Amazon Your Industry: Extracting Value from the Value Chain

Topics: Retailing, Paperback, Publishing Pages: 12 (4654 words) Published: August 28, 2011
Amazon Your Industry: Extracting Value from the Value Chain
"Way cool" Web sites and measures of "hits" and "eyeballs" are clearly driving revenue in the dot-com world. To date, these metrics have provided the basis for the extraordinary market valuation of the new generation of Web retailers. In the near term, most "e-tailers" must focus on surviving the incubator phase of the Internet retail industry by gaining enough market shares to become a sustainable player. "Efficiency and productivity lie in our future," Inc.'s president, Joe Galli, has said. Eventually, however, the basis of competition will change. In the long term, we believe that sustainable competitive advantage in the Internet Economy will result from fundamentally transforming the entire value chain - in other words, managing the physical supply web, not just the virtual computer web. To understand how the Internet can transform an industry value chain, we explored's original business of book-selling and the entire supply network of the publishing industry. After reviewing the players in the publishing industry value chain - authors, publishers, printers, wholesalers and retailers - we analyzed industry economics: What drives profits for each player? Surprisingly, the answer is supply-chain costs - much of which represents waste in the traditional model. For example, consider the 30-plus percent return rate for adult hardcover books through traditional channels, versus the 3 percent return rate through Although many have examined - the icon of the Digital Age - our analysis goes beyond to identify a number of Internet axioms worth consideration by dot-com startups and traditional retailers alike: * Inefficient supply networks are at risk from new players. * First-movers gain advantage from scale.

* New delivery systems require big investments.
* Defining a new distribution structure is strategically vital. * Companies should use customer knowledge for pull marketing. The publishing industry story shows how almost any company can begin to Amazon its own industry. PUBLISHING INDUSTRY OVERVIEW

Along every step of the value chain, the $23 billion publishing industry consists of a complex collection of players. To simplify the picture, let's focus on the books you buy from your neighborhood bookstore - or, increasingly, over the Web. This subset, commonly referred to as the "trade" segment, includes hardcover books and higher quality trade paperbacks. (This excludes the cheaper paperbacks primarily sold by mass merchandisers like grocery and discount stores.) Americans bought over one billion trade books in 1998. Though roughly half of these books consisted of backlist titles (those published in previous years), the other half - 500 million books - were of the 51,000 new titles released that same year. Consider that the average new title sold fewer than 10,000 copies, while John Grisham's 1998 release, "The Street Lawyer," sold 87,000 copies in its first week in stores. You can imagine the difficulty in describing a "typical" author; while tens of thousands of people can claim the title "author" each year, only a handful make it big. Danielle Steel, for example, has racked up sales of over 400 million copies of her 47 novels, while Stephen King's 40 books have sold over 225 million copies. Despite these enormous numbers, the top 10 best-selling authors still account for only a small percentage of total sales. At Barnes & Noble Inc.'s stores, for example, best sellers represent only 3 percent of store sales. There are over 25,000 publishers in the trade-book supply web. These publishers seek out new authors and new ideas - constantly searching for the next best seller. Again, we find a disparity in extremes. With only 51,000 new titles a year, the average publisher releases about two new books per year. But the largest publisher in the United States, Random House Inc., released 2,500...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Value Chain Essay
  • value chain Essay
  • Essay on Value Chain Analysis
  • Value Chain Essay
  • Value Chain Essay
  • The Value Chain Essay
  • Value Chain Essay
  • Essay about Value Chains: Real or Virtual?

Become a StudyMode Member

Sign Up - It's Free