Pioneering 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 electronic 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 IPO 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 the company to squeeeze its operating costs down to a minimum and offer substantial discounts to customers.
But as in other areas of retail, such a threat to their core business could not be ignored by the dominant land-based chains. In the book world, Barnes & Noble launched its own online site in May in direct competition to Amazon.com. Borders is known to be planning a similar operation, probably before the end of this year.
What?s increasingly open to question is whether the early lead and good reputation that Amazon.com has acquired in using the Internet as an effective sales medium will be enough to prevent potential customers moving their business to the more recognised - and trusted - brand names. Amazon.com believes it is; others in the electronic commerce market are less certain.
Josek Mandelbaum, director of electronic marketing at the American Greetings Card company, comes down against cyberspace-only. "Barnes & Noble is going to be bigger," he predicted. "Barnes & Noble has 100 years of brand behind it. There?s a trust factor that comes into play. If you put 10 customers down in front of a computer and offered them a choice of Amazon.com or Barnes & Noble, nine of them would go straight to Barnes & Noble."
Predictably Mark Brier, vice president 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 of a specific audience. "Our target audience is book buyers with Internet access and credit cards," he explained.
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 claimed. "We can help them to find the books they want, every time, at a good price, with an attentive service. We offer one-stop shopping at the world?s biggest bookstore."
And the way of communicating with those customers? "Through other happy customers," said Brier. "In retail, one unhappy customer spreads by word of mouth to become 10; on the Internet, one becomes 100."
Other more concrete methods of increasing brand awareness are also under way. This week alone 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 of these 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 adverts on some Netfind Review Category pages and keyword categories.
Such coverage does not 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 the fourth quarter of this year, Excite channel pages will carry links to take users directly to related Amazon.com search result pages.
Finally, the third quarter of 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.
Whether this will be enough to stave off the threat from the likes of Barnes & Noble remains to be seen, but such deals are undoubtedly useful weapons in the armoury. An issue that terrestrial retailers have to tackle- which online-only ones do not - is how to balance their interests so that the Internet operation does not end up undermining the land-based business.
Amazon.com, meanwhile, appears to be trying to start a price war, announcing last month that it would slash the prices of its books to gain a lead over Barnes & Noble - although the latter says it will refuse to join in a price war.
The main selling point of Amazon.com and other online stores really has to be convenience: the ability to order out of print or difficult to obtain books, the ability to order books from the other side of the world and so on. But this rather begs the question of whether there is a big enough market of convenience book buyers.
This is at best highly debatable, particularly in the US where bookstores such as Barnes & Noble are run almost like private clubs with sofas and coffee shops. This is an experience to which book-buying Americans have taken with considerable enthusiasm; it?s also one that is impossible to recreate online no matter how many search engine and network providers you have on your side.
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