Thursday, March 24, 2011

Will Amazon Help Change the Way we Read?

Innovation, both technological and methodological, is the key to progress in any industry. How has Amazon’s innovations changed the book selling industry? Introducing books to the internet, pioneering e-books, the Kindle, and current trends have all led to Amazon being a innovative component of the book selling industry.
Innovation can be defined as a new way of doing something. This has been Amazon’s strategy since its inception. Ever since was found by Jeffrey Bezos in 1995, it has been steadily growing to become the largest online retailer in the world. Bezos, who majored in physics at Princeton University, saw an opportunity in e-commerce, which was growing at an astonishing rate of 2,005% a year (Rivlin, 2005).  It is after this observation that he started drawing up a business plan for an internet based book selling company. Initially, his company, which he named after the largest river in the world, got off to a slow start, as compared with other companies which were making millions of dollars overnight. Soon enough, after the “e-bubble” burst and many online companies went bankrupt, persevered and became the world largest online retailer (Rivlin, 2005). Bezos applied his method of selling books to selling everything one can imagine on the internet. Now Amazon sells not only books, but everything from laptops to toys, making it have the most diverse inventory of any online retailer. However, Amazon’s initial success can be contributed to Bezos revolutionary idea of introducing books to the internet.
Bezos essentially revived as well as renewed the way books are sold. Just a few years back, the only way to purchase them would be to go to independent book stores. These stores often had an extremely limited selection of novels; in addition they were expensive and often inconvenient for customers to purchase because it would involve the customers to drive to their location. Bezos innovative idea was to incorporate book selling to the internet in the late 1990s. This idea was revolutionary in that it not only expanded the book selling market nationwide, but also offered lower prices and made it extremely convenient for anybody to purchase them, since the products would be delivered usually within a week. Currently, nearly all online retailers follow this strategy, making it easier than ever for consumers to purchase goods. To help expedite sales, and make their website more efficient, Amazon implemented the “One-Click Checkout”. At the time, no other online retailer had this feature (Rivlin, 2005). The one-click checkout would allow the user to save all billing and shipping information, meaning that when a customer was ready to purchase a product, they just had to press one button for the transaction to go through the system. This featured offered consumers more of an incentive to buy from Amazon than anywhere else that required the customer to enter their information at every transaction. These features made it possible to achieve Bezo’s goal of entering a nationwide market.
Bezos was able to achieve this nationwide market very cleverly. Instead of storing his inventory in one warehouse, he made contracts with warehouses all over the nation (Vogelstein, 2003). When a customer put in an order, the nearest warehouse would ship the product not only at a cheaper price, but the product would also be delivered to the customer much quicker than conventional methods (Jobs Boost as Web Warehouse Opens, 2006). Companies have ever since adapted this strategy of having affiliated warehouses all over the nation. Companies such as use the same strategy to ship its nutritional products, with similar success as  Having multiple locations for storing inventory has tremendous advantages, first of all, if one warehouse encounters a disaster such as a flood, fire, etc, there are many backups, so the inventory ratio (rate at which inventory is sold) still will remain relatively high despite the loss a warehouse. Another innovation which Amazon implemented in its website to help raise sales was its information gathering system. This system would collect information from customers and help customize a list of products which the customers might be interested in (Rivlin, 2005). This list would be sent sometimes on weekly basis to customers, who would often buy Amazon’s products even when they never intended to. This revolutionary feature has contributed to millions of dollars of revenue for Amazon ( Annual Report, 2009). However, there are some which find this system to be an invasion of privacy, because in addition, this system also collects information on the topics which its customers are reviewing on the internet. An ethical debate took place over whether or not Amazon should be using private information collected from users as a tool to sell its products more efficiently. In response to this heated debate, Amazon recently added an option for customers to choose whether or not to receive these lists of recommended products, showing how Amazon cares about its customers feedback.  
Amazon’s success with introducing books to the internet could be contributed to its lower prices. It is able to offer its products cheaper than anyone else only because of the amount of inventory they have, which is equivalent to 2.1 billion dollars ( Annual Report, 2009). Using basic principles of economics, it is not surprising that Amazon can offer lower prices. The more inventory one purchases, the cheaper it is on a per unit basis. In other words, marginal cost decreases as more inventory is bought, allowing them to sell each unit at a cheaper price than companies who purchase inventory in smaller quantities.  In addition to this, Amazon also sells used books for even cheaper using a system in which customers can actually become sellers on Amazon. This feature is similar to Ebay, were one can list a product they want to sell on a per month or per sale fee. Once a product sells, Amazon received a percentage of the sale, which further increases its revenue. This system is unique because it benefits everybody, the customer received a cheaper than market price product, the seller gets rid of unwanted items, and Amazon gets a percentage of the sale. Indeed Amazon’s innovative website has benefited many people all over the world, but it did come with some consequences.
The consequences of Amazon’s success on the internet are very apparent. Many private businesses went bankrupt, while others struggle to adapt and survive under Amazon’s presence. Amazon effectively wiped out the hole in the wall bookstore which so many people turned to when they needed a good novel (Clee, 2009). It used to be a personal experience to go into a bookstore and browse for products, perhaps even asking one of the employees for recommendations and opinions. The book store of old was what the diner was to hungry customers, until most got replaced by powerful corporations that made it more convenient for consumers. Currently, Amazon’s only competitors in the book selling industry are Barnes & Noble, and Borders. Barnes & Noble is a book retailer whose base remains selling novels at a limited number of locations around the nation. Essentially, Barnes & Noble strives to be an upgraded version of the old style book stores, along with Borders to compete with Amazon. Their locations often have a substantial selection of different novels, and their internet based store is also diverse, however, their book sales don’t come close to Amazon’s because of the reputation it has built over the years coupled with the demographics of its marketing strategy, which is now world- wide. Amazon’s constant development has been able to stay ahead of the curve, giving it an advantage over most competitors.
As a continuously evolving company, Amazon again made an impact on the book selling industry with its use of the innovative e-book. The e-book is a digital version of a novel, which once scanned and processed, could be downloaded on any computer and some hand held devices. The beauty of these e-books is that they are cheaper to produce, it is instantly available, and it is more environmentally friendly (Noam). It is cheaper because no paper or ink is used, eliminating the expenditures needed for printing, which in turn makes it environmentally friendly by reducing the amount of waste paper. It is also instantly available to download at the time of purchase, making it extremely convenient for consumers. There are a few drawbacks however. Most readers prefer the general “feeling” of having a book in their hands, as it has been a tradition that has been part of our culture for thousands of years.  Nevertheless, Amazon paved the way towards becoming one of the leading sellers of these e-books, with over 1,000,000 titles available instantly for purchase and download ( Annual Report, 2009). Is Amazon attempting to drop its original routine of selling the “old” style of books and cross over to the e-book industry? It seems that is the case, as the market for e-books has been growing steadily, with e-book sales jumping from $46 million to $55 in just one quarter in 2009 ( Annual Report, 2009). It is possible that Amazon is venturing to expand on this relatively new industry by constantly expanding its e-book inventory, which is already growing every day. Amazon did however, encounter a problem with its publishers in early April on the issue of pricing its e-books.
Despite the reduced costs associated with e-books such as lack of materials, need for shipping, as well as warehouse storage, publishers are pushing companies like Amazon to raise prices. E-books from a publisher’s standpoint are a real threat; as publishers like Macmillan intend to match the price of its e-books with its printed books, claiming the content of both products carry the same value (Stone, 2010). In response, not only did Amazon reject the publisher’s demands of raising the prices of its e-books, but they completely stopped selling all of its products from Macmillan, claiming that companies like Macmillan set “needlessly high e-book prices” (Stone, 2010). Amazon believes the prices of e-books should be in accordance with the reduced costs of producing and distributing them, staying true to one of their fundamental goals of offering lower prices. Despite its brief moment of power over its publishers, Amazon lost the battle over the pricing of its e-books. In order to stay competitive, Amazon has to raise its prices to stay competitive with Apple’s Ipad which was launched in late March with intent to sell its e-books at $15, severely undermining Amazon’s prices (Slattery, 2010). Although Amazon lost the issue over prices, it might be beneficial for them to develop a strong relationship with its publishers. One of the results of the expansion of the e-book market is the many competitors trying to enter this market, and take away Amazon’s market share. Having a strong, positive relationship with publishers is key in order to secure its place as being the largest retailers of both electronic and physical books. Amazon has effectively secured its place in its industry thanks to its continuously developing strategies and products, such as the Kindle, which fused the old traditions of book reading, with the technology of today’s world.
The Kindle is an e-book reader which was introduced by Amazon’s in late 2007. It was sold out within hours of its introduction, and remained out of stock until almost half a year later (Patel, 2007). What made it so revolutionary was that its content was available for download directly on the device. This means that the user didn’t need to download anything on their computers and then transfer to the Kindle, which so many of its predecessors required. This innovation launched book reading into a whole other level of convenience. Now readers could download any item from Amazon’s database of over 400,000 novels, documents, and texts almost instantly with the Kindle’s built in internet connection. The first generation Kindle in 2007 was able to store approximately 200 titles, with the ability to expand its memory with a memory card (not included!) (Patel, 2007). Another innovative feature of the Kindle is its unique “e-ink” screen, which can be described as a hybrid between a computer monitor and a page from a paperback book. This unique screen is different because it introduces the familiar feeling of reading a book, which a high-tech twist of being a monitor. Truly the first generation Kindle was something to get used to, perhaps may even HAVE to get used to. Amazon is constantly developing its product base and has been working on improving the first generation Kindle, resulting in the second generation as well as the DX version of the Kindle’s. Currently, these devices hold up to 3,500 books, have faster download times, and have a new “Read-To-Me” feature were the Kindle can actually read the text out loud (Silverman, 2010). Being only around 1/3 of an inch thick, the Kindle looks like a promising product which could be utilized not only by an average reader, but could as well be used by college students, businessmen, etc. A current issue facing many college students is the sheer amount of books and other documents they have to carry around every day to class. The Kindle makes it possible to eliminate that problem. Imagine having all your books on one 1/3 inch thick tablet! Amazon’s Kindle is also actually more affordable in the long run for students, as most University bookstores charge substantially more than Amazon to help cope with the high marginal costs mentioned earlier. The same applies to businessmen, who would be able to read reports, financial statements etc. on the go without having to carry piles of documents.
            Truly the Kindle is one of Amazons masterpieces; however, competitors are taking a swing at it by introducing their own versions. Amazon’s largest book-selling competitor Barnes & Noble have recently came out with their own version of the Kindle, called the “Nook”. This device offers similar features such as the e-ink technology, and quick download ability, however most consider it inferior to the Kindle due to its larger size, and limited memory, not to mention its less attractive style (Carnoy, 2009). The media behemoth Apple Inc. is also one of Amazon’s most threatening competitors, as they have also been interested in entering the e-book industry with its recently released “Ipad”, which hopes to revolutionize the way media is looked at. The Ipad is a tablet similar to the Kindle which will feature not only a comprehensive library of books, but a list of other features found on most computers such as watching movies, listening to music, etc (Silverman, 2010). These developments are made with the intent to secure some of Amazons market share, and give it a run for its money.   
Although it seems that Amazon’s Kindle is headed into an uncertain future, its destiny is much less risk than the Nook or the Ipad. Barnes & Noble are relying heavily on the Nook to just be able to compete with Amazon. In addition, the Nook is priced at $260 which might make some consumers speculate its quality. Apple on the other hand, has to worry about its highly speculated Ipad. The long term success of Apple’s Ipad is hard to determine because it was just introduced. It also has a excessively high price and shares vast similarities to a earlier product, the Itouch (Fox, 2010). Consumers are unlikely to purchase a larger version of the same product, which Apple is essentially doing. Meanwhile, Amazon can be comfortable being in between these two competitors in terms of success, effectively placing itself as a medium between all the e-book reader products available. Although more and more companies such as Sony are seeking to get a piece of the market share, Amazon’s is doing a steady job of maintaining its place in the industry.
So what do all of these innovative, technological changes mean for the book selling industry? Current trends of rising e-book sales, coupled with the new e-book readers, and declining physical book sales strongly suggest that e-books will replace the traditional paper books people around the world have used for millennia’s. In an article titled “Electronics and the Decline of Books: The Transformation of the Classroom” by Eli Noam of Columbia University, the issue of physical books becoming a secondary educational tool is discussed. Noam describes how AT&T found and introduced microwave technology in WWII, which later was adapted by individuals and eventually crippled AT&T. Another example Noam uses is how the implementation of ATM’s resulted in banks made themselves useless by “stepping back from the direct link with their customers” by cutting teller jobs. What Noam means with these example is technological change revolutionizes industries. It is very possible for Amazon to develop a similar situation in which publishing a book electronically can be as easy as uploading it onto its database without going through a publisher. The effects would devastate the publishing industry, effectively making them useless, just like being a teller at a bank when ATM’s were first being implemented. Perhaps more importantly, there would be a significant change in how we educate ourselves. Amazon as well as its competitors are paving the way to the future with its e-book readers, which someday might become standard at schools, universities, and businesses.  
The publishing industries take on Amazon’s e-book and its Kindle is very speculative. With e-books on the rise, it seems as though they are extremely wary of how the times are changing, taking every precaution to not lose its role just like thousands of people did in the banking industry when new technologies arose. Eager to adapt and survive, it can be expected that they want to raise prices on e-books. Perhaps the conflict between Amazon and its publishers arose because of the Kindle, were Amazon would discount its e-books as an incentive for more consumers to buy Kindle’s. However, this confrontation raises the question if Amazon should depend on its publishers for its products. With technological processing power doubling every 12-18 months, according to Moore’s law (Kanellos, 2003), it wouldn’t be surprising if publishing an e-book will be just one click away in the near future. Perhaps in a few years, the publishers that have been supplying the public with all of its books will have the same fate as private bookstores, essentially becoming obsolete and wither away.   
It is no question that Amazon’s impact on the book-selling industry has been huge. Starting with wiping out private book sellers, to pioneering digital books, all the way to changing the face of a novel, what could Amazon possibly due next to add on to its innovations? In order to compete with its competitors Barnes & Noble and Apple, Amazon needs to implement a strategy were it would sell its e-books at much cheaper prices than its competitors without going out of business. As pointed out in Noam’s article, technological change often transforms the face of an industry. It is only a matter of time before Amazon makes such a change. Perhaps its dislike of its publishers who promote raising prices of e-books will usher forth a new strategy which will once again put in the spotlight, just like in the late 1990s. The real potential for growth, however, rests oversees, were Amazon has only recently began to expand. Its recent venture into China seems promising after Amazons acquisition of the largest Chinese retailer (Wagner, 2004). Whatever Amazon does, if it remains patient, takes the time to develop a steady business strategy, and continues to develop innovative products, it will continue being the leading force in the online retail industry.