Amazon.com's Online Success

It took a while, but somebody noticed there's one thing everybody on the Internet is doing: reading. Take away the technology, and the act of following words on paper is little different from following words on screen. So it only seems natural that one of the first companies to accumulate substantial sales exclusively from online merchandising is doing so with books. What might be less expected is the company accomplishing this feat--a pure startup, not a division of any existing retail operation, a startup headed by an entrepreneur with no prior retail or computer experience to speak of.Seattle-based Amazon.com Books (two years old as of March) has become an online success story. Whether it'll become a business success story won't be known for some time. While the company won't release sales numbers (The Wall Street Journal estimates it had sales of at least $5 million in 1996), it acknowledges every dime it makes, and more, is ploughed back into building the company's infrastructure (to handle sales growth of 34 percent a month). With profits at least a year or two off, it's currently living off $10 million from California venture capital and private investors.The Secret HistoryIs Amazon a Seattle success story? Only sorta. Founder Jeff Bezos, now 32, was an up 'n' comin' Wall Street investment banker who, like lots of folks in the mid-'90s, was looking for a way to make big bucks off this newfangled Internet craze. He first settled on the concept of catalog shopping without a catalog. He then narrowed his sights further to focus on books and music. He finally chose to just sell books at first, thinking he could get more leverage with the big book publishers than with the big record labels, even though many are parts of the same conglomerates. He picked Seattle because he figured the place was awash with both book experts and computer nuts. We're also within a one-day UPS Surface zone from Roseburg, OR, where the Ingram wholesale company runs one of America's biggest book warehouses.That latter fact was vital to Bezos' business plan. While advertising itself as "Earth's Biggest Bookstore," and boasting of 1.1 million titles in its database, Amazon actually keeps just a few hundred best-selling titles in stock. (The Elliott Bay Book Co. and the University Village Barnes & Noble each claim over 150,000 titles on the premises. Powell's City of Books in Portland, which offers both in-person and online ordering, claims 500,000 new and used selections.) Everything else is special-ordered, just like a regular bookstore can do for you. If a title isn't stocked by Ingram or one of the other wholesalers with whom it's in regular communication, Amazon will attempt to contact the publisher (or even the author) direct. Originally, this scheme meant Amazon could start in March 1995 with little more than a couple of PCs and a makeshift office in a Bellevue garage. Now, it means the company doesn't have to worry about that bane of traditional retailers, unsold or unsaleable inventory. (Retailers can return most books to distributors for full credit; but they still cost time and money to get and hold onto.)How It WorksThe Amazon operation now employs some 160 people (up from 30 last year at this time) and is constantly recruiting for more, on its home page and on flyers posted in U-District hangouts. About half the staff is housed in the former vocational-school building above the Art Bar in downtown Seattle. There, winding corridors lead past both permanent and portable interior walls. Behind those walls, teams of fresh-faced young adults (and a few early-middle-aged supervisors) scour the major book-review publications and trade journals, write online-catalog copy, process credit-card numbers, take phone calls from customers, and program new database functions on the company's networked workstation computers. Many of the desks are made by Amazon workers, from old wood doors and two-by-fours. Every first-time buyer at Amazon has to fill out a detailed online form. This information (names, addresses, demographics, and buying habits) is becoming as valuable to the company as its merchandise database. It hopes to someday sell pieces of this information to publishers. Amazon customers can also pre-order titles that have been announced but not yet printed; the company hopes to sell pre-order data to publishers too, thinking they'll want to know how many copies to print. The other employees, including as many as 30 temp workers and office-staff hirees in training, work in shifts at a 17,000-square-foot warehouse. If Argentinean fantasist Jorge Luis Borges were alive (and not blind) today, he'd love the labyrinthine-library quality of the place, where thousands of unwrapped books sit on miles of industrial shelving, stacked and arranged by computer-database numbers. Because these database numbers bear no relation to the Dewey Decimal System, one shelf segment might contain a Judith Krantz bodice-ripper, a UNIX programming manual, a Simpsons picture book, and a self-published treatise predicting world economic collapse. Books last on the shelves only until a customer's entire order has been received--usually less than a day. (Regular bookstores may turn over their stock only three or four times a year.)From there, dressed-for-warmth young staffers put the volumes through bubble wrap and corrugated-cardboard mailing sleeves, stick laser-printed address labels on the sleeves, and collect them in bins for the UPS and U.S. Mail trucks that pull up to the warehouse door several times daily.Why It WorksThe Microsoft online zine Slate dissed Amazon in January. The article, by Jonathan Chait and Stephen Glass of the New Republic, "Amazon.con," claimed Amazon didn't provide anything significantly cheaper, faster, or better gift-wrapped than one could get special-ordering from a regular bookstore. Over 200 loyal Amazon customers emailed critical letters to Slate in response, some from as far as Malaysia, Kuwait, and Germany; all exhorting the praises of Amazon's service and selection. (Microsoft, it turns out, is in cahoots with Wal-Mart to start a rival online bookstore.)Besides English-speakers overseas, who's Amazon good for? Folks who are online a lot and like the convenience of staying online while they shop. Folks in search of the obscure and unusual (scientific and technical documents, car manuals, cult stuff, regional-interest books for a region they're not currently living in). Folks who live outside big towns and don't like the censored, mainstream fare at their Wal-Mart book department. Folks who like mail-order book buying but want more selection than book clubs or printed catalogs can offer.Jennifer Cast, Amazon's acting VP of marketing, claims the company's secret lies in "a value proposition people can't get in any physical bookstore. We offer the largest selection in the world, with incredible convenience. We can ship anyplace in the world, we gift wrap, we offer great discounts. Most hardbacks are discounted 10 percent, most paperbacks 20 percent, bestsellers and New York Times-reviewed books 30 percent. We're the most heavily discounted retailer in the world." (In many cases, though, Amazon's shipping and handling charges more than make up for any list-price discounts.)"Bookstores can't order all the books we can," Cast adds. "We have small publishers and self-published titles. We have a large staff of people in the orders department making calls every single day."Moreover, if you're in a bookstore and you don't see a book you want, you have to know what it is and know that it exists. With us, you just use our search tools and, boom, there you are. We've got over 100 titles on how to play the harmonica."For the FutureHaving established its brand name, Amazon's already seeking new worlds to conquer. It's working deals with authors and indie publishers, to handle their online bookselling for them; so far over 550 other book-related sites handle their ordering through Amazon. The company's also talking of starting a second base of operations in Europe next year or the year after, should European Net use finally take off to the degree it has stateside."People are embracing Internet commerce," insists Cast, downplaying media reports of a Net-hype backlash. "There are people buying on the Net and they're buying now in droves. As more and more people get access, its time will come more and more."What It All MeansAmazon, and the Borders/Barnes & Noble superstores, represent a different challenge to traditional booksellers than the '80s Waldenbooks/ B. Dalton invasion. Those earlier mall-oriented chains specialized in high-turnover sales of a few bestsellers and perennial-sellers. Amazon and the superstore chains instead want to be everything to everybody, servicing a post-mainstream America of a thousand special interests.On the one hand, the fact that big money's pouring into bookstore development is proof Americans really are buying books these days. Yet literary purists bemoan this and any other threats to their near-mythologized vision of the cozy neighborhood bookseller who knows all about everything in stock, something no big organization can supposedly match. Amazon tries to make up for that with a detailed database of its titles, but even it doesn't have all a would-be buyer would like to know, especially about those thousands of more obscure titles. (Its Web pages regularly solicit reviews and summaries from customers, publishers, and even authors, but most books are listed with little more information than the author, title, publisher, and price.)As big-biz booster Virginia Postrel writes in Forbes, "Take the values independent booksellers celebrate: diverse literary voices, personal service, support for unknown authors. Jeff Bezos is delivering those values--and just about any book printed in English--via the WebÉ. Amazon threatens old-fashioned bookstores--and we can expect to hear them squawk--but it furthers their professed values."For all its championing of "progressive" values, the book community is full of nostalgia for a past that never was, a mythical time when bungalow-dwelling gentlemen of leisure (and their educated but careerless wives) gently devoured hardcover tomes edited by tweed-clad Ivy Leaguers working out of quaint Manhattan brownstones, retailed by tiny storefronts that somehow always had what you wanted. Such a setup could only have been possible in a class-stratified society, one in which only a favored few were invited to read anything more complex than Sunday-school guides or pulp-fiction magazines. We now live in a different world, and we're largely the better for it.The computer magazine Web Week quoted Bezos last fall, "Are we going to put physical bookstores out of business? No. TV didn't put movie theaters out of business. But physical bookstores will have to keep adding value to what they've got." Actually, TV and suburbanization combined in the '50s to kill half the country's theaters, the RKO studio, and short-subject production. Already, indie publishers are trimming their backlists and adjusting their new-release priorities so their products will better reach out to customers from the vast lonely shelves of the superstores. Indie bookstores are either folding or struggling or turning to specialty niches. But the movie biz eventually adapted to changing conditions. The book biz has faced many changes over the decades (the rise and fall of the cheap paperback, the rise of the costlier trade paperback, the consolidation of big publishers, to name a few). The dawn of online retailing means a "virtual superstore" like Amazon.com can become gigantic by delivering the diversity indie stores promise. The little booksellers can't be everything to everybody, but they can still be a few things to a few bodies. And the little book creators are having to learn to compete, not against a few others of their ilk in the confines of indie-store shelves, but against a million other titles equally available online. If Amazon.com hadn't fed this state of affairs, someone else would have. (Already, Barnes & Noble has announced its plans to begin selling books online in February, and Borders is expected to venture online as well.) At least this particular revolution is being led by an outfit eager to do business with indie publishers.