Internet bookstore Amazon.com has responded to the threat of competition from high street retailers' online services with a flurry of branding and promotional deals, and tie-ups with leading search engine and network service providers. But does the cyberspace-only retail outlet have a future?
Amazon.com is probably the single best example of retail e-commerce in action. It claims its catalogue of 2.5 million titles makes it "earth's biggest bookstore", a claim challenged in a lawsuit filed in May by terrestrial US book chain Barnes & Noble. Earlier this year, the firm pulled off a successful initial public offering. And while subject to some fluctuation, its share price has remained remarkably stable as a growing number of Wall Street analysts place a "buy" recommendation on the stock.
But in recent months, Amazon.com has come under pressure from conventional US book retailers, notably Barnes & Noble and Borders. One of Amazon.com's assets is its lack of a physical commercial infrastructure to maintain, which has allowed it to reduce its operating costs and offer customer discount. But such a threat to core business could not be ignored by the major land-based chains. Barnes & Noble launched its own online site in direct competition to Amazon.com. Borders is planning a similar operation.
But can Amazon survive being primarily a Web-only experience? Josek Mandelbaum, director of electronic marketing at American Greetings Card company, predicts: "Barnes & Noble is going to be bigger. It has 100 years of brand behind it. There's a trust factor that comes into play. If you put 10 customers in front of a computer and offer them a choice of Amazon.com or Barnes & Noble, nine will go to Barnes & Noble."
Predictably Mark Brier, VP of marketing at Amazon.com, is bullish about his company's prospects, although he acknowledges that the key marketing obstacle for the company is its lack of brand name recognition outside a specific audience. "Our target audience is book buyers with Internet access and credit cards," he explains.
He is equally clear about the message that Amazon.com needs to communicate to that audience to retain an advantage. "We can solve their problems," he claims. "We can help them find the books they want at a good price. We offer one-stop shopping at the world's biggest bookstore."
Other more concrete methods of increasing brand awareness are also under way. Recently Amazon.com pulled off a series of strategic deals with America Online (AOL), Excite and Yahoo, which should result in increased customer awareness of its name. The most significant was a three-year agreement with AOL to provide Amazon.com with a permanent "above the fold" front screen button on the AOL home page, which will take users to the Amazon.com home page. Barnes & Noble uses AOL as a host for its Web site, so winning such a prominent slot is a coup for Amazon.com.
The two companies also plan to introduce a new navigational tool to allow Netfind users to link directly to the search facilities of Amazon.com to provide access to the entire catalogue. Finally, Amazon.com will also have exclusive promotional rights, including banner ads on some Netfind review category pages and keyword categories.
Such coverage doesn't come cheap. Amazon.com will pay out at least $19 million over the duration of the three-year contract. In addition, AOL will take a cut if Amazon.com's sales go above a certain, unreleased threshold.
In a separate three-year deal, Amazon.com will make a "multimillion dollar" advertising investment with search engine company Excite in return for which it will become the network's exclusive bookseller, integrated through Excite's channels. From Q4 of this year, Excite channel pages will carry links to take users directly to Amazon.com search result pages. Finally, Q3 this year will see the first fruits of a tie-up with Internet media company Yahoo, which will offer links to Amazon.com books from Yahoo search results and book category pages.
Amazon.com appears to be trying to start a price war, announcing last month that it would slash the prices of its books. There's little doubt that in the US online book sales are reshaping the publishing industry and there are early signs that the same trends are cropping up in the UK.
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