Amazon.com, Inc. (NASDAQ: AMZN) is an American multinational electronic commerce company with headquarters in Seattle, Washington, United States. It is the world's largest online retailer. The company also produces consumer electronics—notably the Amazon Kindle e-book reader and the Kindle Fire tablet computer—and is a major provider of cloud computing services. Amazon has separate retail websites for the following countries: United States, Canada, United Kingdom, France, Germany, Italy, Spain, Japan, and China, with international shipping to certain other countries for some of its products. It is also expected to launch its websites in Poland, Brazil, Netherlands and Sweden. Jeff Bezos incorporated the company (as Cadabra) in July 1994, and the site went online as amazon.com in 1995. The company was renamed after the Amazon River, one of the largest rivers in the world, which in turn was named after the Amazons, the legendary nation of female warriors in Greek mythology. Amazon.com started as an online bookstore, but soon diversified, selling DVDs, CDs, MP3 downloads, software, video games, electronics, apparel, furniture, food, toys, and jewelry. What Amazon's ebook strategy means
Three keywords that need defining before you can understand Amazon: Disintermediation
is the removal of intermediaries in a supply chain: "cutting out the middleman". Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal with every customer directly, for example via the Internet. One important factor is a drop in the cost of servicing customers directly. Disintermediation initiated by consumers is often the result of high market transparency, in that buyers are aware of supply prices direct from the manufacturer. Buyers bypass the middlemen (wholesalers and retailers) in order to buy directly from the manufacturer and thereby pay less. Buyers can alternatively elect to purchase from wholesalers. It should be fairly obvious by now that the internet is an intrinsically disruptive force in traditional distribution channels because it makes disintermediation very easy. Jeff Bezos recognized this very early on, and designed Amazon to be a disruptive disintermediary: to buy wholesale and sell retail, using the internet as a tool to reach remote customers directly. Initially Amazon relied on large warehouses, but as its database expanded they moved to just-in-time ordering, whereby obscure items would be listed as available but only ordered from the supplier when a customer requested one. (So far, so good.)
But there are two other key aspects of Amazon that we need to understand. Firstly, it's not an accident that Bezos' start-up targeted the book trade. Bookselling in 1994 was a notoriously backward-looking, inefficient, and old-fashioned area of the retail sector. There are structural reasons for this. A bookshop that relies on walk-in customers needs to have a wide range of items in stock because books are not fungible; a copy of the King James Version Bible is not an acceptable substitute for "REAMDE" by Neal Stephenson or "Inside the Puzzle Palace: A History of the NSA" by James Bamford. But books are bulky—a metre wide galley with books stacked spine-out can hold maybe 200 books on its shelves. It takes alot of floor space to hold one copy of everything a reader might want to buy. Even a big box store may only have room to stock 20-50,000 different titles. In contrast, Amazon's database can hold millions of titles without Amazon having to hold them as physical stock. Moreover, a big bookstore that stocks 20,000 trade books has to either sell them or return them undamaged for credit within 90 or 120 days. Someone is paying for that credit: either the wholesaler who bought them from the publisher, or the publisher themselves. (Or the bookstore may take a gamble and pay for the books, then keep them on the...
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