exploring global network services to local markets
Thursday, March 31, 2005
Monday, March 28, 2005
What happens when the Internet giants start moving into the real world?
see edited version at Media Guardian, March 28th, 2005
Jeff Bezos has always been a man that takes the long view. So in 2001, when the analysts were panicking and traditional retailers were crowing about the precipitous dive in the Amazon share price, which had fallen from a split-adjusted high of $110 to $11, Bezos was the first to point out that not only had the value of the shares in fact increased ten times since their $1.50 IPO value in 1997 but that the real growth was yet to come.
The fundamental optimism which underpinned his enthusiasm was his insight that successful e-commerce is basically about trading real estate for technology. Just ask any retailer and they’ll tell you that, more often than not real estate gets more expensive every year, while a buyer of technology will be clear that every year it just keeps getting cheaper and cheaper. When Amazon began trading in July 1995, Bezos gambled that while traditional retailers would need to continually invest millions in rent, rates and operational infrastructure to support a network of stores, he could create equivalent retail scale by pouring those same millions into the software, logistics and customer service.
When Bezos made this pitch, it was a very big bet. But ten years later his business can support nearly 50m active online shoppers from only six North American and three International warehouses and sales have grown from $148m in 1997 to a projected $8bn in 2005.
By selling online, Amazon not only has infinite shelf-space they also need to carry significantly less inventory than its retail peers at Wal-Mart and Tesco to offer limitless selection and choice. So while Amazon apparently were building in a business which mirrored Wal-Mart’s operational scale and Tesco’s customer focus, it managed to do so in a way that can scale at much lower cost. But perhaps the most valuable asset that Amazon has created its knowledge and relationship with its 50m shoppers, more than four times Tesco’s number. This knowledge is also not just limited to purchase information but vitally includes the very powerful overlay of hundreds of millions of customer ratings and reviews, which form the basis of their extremely powerful recommendations.
Although the average Amazon shopper only currently spend $148 per year, this number has grown every year and not by just extending into new categories as Tesco seems to effortlessly be able to do, but by extending its core mantra of selection away from product it distributes itself into serving as a platform for others who want to sell products to their 50m active customers.
Amazon has is now helping retailers with significant investments in bricks and mortar, leverage their infrastructure, operating back-end services for such major brands as Waterstones, Toys r Us and Target in addition to the legions of individuals and small-traders who want to sell new and second hand goods through their marketplace. Each step in this direction shifts their emphasis from a Wal-Mart style of “everything under my roof” to the eBay style of helping their customers find and discover anything they want to buy.
Now with its newly-minted Yellow Pages service, Amazon has extended this model directly onto high street and into real world. This service is still very much in test mode, but like recent moves by both Google and Yahoo! into the local advertising markets, the imprints left by the Internet giants and their hordes of customers will not just be felt by media owners who are already under attack from eBay and others on the classified advertising markets. Now that Google, Yahoo and Amazon are playing in the Yellow Pages games, the likes of Yell need to start getting worried.
Amazon's service offers enhanced business listings, including the now standard maps and contact details already on offer at Yahoo! and Google. It also has a cool feature which lets you place call to a local business simply by clicking a button on the web page, entering your phone number and you’re automatically connected. But the innovation Amazon is most proud of the way they have brought traditional Yellow Pages to life by showing in 10 major US cities, a street view of millions of local businesses and their surroundings.
In classic Bezos style, they have developed technology which takes retail real estate to a new level. Amazon has created a system that combines digital cameras, GPS location systems and equipped vehicles to capture image of buildings and geotag them with location information. Apparently it has only taken a few months to capture over 20 million images used so far in its Yellow Pages system, while it took professional photographers years to assemble the images used in a similar system by France Telecom’s Pages Jaunes, so expected to see Amazon trucks coming to a city near you in the next five years.
The strangest thing about all of this is that as Amazon and the Internet giants continue to grow bigger and move more into the real world, they continue to profit most as they develop services which leverage their scale and customer bases to enhance the economic viability of sole traders and small business owners. Google has shown with its AdWords model, the power and profitability of helping small businesses afford advertising to a global audience and eBay have created a marketplace which supports over $34bn of transactions - can Amazon now shake up the high-street and brings local businesses back to life by sending them some of their 50m active shoppers, guided by their special sauce of ratings, reviews and recommendations?