A couple of major, seemingly unrelated announcements came out of Amazon.com a few weeks back. We doubt they are all that unrelated, and they signify a move to a still higher level in the stratosphere of business in which Amazon has participated the past few years. The largest internet retailer now seeks to become deeply involved in the lives of its customers. It looks to compete with the likes of Apple and Facebook, rather than Barnes & Noble and Alibris. Many others have tried to make this move; few have succeeded. Many business analysts believe Amazon is poised to succeed. Let this be an inspiration for all of you booksellers out there. Amazon, too, started as a bookseller. Now, it is about to become one of the most important companies on earth.
Amazon began in the late 1990s as an internet bookseller, nothing more. Their business plan was to take advantage of the savings afforded by not having to maintain bricks and mortar stores and their staffs, and the ability to sell nationally, even internationally, from one location. These competitive advantages would allow them to sell new books at a discounted price. The model was extremely successful. People would go into a Barnes and Noble or an independent bookstore, see something they liked, and buy it from Amazon for less. It was a model similar to that of Wal-Mart and other discounters a generation earlier, when they used large stores and volume buying to undercut local merchants. People would check out what the Main Street shop was offering and then go to Wal-Mart to buy it for less.
Within a few years, Amazon had expanded its offerings. First, they went to the obvious next categories, videos, music, and used books. However, they never stopped. Amazon expanded to anything they could sell, in effect becoming the discount department store of the internet. The formula continued to reap dividends. Today, Amazon is the world's largest internet retailer.
Amazon never forgot its bookselling heritage. That was not likely out of sentimentality. Books always remained an important category for the Seattle firm. However, Amazon, in a trait they share with Apple, realized they always needed to stay out in front of the next technology if they didn't want to end up being buried like the once great bookseller, Borders. So, when electronic books were first developed, Amazon created the first electronic reader, the Kindle. At the time, many traditionalists scoffed. Who would ever give up the feel, the comfort of a physical book for an impersonal electronic gadget? Turns out millions of people, especially the young, would and did. Amazon was onto to the next great leap in books, just as they had been a decade earlier with online discounting.
I don't know whether Amazon foresaw where this would lead when they introduced the Kindle. I suspect not, but it doesn't matter. Amazon is now in the process of parlaying that electronic book reader into a sphere of business where not even they have participated in the past.
A few weeks ago, Amazon announced the production of the new Kindle Fire. This is a Kindle e-book reader that has evolved into something more. What that more is, essentially, is a tablet computer, an iPad if you will. Amazon has moved into Apple's space. For those who haven't been following, Apple, near bankruptcy in the 1990s, the almost totally vanquished PC competitor of the behemoth Microsoft, passed that company in terms of its value a couple of years ago, and now challenges Exxon for the most valuable company in the world. Apple succeeded where Microsoft stood still by using the same game-plan that Amazon now employs, getting ahead of the next wave of development. Apple recognized that consumers were looking for compact, mobile devices to keep connected to the world, so they developed their iPods for music, and then their iPhone smart phones that did far more than the ordinary cell phone. Then, they introduced their iPad tablet computer, a small portable computer that they sold tens of millions for around $500 each. People were ready to move beyond their bulky PCs, with their Microsoft operating systems. Apple totally dominates this market. They have beaten back all attempts to compete for significant marketshare, recently driving even the venerable HP from its attempt to edge in. Now, Amazon will take them on, and Amazon is a far more serious challenge than any computer or cell phone maker before them.
What makes Amazon a serious competitor is their reach. Unlike an HP, Amazon already has a relationship with millions of consumers. And, Amazon has been selling them a related electronic product in the millions – the Kindle e-book reader. Furthermore, Amazon is willing to use the strategy that gave birth to their business a decade and a half ago – undercutting the price. Apple has long been noted for innovative and superior products. They have not been known for low prices. If you want something from Apple, you better be prepared to pay up for it. Amazon's Kindle Fire tablet will retail for $199. The entry level iPad sells for $499. Experts will tell you the Kindle Fire does not have all the features of an iPad, just like a Toyota Corolla doesn't have all the features of a Mercedes. They sell a lot of Corollas anyway. There are lots of people for whom $200 is a lot more affordable than $500, and they have already made Amazon the largest online store.
However, there is something else going on here, and it promises to be much larger than all of those millions of Kindle Fire sales Amazon expects to make. The sale of an electronic gadget can be more than a one-time sale. It can draw you into the seller's world, where they can sell you more goods and services, or subject you to advertising that fills their coffers with additional revenue. Apple parlayed its music devices to sell music from its iTunes store. Amazon sells electronic books to its Kindle customers. Getting you onto their electronic devices opens the possibility of drawing you deeper into their world. Amazon may be happy to sell you a Kindle Fire at a low price as a gateway to a continuously flowing revenue stream.