Amazon Dot global service

ONE OF the current tendencies of the marketplace is global service in the form of widening the services offered in order to make customers loyal: one stop shopping – as happens in banking (banks/insurance), for example. Amazon, with 15 million hits on its website during the Christmas week, does not get away from this tendency.

However, when Jeff Bezos launched Amazon in 1995, he wanted it to be “the largest bookshop in the world”. A bookshop…full stop. Its growth was based on excellent service. For instance, you buy a book and, a few weeks later, you receive an email saying: “Most customers who bought that book also bought book X, P, T, O”. Then, a few months later: “The author of the book you purchased has just written another one called…”

But, despite its growth and in order to become profitable, Amazon felt the need to widen its offer and redefine its business from the wholesaler of books, music and videos, into the “shopping centre” that sells everything, from golf balls to plasma TVs, clothes, toys, sporting equipment, pearl necklaces (Mikimoto), delicatessen, watches, cosmetics and chemists’ goods. This means that Amazon redefined its business from a bookstore into a “wholesale platform”.

From this business redefinition, five implications arose. First, and contrary to books, Amazon does not own all the new products. It simply receives the order and the commission. It neither manufactures internally nor even purchases (as with banking/insurance, many banks are only distribution chains for the insurance products, but do not own the insurance companies).

Secondly, the agreements with suppliers may take one of three forms. In some cases, Amazon simply receives and forwards the orders, charging a fee (between seven per cent and 15 per cent) to the producer. In other cases, Amazon goes one step further and creates the website for the wholesaler. Finally, there are also cases in which Amazon sells its products through sites belonging to other companies.

Thirdly, this change in Amazon business (from a bookstore into a wholesale platform) implies that it is no longer just a business-to-consumer operator but also a business-to-business operator, which means it provides services to companies.

The next implication is that this strategy brings Amazon closer to other competitors, such as e-Bay – and so the new business mission created new competitors.

Finally, there are three risks: the lack of suitable technology (the internet) to sell some products. For example, golf – Amazon easily sells balls, gloves and even shoes, but not clubs. The lower credibility that customers usually attribute to a general supplier versus a specialised one; and the lack of control with relation to the price/quality of the products of Amazon’s partners.

In any case, and until now, the benefits seem to exceed the risks. Amazon’s shares rose from six to 60 dollars between the end of 2001 and 2003, and analysts foresee that Amazon will, in the long run, be one of the most profitable pioneers of the internet – that is in part the simple result of having a technology (the internet) servicing a present market trend (global service).