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Online Booksellers
How It Works
How Publishers Get Books Listed
"Collaborative Filtering"
Why Amazon.com is Such a Threat

Online booksellers accounted for only 2% of retail book sales in the U.S. in 1998, according to the Book Industry Study Group. The figure is misleading. Ecommerce is still in its infancy, and growing at a furious pace--between 1997 and 1998 alone, sales increased by 349%.

The phenomenal success of Amazon.com has led other large players, such as Barnes & Noble and Borders, to enter the fray. Competition has emerged from other directions as well. BookSite, for instance, has recently made it possible for any independent bookstore to create an online presence, complete with a huge online inventory. The American Booksellers Association has a similar project in the works called Booksense.com. There is little doubt that as ecommerce becomes more generally accepted and access to the World Wide Web grows, so will online bookselling.

How it Works

The buying process is typically as follows: the buyer goes to the bookseller's Web site and locates the book(s) she wants; she provides her name, address, and credit card number, using site-provided encryption; her order is confirmed; the book is plucked from the bookseller's warehouse or ordered from another source; the book is packaged and sent to the buyer.

Nearly all ordering, fulfillment, and customer service is automated, which constitutes one of the online bookseller's principal advantages over bookstores. Others include: no need for expensive retail space; lower customer return rates; and a world-wide reach.

How Publishers Get Books Listed

The big online booksellers have access to multiple databases (such as Ingram's and R.R. Bowker's Books in Print) that allow them to locate and sell virtually any book in print, and thousands more that are out of print. They are also constantly building their own databases. Thus, publishers usually need not do anything special to make their books available. Making them prominent is another matter.

Borders and Barnes and Noble have close relationships with publishers and distributors that involve paid promotion in their stores, so it is natural to assume that a similar arrangement obtains on their ecommerce sites. As of late 1999, their Web sites provide no information on the subject and no direct way for publishers and authors to contact them. Amazon.com has an "Advantage" program that allows independent publishers and authors to make their books more easily available and attractive to Amazon customers. Amazon takes a hefty 65% discount off retail price for the service.

"Collaborative Filtering"

An Oct. 4, 1999 article by Malcolm Gladwell in the New Yorker describes a new and potentially revolutionary way for readers to find books that fit their tastes. Simplified, it involves "educating" a computerized database as to what titles the reader has liked in the past, matching that list with those of other readers, and recommending new books on the principle that if two people agree about ten books, they're likely to agree on the eleventh. This is, essentially, what like-minded readers do when they talk to each other about books. Computerizing the process makes it easier for readers to find a "community" that shares their tastes and interests and makes for a powerful selling tool for online booksellers such as Amazon.

Amazon's (Fair and Unfair) Advantages

Amazon is a threat to traditional bookselling in the same way that any ecommerce site is a threat to its real-world counterpart. Even more than other retailers, bookstores are ridden with inefficiencies. Understocking, overstocking, limited shelf-space, high rent, limited hours, limited customer base--these are all problems that do not apply to online retail. Simply put, Amazon can sell more books more cheaply and more conveniently than any bookstore ever could.

The online bookseller offers the customer several advantages over the traditional bookstore:

  • It does not require one to get up out of one's chair.
  • It has unlimited shelf space--i.e., the number of titles it can "stock" greatly exceeds that of the largest bookstore imaginable.
  • Online technology allows for book excerpts, sample pages, author biographies, reviews, discussion forums, and other valuable information and services to be one click away.
  • Sophisticated databases and advanced search capabilities help customers to locate other titles of interest more quickly and efficiently.

Two "unfair advantages" exploited by Amazon have particularly rankled with bookstores. First, because of Internet tax laws, Amazon (along with other e-tailers) is able to set up warehouses in underpopulated states such as Nevada and North Dakota and charge no sales tax to the vast majority of its customers, who live in other states. Brick-and-mortar retailers do not have that luxury. Second, because of the tremendous confidence that Wall Street has shown in Amazon, the company has not found it necessary to make a profit--or even come close. Thus Amazon is able to offer huge discounts to its customers, discounts that are often set not according to any profitability formula, but at the whim of its catalog editors. These discounts, needless to say, cannot be matched by booksellers, online or traditional, who live in the dismal world of classical economics.

Whatever Wall Street's ultimate verdict on Amazon, it is clear that the host of customer conveniences and services offered by it and other online retailers--such as collaborative filtering, searchable databases, and customer reviews--are extremely popular, and probably here to stay. There is no reason to doubt that online booksellers will continue to take more and more business away from traditional booksellers for the foreseeable future.


 

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