Jeff Bezos has always taken the long view so, in 2001, when the analysts were panicking and traditional retailers were crowing about the dive in the Amazon share price from a high of $110 to $11, he was the first to point out that not only had the value of the shares increased tenfold since 1997, but the real growth was yet to come.
The fundamental optimism that underpinned his enthusiasm was his insight that successful e-commerce is basically about trading real estate for technology. More often than not, real estate gets more expensive every year, while technology gets cheaper.
When Amazon began trading in July 1995, Bezos gambled that while traditional retailers would need to continually invest millions in rent, rates and infrastructure to support a network of stores, he could create equivalent scale by pouring those millions into software, logistics and customer service.
When he made this pitch, it was a very big bet. But, 10 years on, his business supports nearly 50-million active online shoppers from only six North American and three international warehouses, and sales have grown from $148-million in 1997 to a projected $8-billion in 2005.
By selling online, Amazon not only has infinite shelf space, but needs to carry significantly less inventory than other retailers, such as Wal-Mart and Tesco, to offer limitless choice. So while Amazon was building a business that mirrored Wal-Mart’s operational scale and a successful supermarket giant’s customer focus, it did so at a much lower cost.
But perhaps the most valuable asset that Amazon has created is its relationship with its 50-million shoppers. This knowledge is not limited to purchase information, but includes hundreds of millions of customer ratings and reviews, which form the basis of its powerful recommendations to buy.
The average Amazon shopper spends about $148 a year, but this has grown every year — not just by introducing new categories, but by serving as a platform for others. Amazon is helping retailers with significant investments in bricks and mortar to leverage their infrastructure by operating back-end services for brands such as Toys ‘R’ Us, plus individuals and small traders who want to sell goods through its marketplace. Each step in this direction shifts Amazon’s emphasis from the Wal-Mart style of “everything under my roof” to the eBay style of helping customers to discover what they want to buy.
With its newly minted Yellow Pages service, Amazon has extended this model. Its service offers enhanced business listings, including the now standard maps and contact details on offer elsewhere. It also has a cool feature that lets you place a call to a local business simply by clicking a button on the screen and entering your phone number — you are then automatically connected. But Amazon is most proud of the way it has brought traditional Yellow Pages to life by showing street views of millions of local businesses in 10 big United States cities.
In classic Bezos style, Amazon created a system that combines digital cameras and global positioning systems, and equipped vehicles to capture images of buildings and geo-tag them with location information. Apparently it has only taken a few months to capture more than 20-million images.
The strangest thing about all of this is that as Amazon and the Internet giants continue to grow, they profit most as they develop services that 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 to afford advertising to a global audience, and eBay has created a marketplace that supports more than $34-billion of transactions. Can Amazon now revive the high street by sending it some of its 50-million shoppers? — Â