ATG Newschannel Original: Jeff Bezos & Amazon Part 2: Moving From Book Sales To The Cloud And Beyond – Is There No Stopping This Behemoth?

by Nancy K. Herther

(This is Part 2 of a 2 Part article. Here is the link to Part 1.

In a recent Scholarly Kitchen article , Ohio State University Press Director Tony Sanfilippo examined the impact of the current political emphasis on “alternative facts” and attacks on scholarly research. However, he sees a larger issue of even more importance. “Before Amazon, every village and town in America had at least one bookstore, with major cities typically having dozens of them. Now, a city is lucky to have one independent bookstore and maybe a handful of chain stores, and places smaller than a city are likely to be a book desert. The city I currently live in is a great example. At the turn of the twentieth century, the Columbus, Ohio directory listed 15 bookstores serving a population of 180,000 citizens. Today we’re at 2,000,000 people and have two independents and five chain stores.”

“Bookstores were never only about buying books; they have always also been about exposing ourselves to diverse voices and ideas,” Sanfilippo continues. “While the ad-dependent business model for the internet has so influenced its algorithms to the point where it will show you only what pleases and comforts you specifically, the best business model for the bookstore has always been to stock a variety books that represent and are of interest to an entire community.”

“What might a world without Amazon mean to university presses, particularly one growing its trade program? For most university presses, Amazon is either its first or second largest customer. What are our contingency plans if that customer collapses? It would certainly make bookstores more important — and thus sales forces and Ingram and Baker & Taylor more important. It would make our own websites and direct-to-consumer a necessity, and digital delivery of our ebooks direct from our website absolutely crucial. Are we prepared for these possibilities?”

The Future of Publishing’s Thad McIlroy believes that “we’ve reached an inflection point for authors and traditional publishers. For certain genres, such as romance and science fiction, traditional publishers fail to offer consistent economic value. Amazon’s 70% royalty decimates the industry standard of 25% of net. But to be taken seriously by reviewers, particularly for books that fall under the category of “literature” and for serious nonfiction, the self-publishing route remains a no-go.”

“Where do we go from here?,” McIlroy asks.  “I only assess trendlines: I don’t make predictions. The trendlines I see include an increase in market share by both Amazon and Apple with Barnes & Noble being kicked off the ebook table. It’s hanging on now just by its fingernails. The only reason Apple is gaining share is that the iPad and iPhone continue to gain share and their default ebook app is iBooks. But even those users quickly install the Kindle app and transfer their loyalty once and for all. Well Google has completely lost interest in the e-book market — that conclusion based on a perception that Google no longer even shows up at the party — Apple will keep selling ebooks and for the foreseeable future will be the one company that blocks Amazon’s march towards a monopoly.”

PRAISING AMAZON FOR WHAT IT HAS ACCOMPLISHED

David Rothman

TeleRead.org Editor-Publisher David Rothman can tick off a wide range of stellar accomplishments for the Seattle giant. “Unless a major surprise comes along, I see Amazon in the near future going only one way—up!  Whether we’re talking about books, content in general or the company as a whole. Total net sales could exceed several hundred billion in the next decade.” Rothman offers ten reasons for “why Amazon most likely will keep on thriving and disrupting, especially within the publishing area”:

  1. “Most consumers have a genuine affection for Amazon, and not just because it can generally avoid issues such as fake news and others associated with content from outside sources. Amazon teems with product-centered communities that make the Web side sticky. Knowing about products before they hit the button, consumers can buy more more confidently. In the book area and other media ones, I feel sorry for libraries. What a shame they didn’t build up the same rich communities, and now Goodreads has widened the gap. Of course, issues may arise about the quality of customers’ reviews and about other details. But as others have pointed out, most people don’t feel the same intense hate they do toward the offensive content on Facebook.”
  2. Amazon’s customer service is still tops – quite a contrast to the pathetic efforts at, say, Google. Kindle and Fire customer service is exemplary. Just about any kind of Amazon service is.”
  3. Google, Apple, Microsoft and Walmart don’t care nearly as much about books, and Kobo, at least in the U.S., just is not big enough to be a threat. And B&N isn’t the player it used to be. So who’s left to cause problems in the publishing area?”
  4. Amazon uses tools such as proprietary DRM and its own formats to create a wide moat in the digital world.”
  5. “It is the King Kong of both ebooks and physical books here in the U.S., its main market. I doubt this will change soon. Publishers have not thrived with their own sites, and as I’ve pointed out, Amazon has crushed competitors.”
  6. Amazon at this point has just a few physical stores, and while this will change, it will be able to cherry-pick locations for new ones and give them focus in ways that build on the existing business models.”
  7. From videos to ebooks, media products help draw customers in. Granted, media products were only 18 percent of the $136B in net sales in 2016. But they help keep the company on the minds of consumers, and the freebies are a nice bonus for Prime subscribers.
  8. “Many additional synergies arise. Amazon can use other divisions to stay profitable no matter what happen over on the book sides. Or the money can flow in the other direction. So margins don’t have to be as big and revenue does not have to be as reliable as they might in a books-only company. On top of everything else, there can be cross promo and use of common infrastructure such as the Web site, in its various localized incarnations. What’s more, Amazon is getting more and more into shipping and the related logistics, offering yet other synergies.”
  9. “From cloud computing to the latest in voice-driven home tech, Amazon almost surely will be competitive if the past repeats itself. I’m just sorry it isn’t as innovative in the ebook area as before. More on this later, in an antitrust context.”
  10. “Just as in Berkshire Hathaway’s case, investors have been very accommodating. Bezos has constantly made clear to them that he’s interested in the long term; with their expectations adjusted, he doesn’t need to worry as much about quarterly results as competitors do. Like Berkshire Hathaway’s Buffett, he cares more about building value. After years of being mocked for lack of profits, Amazon is at least showing small ones.”

MOVING INTO BRICK & MORTAR

Amazon has made major investments into physical distribution in the past few years, causing some to suggest that even UPS and FedEx may be in their crosshairs . Amazon has established a growing number of huge distribution centers across North America and the world. “Fulfillment is at the heart of the Amazon experience,” the company brags. “We deliver millions of products to hundreds of countries worldwide. Our teams possess a wide range of skills and expertise, from business analysis and inventory management to engineering. With more than 80 Fulfillment Centers (FC) worldwide, Amazon Fulfillment is growing at a pace that requires the best and brightest talent to be brought in to our company to help us continue to make history.”

In a 2014 Wired article, the FC were described as “a uniquely 21st-century creation, a vast, networked, intelligent engine for sating consumer desire. The FC is the anchor of Amazon’s physical operations, the brick and mortar behind the virtual button you tap…The Amazon warehouse is a uniquely 21st-century creation–a vast, networked, intelligent engine for sating consumer desire.”  Additionally, these centers also serve third-party sellers who “are critical for Amazon’s retail business, with more than two million sellers on the site accounting for more than half of its sales, including more than 100,000 sellers who each now sell in excess of $100,000 annually”.  Some analysts are predicting that Amazon may be hoping to establish as many as “300 to 400 physical bookstores, massively expanding on the single physical bookstore it currently operates in Seattle”.

Amazon is also doing research into drone-based delivery called Amazon Prime Air: “A delivery system from Amazon designed to safely get packages to customers in 30 minutes or less using unmanned aerial vehicles, also called drones. Prime Air has great potential to enhance the services we already provide to millions of customers by providing rapid parcel delivery that will also increase the overall safety and efficiency of the transportation system.” Although Amazon is rarely the first to debut an innovation in services, the company continues its sometimes slow but always confident move onward.  Laura Dawson agrees, noting that “Amazon is constantly looking for new ways to move product.”

According to Amazon’s 2016 fourth-quarter earnings report, Amazon grew to over 341,000 employees by hiring over 110,000 in just the past year.  Most of these jobs were in the company’s fulfillment centers and the company is also hiring more remote workers who will be working for the company from their homes.

FURNITURE, GROCERIES AND MORE

Amazon’s brick-and-mortar retail ventures now include physical book stores, as well as some limited experiments with cashier-less food marts. “Cashier-less restaurants already exist in many airports,” explains Dawson. “Customers swipe a credit card after ordering on an iPad. It wouldn’t surprise me if Bezos was looking at this as yet another model. The move to brick-and-mortar surprised me; I am not sure why that’s continuing. I’ve been to the store in Seattle; it wasn’t terribly groundbreaking if you’ve been to enough Apple Stores – they email you a receipt, they add your book to your list on Goodreads, etc. That type of physical-to-virtual streamlining isn’t unusual and I’m not sure what they’re getting out of this experience except a poke in the eye to traditional bookstores.”

Recently the New York Times reported on another new venture, code-named “Project Everest,” that is a partnership with the government of India, intended to Amazon establish their Amazon Fresh U.S-based unit into one of the world’s largest consumer markets. This is in addition to the company’s moves into furniture to compete with such businesses as Wayfair. eMarketer estimates that “online furniture sales is a growing industry, with ecommerce sales estimated at more than $36 billion in 2017 and expected to rise to more than $55 billion by 2020.”  No wonder this is an area of interest to the Seattle titan.

Analysts are now looking at these ventures’ impacts on a much broader set of industries. Today, Amazon Fresh delivery service is available in limited markets; however media reports have reported the company had expressed some interest in potentially acquiring Whole Foods  or BJ’s Wholesale  – a lesser known warehouse club with over 200 stores and 100+ gas stations in 15 states. Another potential candidate would seem to be Costco, since studies have found that about 45% of Costco members are also members of Amazon Prime.

Why the interest in perishable food? A recent Fortune report noted that “groceries and grocery delivery isn’t an unnatural fit for Amazon. The service fits nicely into its Prime subscription, which also includes access to stream digital movies, TV shows, and Amazon’s original productions in addition to free two-day shipping and one-hour delivery on certain orders. And Amazon already has a delivery and logistics network set up for its e-commerce marketplace.”

As we go to press, Amazon is also beginning to test out the potential prescription drug business as another revenue stream. As a recent Fortune article noted: “Given the company’s ability to reach virtually every household in the U.S. through its extensive network, pharmaceuticals are also an obvious candidate for expanding the scope and scale of its product lines. Amazon is already in the health care market to some degree, offering medical supplies and equipment”. USA Today  noting that “the company, which has upended the brick-and-mortar market for books, electronics and other goods, would pose a major competitive threat to existing heavyweights including Walgreens and CVS.”

SUBSCRIPTION SERVICES

In April, Amazon launched a new service platform called Subscribe with Amazon , “a self-service subscriptions marketplace that allows you to reach millions of customers on Amazon.com. It is device agnostic, so subscribers can buy once and access on any iOS, Android, or Amazon Fire device supported by the subscription provider. Subscribe with Amazon also offers targeted customer exposure through popular discovery features such as search and recommendations. Current subscription sellers include Sling TV, Dropbox, Texture, and Creativebug”.  Covering anything from newspapers to TV streaming, the service includes everything from traditional media to products like SlingTV streaming, Headspace meditation, Dropbox Plus, workout videos, online classes, meal plans and – believe it or not – matchmakers.

Amazon is banking that companies will be lured by the chance to reach Amazon’s tens of millions of customers,” Fortune magazine predicts. “Amazon’s 54 million Prime customers, who pay $99 annually for access to Amazon’s streaming TV shows, movies as well as free, two-day shipping on many items, are particularly coveted because of their big spending.

Forty percent of Prime members spend over $1,000 annually on Amazon compared to 8% of non-Prime members, according to a Morgan Stanley report. Additionally, Prime members spend nearly five times more on the site than non-Prime members.”

TAKING ON THE WORLD

Watch out Alibaba, Amazon is on its march to cover the globe.  Amazon is currently moving into the Southern Hemisphere by way of Australia. Australia’s news.com.au reports that “Amazon’s arrival in Australia will kick off an ‘electronics storm’, forcing local retailers to drop their prices by 10 per cent on average to remain competitive.” Based on research from the country’s CommBank Retail Insights, online sales are booming and “online is expected to account for more than a third of Australian retailers’ sales as more offer click and collect services ahead of Amazon’s arrival.” Amazon is currently offering Kindle books and readers and other services; however, with a distribution center and other infrastructure, Amazon is clearly expecting big returns on their investments in this new marketplace.

HOW AMAZON CAN SUCCEED IN BRICK-AND-MORTAR

Mike Shatzkin

Idea Logical Company Founder & CEO Mike Shatzkin believes that “Amazon has built an amazing supply chain that can deliver virtually any consumer product to virtually any place in the world. And extremely efficiently to any place in the US. At the same time, conventional brick-and-mortar retail is highly challenged. Sales have moved online and are still moving online and legacy retailers are poorly positioned to capture that business; Amazon gets most of it. Downtowns and malls are full of holes where stores once were; it is expected that retail chains will be collapsing (some have, some are…) And that will put additional pressure on the real estate. Some malls will close when a few stores have gone out, because the fall-off in traffic from them will hurt the otherwise-healthy ones. That means the price of renting real estate will go down. And it will go down most sharply for anybody who can deal with a short-term lease, or pop-up store.”

“Who can deal with that better than a corporate giant that already has a supply chain delivering anything and everything right to that zip code now,” Shatzkin asks. “Particularly one which knows exactly what goods are being sold online to that zip code, and how that has changed since the last shopping mall went out of business. So I’m expecting a big move by Amazon into retail. Let’s remember that whether a product is on a retail shelf or a warehouse shelf, they still know where it is and can ship it to any customer who orders it.”

“Inventory for the stores Amazon will open won’t be ‘free’, but it will be closer to ‘free’ than any other retailer has ever achieved,” Shatzkin predicts. “Amazon is experimenting with bookstores (they’ve announced about a dozen of them, but the pace of announcements seems to be picking up). They’re also experimenting with pick-up locations and other retailing concepts, including a largely automated store and a van that drives around offering unique bargains each day (that particular trick is currently only being tried in Seattle). The cost of experimentation to them is low and the payoff is high. Every store they open sells PRIME memberships and can sell their electronic devices. In other words, they have multiple ways to win that no other retailer has.”

LOGISTICS & ARTIFICIAL INTELLIGENCE

Amazon is also researching the use of self-driving vehicles as a key component in their delivery system. And according to the Wall Street Journal, Amazon isn’t ready to replace drivers, but in exploring how driverless trucks may be another tool in their logistics plans. Along with their drone research, the company is clearly making investments in futuristic technology-based processes that could have value far beyond the company itself.

Amazon has evolved constantly throughout its more than 20-year life span, first as a book seller, than an e-commerce giant, and now a cloud computing powerhouse. A recent CB Insights Report predicts that Artificial Intelligence and cloud services will lead to new services and products to match their retail marketplace. Their analysis finds that the company’s Alexa devices, such as Amazon Echo, operate as a loss however, by opening the software to developers in 2015 Alexa now has over 10,000 skills – which has encouraged the company to open up the technology to third party hardware makers in order to create Alexas-powered devices.  “Instead, the end goal,” says the report, “is to be the cloud-based voice software powering everything from car dashboards to consumer wearables.”

Amazon’s investments in logistics is not only massive, but has been very successful. A report in Wall Street Journal estimates that 44% of  the U.S. population now lives within 20 miles of an Amazon distribution warehouse  – up from just 5% two years ago.  The company is leasing airplanes as well.  In a recently announced Kentucky hub, the total investment was estimated at $1.49 billion, “the largest single investment ever made by a company in Northern Kentucky.”

The CB Insights report noted that “today’s Amazon is far more than just an ‘everything store,’ it’s a leader in consumer-facing AI and enterprise cloud services. And its insatiable appetite for new markets mean competitors must always be on guard against its next moves.”

AND AMAZON HAS ITS HEAD IN THE CLOUDS AS WELL

In 2003 two Amazon employees prepared a white paper for Bezos in which they envisioned a “vision for Amazon infrastructure that was completely standardized, completely automated, and relied extensively on web services for things like storage”. Today, according to Datamation, “by all accounts, Amazon Web Services (AWS) is the world’s largest public cloud computing service. And although several other cloud computing providers are currently growing more quickly than Amazon, John Dinsdale, a chief analyst and research director at Synergy Research Group, said that Amazon remains ‘in a field of its own’.

Although many other cloud services exist – Microsoft Azure, Google Cloud Platform and IBM – Datamation notes many key advantages that Amazon’s AWS holds over all rivals:

  • “First is its sheer size. Amazon’s list of services has a breadth and depth that few other public cloud providers can match. It has data centers spread all around the world, and it has a long and growing list of customers.”
  • “Second, Amazon’s prices are generally comparable to the other major cloud vendors for most use cases. Economies of scale have given the company the ability to drop its prices repeatedly, and it continues to do so on a regular basis.”
  • “Third, AWS is very popular with developers. That’s not surprising, given that it was born out of Amazon’s need to simplify IT infrastructure for its own developers. Startup developers who use AWS often find that it is simplest to keep using the cloud service as their companies grow.”

Amazon’s cloud services are not just for corporates or other large organizations, but through Amazon Prime AWS as their ‘hard drive in the cloud.’  Over an estimated 50 million Americans subscribe to Amazon Prime and these members automatically receive 5GB of free storage for files and videos, as well as unlimited photo storage. If Prime members want more storage, they can buy the Unlimited Storage plan for $59.99/year and can store all of their files, photos, videos, music, and information.

 

For enterprises of all types, Amazon’s opening of the code to developers has resulted in a huge array of applications – in over 70 categories – and includes computing, storage, networking, database, analytics, application services, deployment, management, mobile, developer tools and tools for the Internet of Things. Microsoft and others have launched efforts to up-end Amazon’s lead in this area, but it will be an uphill battle to challenge their lead.

A TRILLION DOLLAR COMPANY?

Investment firms now predict that Amazon is on track to become the first $1 Trillion company (). And Bezos himself is amassing a fortune to rival that of Bill Gates.  For Bezos, his fortune is being funneled into Blue Origin – of which he is Founder and CEO.  This company, much like billionaire Elon Musk’s SpaceX, is building a fleet of reusable rockets that the company hopes will begin launching paying space tourists to the edge of space by the end of 2018. Blue Origin is also working to build larger rockets capable of challenging Musk’s project to deliver cargo on Earth or even beyond.

Blue Origin is also developing a lunar lander, called Blue Moon, that the company hopes to market to NASA in order to ferry people and materials to the Moon by the mid-2020s.

SO WHAT OF AMAZON’S FUTURE?

Mike Shatzkin sees the future for Amazon as difficult to project with certainty. “Somebody I know who is smarter than I am about corporate and financial dynamics says repeatedly that Amazon must grow or it will die. I believe continued growth for quite some time is very likely, but it is worth mentioning that growth may not be an option for them, it might be existential. And in a global economy that has plenty of vulnerabilities, it can’t be assumed that economic growth just continues across the board, let alone for any specific company.” However, for the time being, Amazon is the champion, the company that has done the most to define and create the 21st century business model – and the key services and products that we all depend on every day. Whatever happens in the future, it’s impossible to ignore the elephant in the middle of the room.

Nancy K. Herther is librarian for Sociology & Anthropology at the University of Minnesota Libraries, Twin Cities campus. herther@umn.edu

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