Their Winning Ways

Dot Competence- Amazon.com's Bookish Relationship With Consumer

Walk a mile in their shoes? Why when you can buy a new pair online? Amazon.com, a household name by most accounts, has done the unthinkable. Rather than crash and burn alongside many a doomed dot-com, the e-commerce engine took a big bite out of the home shopping market. Though the company's mainstay is still media (books, CDs and DVDs) consumer electronics has been the second, most successful category added. By reaching CE shoppers online, Amazon may have forever changed the way people get their tech.

Because of Amazon's notable rise, earning kudos when it debuted in 1995, plenty of offline retailers have raised suspicious eyebrows about Amazon's impact on shopping habits. But for every angry brick and mortar who lobs claims that the e-commerce engine is ruining retail, there is a comparatively elated Amazon partner whose business is doing even better thanks to the one-box-at-a-time model. From Amazon's Seattle, Wa.-based headquarters, the management team thinks like a consumer thinks. And that has a lot of competitors shaking in their own shoes.

"While traditional retailers may see the internet as a threat, I think the internet is helping to make the pie larger and it's making people more comfortable with new technology quickly," explains Glenn Cunningham, Amazon's director of electronics. "The data that we have seen from Jupiter is for every dollar spent online there is a corresponding six dollars spent offline."

And it's not just in the United States that this phenomenon has taken hold. Amazon has also dropped anchor in the United Kingdom, Germany and Japan.

Fluid Concepts, Creative Analogies

When Jeff Bezos started out selling IT books online in 1995, like Amazon's first-sold, and no less dryly titled tome, Fluid Concepts & Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought, it's tough to imagine that he knew then exactly how Amazon would go mainstream. "When we started, we sold techie products for internet folks—PDAs, Palm Pilots, as they were called then, MP3 players," explains Frank Sadowski, the company's vice president of global consumer electronics vendor management. "We've been five years in the electronics business. As the business has matured and mainstreamed, now you look at our best-seller list, and it's not unlike other retailers." He counts digital cameras, flat screens and portable music players as the popular products.

"We can get products out in front of customers before brick and mortar and we also don't have the huge financial disadvantage of clearing out."

But back in 1995, Cunningham admits that he didn't exactly predict the scope of e-commerce quite so accurately. "Then, I'd say that brick and mortar had nothing to fear, that the internet will never replace touch and feel," he recalls. "I was wrong in not thinking about it from a customer's perspective." He says that while he still believes that the traditional retail model isn't about to become obsolete any time soon, he has revised his opinion that internet companies can't vigorously compete, saying that the customization of the shopping experience online proves that a customer can conceivably get plenty of information by logging on. "Plus," he says, "they can compare prices from several merchants at once."

Truth from Fiction

At the close of last year, Amazon.com hit the news in a big way when it was reported that for the first time in its 10-year history, electronics outsold books.

"We got a lot of great press on that," admits Sadowski. "But to be very candid with you, some of it turned out to be somewhat misleading. If you actually read our press release, it's very explicit. Consumer electronics in the U.S. revenue exceeded books revenue in the three-day weekend following Thanksgiving."

However, Sadowski says, "When I turned on CNN and heard that—I said, 'Electronics is now a bigger business than books at Amazon?'" There was no qualification by an overzealous media, perhaps, to attribute sales to a three-day explosive electronics selling period. But the news stuck to Amazon's ribs, elating electronics manufacturers.

Sadowski nevertheless qualifies, "We do not have a bigger electronics business than books business. Electronics is solidly the second biggest business at Amazon behind books by a big margin." But electronics also tend to be a lot more expensive than the average book. Even so, Sadowski says, "If we sold cars, you'd have to sell a lot less units to make the same revenue, but nobody ever put units in the bank."

True, but the reality of Amazon's success, while the company does not disclose overall ASPs, comes down to consistent growth by units. "In every single significant category of electronics in which we trade, our ASPs are from 20 to 100 percent higher than the industry averages as reported by NPD. And that's been very consistent for the last two years. If you think about the internet demographic, it's not a big surprise," he says.

"It does run contrary to one of the old notions about the web, that the web was completely a commodity space," he explains. "No question that price is important, but it's not a lowest common denominator marketplace. People who are shopping for big ticket items on the internet are better educated, higher average household income, more female than our industry. Our customer base skews more to female than the industry does. It's still a male business, but not as dominately as it is in brick and mortar."

Sadowski points to how online customers make different considerations than traditional shoppers. So Amazon has been bulking up its individual product pages, which explain each feature of, for instance, a digital camera, as well as how it can be used and other tutorial programs available both from the manufacturer and Amazon itself.

Hummel says Amazon works closely with vendors to make certain that at the time a press release is issued about a product, Amazon already has a page online for preordering.

"So when they see it on MSNBC, they can come to Amazon," he says. "We'll have a product page that will have all of the specifications. Not only can they preorder it, but they find out every single piece of information about it." He says in that regard, Amazon functions as a source of information no matter where a customer may choose to buy a product. He also describes the process as a way to extend the life cycle of products.

In 2004, Hummel says that his team produced more than 10,000 in-depth product pages. Products that qualify for a page are usually very newsworthy or perhaps technologically complicated. "We know on a daily basis where our customers are going," he says. Amazon also seems to know what customers will do when they get there.

The very nature of shipping also seems to be on Amazon's side. Sadowski says, "When [a customer] gets [a product], if they can't figure out how to work it, they tend to take another crack at it because they are technologically literate, above average. And it's difficult sometimes to return; it's a headache to return. And they'll take an extra pass and go back on the web, look at the manual, which we provide online for virtually all the products. And for that reason, our returns are significantly lower than brick and mortar, which the vendors love."

Friendly Competition

In addition to offering product fact pages, Amazon also partners with a range of more than 100 retailers, some big box and others independent. Merchants include Crutchfield and J&R Music and Computer World.

"What the partners program is not is a link to their site," says Sadowski. "It's as easy as buying the new Harry Potter book to buy a wide-screen TV. The partner completely controls the offering, selection, availability and price."

Sadowski says that some partners may only deal in specific products, like only digital cameras or computers. "There's all kinds of nichey guys. Right off the top of my head, there's probably an 80/20 rule. Out of that hundred, there's probably 20 of them that do a lion's share of the business," he says.

About two years ago, J&R signed on as an Amazon partner. At the time, Rachelle Friedman, co-owner with her husband Joe of the New York City-based retailer, remembers that there were few partners listed on the site, aside from big boxes like Circuit City. As an independent dealer, J&R was unique at the time to want to be associated with an e-commerce engine that was causing a bit of a ruckus in the industry.

Friedman explains that the reason they signed on, however, was because she knew J&R had the ability to fulfill orders quickly. She looked at her own business as "a natural complement to Amazon's offerings," she says.

"Amazon allowed us to reach a larger national audience," she says. "Even though we had credibility as a retailer and a mail order business, this gave us instant credibility on the web." Friedman says that J&R is now able to reach more people than ever before with their inventory.

As a brick and mortar still, Friedman says J&R recently underwent an expansion in the small appliance and personal care markets, two areas that they also sell on Amazon.

"We always sold the cappuccino machines, now we sell the more expensive ones. It's something that does very well," she says. Plus, the area in which J&R is located in lower Manhattan is becoming much more residential. As a result, locals are clamoring for a wider selection beyond the music and computer inventory for which J&R is famously known.

As for being a web partner, Friedman says, "I think it has only helped us. We've seen increased sales and name recognition."

J&R has been gallant in taking new strides over the years. The company's mail order business is more than 30 years old. Friedman explains, "The web is just a continuation of that. We had the whole back-end already," referring to warehouse inventory, customer service, sales and tech support. "The web was more of an electronic catalog," she says. "A lot of our mail order customers became our web customers."

She also says despite the fact J&R consists of one physical location, the store is not constrained by that. "I would encourage everyone to open a web site for two reasons," she says. "One is education. People will go to research on the web." The research may lead them into the store to actually make purchases, which is a second benefit.

For a dealer like J&R to become an Amazon partner, there are measures in place that qualify them first. "You have to have the capability of two-way transmission communication. You have to be able to supply us with a data feed in our format and you have to be able to ship and fulfill one box to one customer," Sadowski says. "If you think about it, most brick and mortar guys that don't have a web presence are not in the business of one piece to one person. They can't do it."

He explains, "Whereas the people who have a web site are already doing that. They tack it onto their existing capability and they make their own operation more efficient. That's why it's a win-win. They don't mind paying the commission on the sale because they're leveraging their fixed assets. They don't have to make any more investment, unless they get really big like J&R."

Even so, he says, "It gets them at a higher purchase level with their suppliers and all the other good things that happen when you do more and more business."

Specifically, Sadowski explains, "[Retail partners] actually list their offer on our web site. They decide what products they want to list in discussion with their suppliers, if they're authorized to do that, to put it on our site."

He says, "Typically, because we strive for universal selection, there will already be a product page on Amazon. But if not, they can generate a product page in an automated way. And they set their pricing. And they set their availability. And that comes to us on a data feed, which then populates the site in near-real time."

According to Sadowski, all retail partners are responsible for fulfillment of each order. "They fulfill it. They handle customer service. It's their sale. We take a commission on that sale, and in some cases, depending on the relationship, some other fees for site exposure."

But in the end, the person shopping on the site is still an Amazon customer. There's really no other direct marketing from the retail partner. This isn't to say that a customer is somehow being fooled. Though Circuit City recently ended its partnership with Amazon to start its own web business, when the company was a partner, Sadowski says, "We're very explicit if you go into the shopping cart, to tell the customer, 'You are purchasing this from Circuit City.'"

In addition to retail partners, Amazon also offers a used buy and sell option for customers. "There's a link at the bottom [of the product page] that says, 'See all new and used.' And that's what we call the Marketplace," says Sadowski. "If you have a Canon camera and you want to buy a new one—you have last year's and you want to buy the five megapixel—you want to get rid of last year's camera, you could do it in five minutes. You could set yourself up as a seller and list against that product page with your own price and your own availability statement. It is a free marketplace for used products."

The used marketplace is more of a bonus to the shopper than a hardcore revenue stream, which is an example of why it may be that Amazon is so successful. Those details that may otherwise be looked upon as incidental are considered critical to the overall experience. If you accuse anyone at Amazon of not being able to offer a customized experience like one finds in a brick and mortar, they'll each give you several examples of why this is not true.

"The first part of service," says Sadowski, "is information. The first part of service is having a web site that works and is secure. That's the ticket to get in the door. It's meeting the salesperson who really knows what he's talking about. We try to make sure that our site—this is our salesperson—really knows what it's talking about and has complete, robust, accurate information on the products."

He admits, "It's very hard to get your brain around this if you're a retailer. It's like Circuit City opening a Best Buy kiosk in the middle of their store."

It's particularly bewildering when one realizes Amazon has also set up a model where it competes with itself.

"The big partners do the majority of the business," explains Sadowski. "And there are featured merchants. They're the ones you actually see on the product page. And Amazon may not have the lead offer. The number one criteria for the offer is in stock."

Cunningham argues that the entire concept of the site is service. "We are the ultimate one-on-one service," he says. "You go to a detail page at Amazon.com and you search and browse for a product and the whole experience is built around you, what you've purchased in the past, what you've looked at. That detail page is both a reflection of in-depth information we can provide on the product, and also information from your experience and other customers."

Even so, Sadowski says that Amazon still does the bulk of business as a purveyor of its own products, even compared to big box names who sign on as partners. "Customers, they may trust Circuit City or Crutchfield or Office Depot as the name of the retailer, but they trust Amazon as the name to buy it online," he supposes. "The majority of the sales in electronics are through Amazon, not through the partners. But why shouldn't we have part of that sale?"

Distribution for Dummies

Amazon fulfills most shipments independently, but the company also looks to third parties for bigger items in a lower 48 state reach, which Cunningham says accounts for more sales in CE than ever.

He says that 25 years ago, "I really thought that no one would buy a TV online. But they can and they are. The advantages of the internet far outweigh the disadvantages."

When it comes to flat-screen televisions, like popular plasmas, finding ways of fulfilling the online experience comes down to white glove delivery, a system that Amazon initiated a few weeks before press time.

"It's a service that we have recently launched; it's still very much in a test stage," says Cunningham. But what it involves is delivery, breaking down the carton and carrying the product into a customer's home.

Cunningham admits that even though the service is in its infancy at Amazon, he anticipates that white glove service will increase sales of larger TV sizes overall. "Part of it is certainly the fact that getting into customer's homes will help us sell more," he says.

Sadowski echoes Cunningham, suggesting, "It's not the old web experience of, 'Here's your 800-pound wide-screen TV left in your driveway in the rain.' And that's the way a lot of people still fulfill on the web. It's just basic, 'Here it is.' The truck shows up and sticks it in your driveway. Maybe you pay the guy an extra $20 to carry it up to your garage or maybe you don't. We don't do that."

Instead, Sadowski believes that this specialized delivery signals the next frontier in customer service, even for a web-based retailer. "It's the biggest challenge of all," he says, counting "installation and in-home training and service."

He explains, "We use manufacturer fulfillment. Some of the manufacturers have built web sites with capability for one-on-one fulfillment. And some manufacturers have chosen to become merchant partners rather than sell us, or in addition to selling us. It's really kind of a hybrid world."

Sadowski is quick to point out that 10 years ago, the prevailing hunch was that distribution would be a thing of the past. Fast forward and he compares the same notion to e-commerce as a more hybrid form of distribution.

"The guys who are really successful—and there are some big, really successful distributors—if you poke around a little bit, you'll find that the majority of the very successful ones have kind of reinvented their business model a little bit and added fulfillment capability, one to one, one-box-to-one-customer fulfillment. Some of them are really good at it," he says.

Overall, Amazon has six distribution centers, and three of them manage electronics. Sadowski says Amazon also uses less than 10 distributors on a third-party basis.

The company already has sights set on an even more robust formula for delivery that may tap into installation. "The next thing is being able to hook that plasma TV up, hook it up to your stereo system, program the learning remote and make sure you know how to work it before you leave," explains Sadowski. "The step after that—that's non-intrusive—is full-intrusive installation, which is hang it on the wall, drill the holes, fish the wires, put the panels in, install in-wall speakers if you want."

Does it sound crazy? Possibly. Even he admits, "That's hard. That's hard to do everywhere, at every address in the United States, electronically on the web. But it's definitely something that's on our minds."

After all, Best Buy does something like it. Says Sadowski, "We're looking at third parties. We're looking at the possibility of doing it ourself."

Scare Tactics

Over the past 10 years, Sadowski says doubts prevailed among naysayers who assumed either traditional retail or e-commerce would crumble when customers were handed more shopping options. He now says the answers to those questions were mostly hyperbole.

"The answer is people will buy electronics on the web. People will buy better product on the web. They will buy televisions on the web, and they do care deeply about brands just like brick and mortar customers do," he says. "They will pay more for Sony, Panasonic and Philips and Samsung and brand names, and they care about retail brands."

If retail brands are important, then how about authorization? Amazon says that it encourages all dealers, small and large, to work out authorization with their own suppliers. Amazon is not policing the industry. For one thing, Sadowski believes the market—particularly suppliers—have gotten better at policing themselves.

"In my opinion, there's a lot less actual product back there today than there was a couple years ago. You can still go find any Mitsubishi or Pioneer Elite or Sony XDR TV from what we call the barrage sites," says Sadowski. "But if you really poke around, and not many people do, if you really poke around and try to buy them, it's my strong opinion that there's far less product available for sale through these third-tier, unauthorized sellers. There's some. There always have been."

Of course, dealers selling products they're not authorized to carry into the market is not a new phenomenon in his mind. "Go buy The New York Times on Sunday and go look in the back," he says. "I was looking in the back of The New York Times 30 years ago—you can buy anything. It's just the internet has put it right in everybody's face 24/7. It's not anything new, it's just become very, very visible to the suppliers and potentially disruptive to the marketplace."

What's actually disruptive to the marketplace, however, is anyone's call. From Amazon's perspective, the internet is not to blame. "I'm not in favor of selling things unauthorized on the web," Sadowski notes "But just being rational, I'm not completely convinced that it's very disruptive to the marketplace. But what they're doing is certainly within the parameters of the law and what they're allowed to do. And I think suppliers caring about and taking control of distribution of their products is a very good thing for the industry."

Sadowski credits suppliers for taking a more active role in where product now goes, and to whom. "It used to be a standing joke in this industry. Let's be realistic, everyone knew that at the end of the month, if a distributor needed to move stuff, they would sell it to anyone. And that's just not true anymore," he says. "The suppliers have put some pretty restrictive agreements in place and the distributors who are being held accountable to sell to people where their vendors want their products to show up, which I think is very healthy."

The Price is Right

There is something to be said for being able to compare prices in your pajamas, as opposed to driving to five different stores. And that's something that Amazon deftly uses to its advantage. "It's trivially easy to go find out what the best price is on any product that you want to buy, from an Eagles jersey to an automobile," says Sadowski. "Before, you had substantial leg work and gasoline investment."

Because Amazon has made a name for itself in dozens of different markets, with media leading the parade, there's a very good chance that more people use the engine as a source for retail, not just a end-stop point. But at least part of the reason depends on price.

"Amazon.com sets all of our pricing of all of our products on a unilateral basis. Nobody but us decides what we're doing to sell the products for, period. That having been said, we're highly sensitive to manufacturer's advertising price policies," Sadowski chides.

Cunningham notes that CE is becoming a far more interesting market to a lot more people. The very fact that tech gear is showing up in fashion magazines is telling of just how many people are latching on to what was once a fairly geek-centric business.

In the past, people interested in buying PCs were somewhat removed from the process. Aside from the fact that processors got faster, there weren't as many exciting catches compared to today, as more cameras are introduced, for example, with more megapixels.

"On the day of PMA, we introduced 70 new cameras and on press released date, we had detail pages for each," Cunningham reveals. He says that where Amazon lucks out is being able to operate from a premise of not having traditional inventory confined to shelf space. Instead, the site can introduce a product even before it hits shelves with preorder and continue selling it long after its shelf life is through once used.

"We have seen enormous growth in the whole digital audio player market," he says. "Certainly Apple has been driving this for us and the industry nationally. The second category is digital cameras and digital SLR. Everyone keeps saying that prices are decreasing, but we're not seeing that. We are selling more SLR."

In fact, he says the majority of point-and-shoot cameras are second and third purchases from Amazon customers.

Take the Canon SD110. "In addition to all of the credible information, we've got recommendations of key accessories," says Cunningham. The shopping experience for this one item is driven by information where one can even see, unlike a retail store, what similar items customers also bought who bought the Canon. He estimates that for this product alone, there are 40 customer reviews. And reviews of those reviews.

"Our customer reviews are the most frequently used service on our site," notes Sadowski. "Everybody loves them. They're self-leveling. If somebody writes a bad review and it's really a good product, there will be 50 other reviews that'll come in. You actually can rate the review. The ones that are [not] helpful or inaccurate go down further and further and eventually vanish from the site. It is very much a community that is self-policing and self-leveling. The watch dogs are the customers."

Cindy Ruppenthal, Amazon.com's senior control buying manager, explains, "Our customers really tell us what's hot. You can get on anytime to see what our top sellers are."

She attributes this to the sheer number of early adopters shopping online. "For example, we sell MP3s exceptionally well from Creative Labs and Apple," she says, also noting the advent of satellite radio.

"I think our goal is always to have the biggest selection online and part of that challenge is always having the product available to the customer," says Ruppenthal. "We developed an automatic forecasting process," she says, that helps anticipate what products will be the most wanted. The goal, as a result, is to ensure that a product can be delivered overnight.

Not-So Secret to Success

Peaceful existence is the goal, says Cunningham. But that doesn't mean plenty of old-school retailers aren't nervous about how kids today, reared on e-commerce, will one day treat brick and mortar. In some respect, it comes down to demographics. As wealthy and as smart as Amazon claims its own shoppers to be, truth be told, they only account for a portion of western civilization. There will always be an "other half."

"We have to be realistic. The internet business in general in electronics, and Amazons' business in particular, is growing," says Sadowski. "Plain math will tell you that we are are capturing more share of the customer's wallets. We're competitors to brick and mortar stores."

At the same time, Sadowski sees competition as a way to create more of a demand for accurate information. The more product pages Amazon posts, the more likely consumers are to expect the best from all sellers in the industry. He counts three motivations for online shopping: price, product selection and convenience.

"Selection and convenience—we have an institutional advantage because we have virtual shopping shelf space," Sadowski says. "It's possible to carry every product a manufacturer makes. A brick and mortar couldn't really do that."

The downside, at times, (Amazon calls it a challenge) is more tactile.

"You can't listen to two different pairs of speakers [online]," admits Sadowski. "You can't stand in front of two plasma TVs and look at the pictures."

He admits, "Some products on the web do disproportionally well," not only items that are popular over all, but also ones that are hard to find, like short wave radios. "A product that is difficult to explain is a TiVo." But on the web, he says, "We can give you a whole experience of how it works."

Bottom line, says Sadowski, "I think there's a truth and a misconception about the bubble burst of the dot-coms. There was a financial event that took place where investment in dot-com companies took an incredible hit. But if you look at the curve on the demand of e-commerce, internet use, there was not a corresponding blip. Amazon was uniquely positioned very big and very fast and had an enormous number of customers who were very happy and continued shopping with us."

He kindly blames Jeff Bezos for this stroke of genius, saying that even in an online domain that has become known for its revolutionary tactics, there remains a consistent vision in place. "Sometimes we're good," he admits. "And sometimes we're not." -Natalie Hope McDonald

by Tatyana Sinioukov

University of California Press book producers achieve success by attending to the nuances of design and production

Since its inception in 1893, University of California Press, Berkeley, CA, has become one of the largest university publishers in the nation, earning recognition for its diverse titles and creative approach to book design. Originally established to distribute the faculty research papers by exchanging them, for free, for papers from other universities, the University of California Press today serves as the university's non- profit publishing arm, creating titles from special editions of the classics to fine art books to historical studies to volumes of extensive research.

For this story, BookTech the Magazine asked Tony Crouch, director of design and production, to talk about what makes UC Press unique and to discuss points of interest in the UC Press production workflow. Crouch shared his thoughts on the intricacies of on-demand printing, how to keep up with the emerging technologies, and where, in his opinion, book publishing will find itself five years from now.

Do you consider yourselves a "typical" university press?

We publish books of general interest as well as scholarly titles for regional, national and international markets. Our titles are warehoused on both coasts and also in the UK for distribution throughout Europe. We could be considered different from other university presses in the sense that our list is often both eclectic and experimental.

Could you define what separates a university press from, say, McGraw-Hill or Random House?

The primary difference between a university press and a trade house is profit. Traditionally, a university press exists to disseminate the results of scholarly research and writing, whereas a trade publisher exists to maximize the profit potential of its products.

To have an outlet for their work, scholars need a publishing house whose basic goal is not profit but rather the dissemination of knowledge. The categories of books at the core of our publishing program would mean financial disaster for a trade publisher. Many university presses were originally subsidized by their parent institutions in recognition of the symbiotic relationship between the academy and the non-profit university press. Today, however, many university presses no longer enjoy the level of financial support previously provided by their parent universities. They have been forced to diversify their publishing programs to include some profit-generating trade titles. This delicate balance of trade and scholarly titles is a financial strategy to allow university presses to be nearly self-supporting.

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