It's More Than Just Books (and Always Has Been!)

By Hamilton, Denise | Searcher, June 2004 | Go to article overview It's More Than Just Books (and Always Has Been!)

Hamilton, Denise, Searcher

When Jeff Bezos launched in July 1995, he was but one in a field of optimistic entrepreneurs who recognized the World Wide Web as The Next Big Thing. Bezos, a summa cum laude Princeton grad with degrees in electrical engineering and computer science, was a 28-year-old Wall Street wunderkind yearning to be in business for himself. He spent some time doing meticulous research on the kinds of items that might sell online and eventually decided on books. He reasoned that nearly every book in print was already catalogued electronically; his business, a virtual bookstore, would essentially serve as a clearing house for processing orders. Bezos traveled from the Big Apple to set up Amazon in Seattle, a city with a large, ready pool of software engineers as well as proximity to Roseburg, Oregon, home to the largest book distribution warehouse in the nation, Ingram Book Company.

The original plan, as envisioned by Bezos, would give customers access to an enormous selection of books--many more than any single bricks-and-mortar bookstore could hold--while Amazon would be free of the considerable time and expense required to build stores and warehouses and to purchase inventory. It was a terrific idea--in theory. But, as Bezos all too quickly realized, the only way to ensure Amazon customers got consistently good service and good prices was to control the transaction from beginning to end.

The first bookseller to go online was the Sunnyvale, California-based Computer Literacy Bookshops., Inc., which had an established mail-order business with computer engineers and scientists. Its site,, was launched in August 1991; not only did the site lack publicity, it also predated the World Wide Web and navigating browsers. Legally, e-commerce wasn't even allowed until late November 1992.

A few short years later, it seemed that everyone was trying to sell something; by the late 1990s, the dot-com boom turned to bust for a number of companies. Wall Street wags were calling Bezos' company Amazon.bomb and Amazon.toast. They predicted that Amazon would, like the now-defunct, wind up in the doghouse.

The fact that Amazon has yet to turn a profit is somewhat misleading. Make no mistake, the company is making money--a lot of money. Revenues, around $4 billion a year, are growing by more than 20 percent annually, says Fred Vogelstein of Fortune magazine (5/26/2003, vol. 147, issue 10). Marketing, inventory, and warehouse operating costs have been whittled nearly to the bone. Building nine high-tech warehouses, at a cost of about $50 million apiece, parlayed Bezos' idea into the phenomenon that is, while keeping the business--at least for now--from operating in profit. That should change in 2004 and stock prices have already risen more than 150 percent in anticipation of Amazon's first-ever profitable year.

Technology, Technology, Technology

"In the physical world," Bezos has been quoted as saying, "it's location, location, location. The three most important things for us are technology, technology, technology." And therein lays the real story of Amazon's success. Selling books (and music, movies, apparel, and other items) is only part of what Amazon is all about. In becoming one of the pioneers of e-commerce, Jeff Bezos stood conventional business models on end; what few people may realize is that Amazon was also creating--as it went along--the technology that enabled this new way of doing business. As Paul Bausch points out in his book Amazon Hacks: 100 Industrial-Strength Tips & Tools (see the "Pushing Beyond the Limits" sidebar on page 44), is not just a collection of static Web pages. It's really a Web application, whereby each "page" is generated when someone requests it. The page is personalized and allows the user to track items previously viewed and to display a list of similar and related products.

Early in the game, Bezos and his team figured out what they wanted to do and looked at the software on the market that might enable them

to do it. …

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