book stores, the story gets complicated real fast. For example, independent bookstores did contract but now there’s regrowth, especially among used book stores. Then look at other businesses Amazon has targeted. If the business was similar to chain book stores, the business got crushed. For example, most electronics retailers – Radio Shack and Circuit City – got crushed since you can buy stuff like TV’s and laptop computers easily online. But in other areas of Amazon’s business, like video streaming, cloud computing or groceries, there isn’t much evidence that Amazon is becoming the uber competitor.

What’s the lesson? Amazon is run by one of the most talented entrepreneurs in history and he’s not limited to any single business. The first business targeted by Jess Bezos was the book business and it’s a great example of old school retail. The value added by older, smaller firms was service and searching for products. For many products, people don’t need personal service and digitalization makes search very easy. To buy books, all you need is a website, not an old school book store.  That is why the Internet triggered the “retail apocalypse” for chain bookstores.

On the other hand, Amazon has targeted lots of businesses that are not “old school” retail. For example, while Amazon has been successful, it by no means has displaced other grocery stores. Why? Groceries are businesses where the producers matter a ton and you need lots of curation of products and quality control. It’s not just about finding a carrot and shipping it. You gotta find the organic carrot from the right guy, watch it carefully in shipment and then watch it on the floor and then help people eat it… and hope the producer doesn’t disappear next week. Amazon’s video streaming service is another great example. You don’t just find videos and ship them (like selling DVD’s), but you need taste, curation, and you really can’t out compete other content makers to the point of driving them out business. Niches rule.

In a lot of cases, Amazon’s powerful computing resources help them survive in new areas, but it’s probably not enough to turn Amazon into the business killer it was in the book business.

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Written by fabiorojas

September 10, 2019 at 12:01 am

Posted in uncategorized

3 Responses

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  1. Thank you for the post! Could you elaborate a little bit more on why books and videos are different in Amazon’s business model? Are you commenting on Amazon’s role as content distributors in the book business and as content producers in the video business?

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    Ying Li

    September 10, 2019 at 12:51 am

  2. Great post.Thank you!

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    Fabrizio Coltellaro

    September 10, 2019 at 9:57 am

  3. Ying Li: That’s correct. Being a book distributor is a very different business than video producer. With a book, an author/publisher makes the product and then the product literally waits on a shelf. So Amazon revolutionized that marketing with superior warehousing and inventory management. And given that the incumbent team was either tiny (mom n pop stores) or sclerotic (big boxes like B&N or Borders), Amazon just cleared it all away.

    For video production, it’s a whole different ball game. You have to subsidize a lot of failure. And having a superior distribution system isn’t a source of permanent advantage. While most firms couldn’t build a massive warehouse and inventory system for books, anyone with access to the Internet can produce content. Amazon’s massive advantage in computing power might give it some advantages. If you own your own cloud, you might be able to stream a little better, but most firms can buy cloud service. Or, you can use data analytics to improve marketing and service, but so can other people. Also, if you produce your own content, you have a sort of quasi monopoly in some cases. For example, CBS has a lock on Star Trek fans because CBS owns the franchise.

    This is why Amazon stands supreme in books but battles armies of competitors in video (Hulu, Netflix, all the major networks, Google Play…).

    Like

    fabiorojas

    September 10, 2019 at 5:22 pm


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