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Friday, November 12, 2004

Amazon's Invisible Innovations -Part II

David Kirkpatrick writes in Fortune that Amazon CEO Jeff Bezos is committed to improving customer service and says it doesn't have to lead to higher prices. In Part 1 David wrote about amazon's processes and technology giving them scalability and Bezos view about the internet medium being used for distributing low margin products to small set of customers efficiently. Part II Excerpts:

When Wired editor Chris Anderson asked Bezos if he thought the book publishing industry would eventually go to print-on-demand, Bezos surprised the crowd by explaining that Amazon is already there. It custom prints orders of a single book so professionally that you'd be hard-pressed to tell the difference from any other trade paperback, he said. "I don't think the concept of 'out of print' will survive," he added. On e-books, -"There's ultimately a business for it," Bezos said , though he admitted that the exact successful formula was still to be discovered. But he said the best evidence that it would eventually be necessary is the fact that young people on college campuses typically already get their news, and a huge amount of their other information, online.

Bezos explained that Amazon tried television advertising in two markets as a test not long ago but that didn't drive enough additional sales to justify the costs. He said the company concluded it was better to use that money to continue driving prices lower and increase free shipping. He doesn't worry people won't find out when Amazon offers something desirable. "Word of mouth is becoming more powerful," he said. "If you offer a great service people find out about it. We're getting information perfection on the Internet." He predicted that for all businesses, the amount of money spent on marketing and advertising will decline while the amount spent developing better products or services will increase as a result. "If the successful recipe is spending 70% of your money shouting about your service and 30% producing a better service, over the next 20 years that will reverse."

One of the parts of Amazon's business that most fascinates Bezos, as well as one that has been highly controversial with book publishers, is its "search inside the book" feature, added in the last year. Bezos told of how he'd used the tool to search for "92d St. Y" before coming, and found a book which, on page 421, noted that it's statistically harder to get into the Y's preschool than into Harvard. The point of the feature, he said, is to let people sample at the point of sale, just like tasting ice cream at Baskin-Robbins. If an offline bookstore kept all its books shrink-wrapped it would sell fewer books, he speculated, so why not allow people to peek inside the text via search? Although the book industry remains deeply uncomfortable with the plan, Bezos hopes to scan all books in print worldwide--now about three million--and ultimately get up to 20 million total books in the database. The company scans every page of a book and uses it two ways. It converts the text to ASCII in order to search it, but retains an image of each full page. A user searches the database using the pure text, but the result is rendered as the actual page of the book. Bezos proudly noted that many librarians are starting to use the service. "A card catalog can help you find every book about Lincoln," he noted, "but you can't find every book that mentions Lincoln's name."
The new search capability was only made possible, he said, by the fact that the price of storage technology has dropped dramatically in the last five years. "It's fun to layer invention on top of changes like a 30X decline in the cost of storage," he laughed.

Its such a great pleasure to see in Bezos, an unalloyed confidence in the potential of technology to improve peoples' lives
David - once again an excellent article about an extraordinary person and an excellent company. Would be interesting to see the growth models for amazon in terms of product range, service offerings, geographical reach and which part of their business is currently profitable and which part is futuristic- also an assessment of which range of amazon's business competitors would find it difficult to emulate - and curiously if we may manage to also have some insights to find how much money the amazon technology platofrm is providing them( by renting the platform for external business to sell their products online) and what is the cross sell -upsell ratio and more curiously how many registered customers that amazon have and wnats the average unit value of purchase and the trend - all these type of information would help us to understand amazon and its businesss model better.
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