bookstore. When Amazon.com started business, it claimed to offer over a million titles – ‘Earth’s Biggest Bookstore’ was the tagline – compared with about 175,000 titles in the largest terrestrial bookstore in the US. But of course, the comparison was not entirely fair, since Amazon’s listings were derived from the database of Books in Print and the books were not actually held as inventory. Amazon relied heavily on the major wholesalers, Ingram and Baker & Taylor, to supply the inventory: when Amazon received an order from a customer, it ordered the book from one of the wholesalers, unpacked it when it arrived in its Seattle distribution centre, repacked it and mailed it to the customer. This model had the huge advantage of being inventory-free, but the disadvantage was that it was relatively slow since books had to be ordered and mailed twice. So in 1996 Amazon began to expand its warehouse capacity and to build regional distribution centres, enabling it to fulfil orders more quickly and reduce the costs involved in double-handling the books. But the more Amazon moved in the direction of warehousing its own inventory, the more capital it tied up in physical stock and real estate, and the more it began to resemble a traditional retailer and to experience the financial pressures and problems associated with conventional bricks-and-mortar operations.
The online retailers competed with one another and with terrestrial bookstores not only in terms of the range of titles offered and those held in stock, but also by deep discounting. Amazon was preoccupied with ‘the customer experience’, and its research had led it to conclude that the three things that mattered most to book-buying customers were selection, convenience and price. By offering over a million titles it could excel on selection; by being open 24/7 and aiming to ship books directly to the customer as quickly as possible, it could score high on convenience; and by discounting a substantial proportion of its titles it could compete against the superstores on price. Amazon offered a discount of 10 per cent on 300,000 titles, a discount of 30 per cent on the top 20 hardback and top 20 paperback titles, and a discount of 40 per cent on a select number of titles. When b&n.com went live in 1997, it offered discounts on 400,000 titles, including discounts of up to 50 per cent on some bestsellers. To some extent, the online retailers could offer deep discounts of this kind because their overheads were lower than those of bricks-and-mortar bookstores, but they continued to offer substantial discounts despite the fact that they were running losses year on year because they regarded this as crucial to their ability to compete with the superstores. Both Amazon and b&n.com also introduced free shipping on orders over a certain amount to ensure that the total price of purchases remained low.
From its original base in the US book market, Amazon expanded its operations overseas and diversified its product range. A significant proportion of Amazon’s client base had always been overseas, but in 1998 Amazon moved directly into the European market by acquiring the British online bookseller Bookpages and the German online bookseller Telebuch and using them to launch Amazon.co.uk and Amazon.de. Other international branches were subsequently opened in Japan, France and Canada. By 2007, 45 per cent of Amazon’s revenue was being generated outside of North America. Amazon also diversified beyond its core business of books, in part by acquiring other online retailers and adding them to what was rapidly becoming a vast online shopping centre. In 1998 it added music CDs and videos, in early 1999 it moved into toys and electronics, and in September 1999 it launched zShops, an online shopping zone offering a wide range of goods from clothes and household appliances to pet supplies.
By 2006, online bookselling accounted for about 11 per cent of the book retail market in the US.19 This included all online booksellers, but Amazon had become by far the largest player with around 70 per cent of the online book market. In just ten years Amazon had risen from nothing to become one of the most important retail outlets for publishers – indeed, for many university presses and smaller publishers, Amazon had become their single most important customer. Even the large trade houses soon found that Amazon was among their top two or three accounts – one large house said that Amazon represented about 8 per cent of its business overall in 2006 and was growing by around 20 per cent a year. For some kinds of books, like hardcover non-fiction, Amazon’s market share was already as high as 20 per cent.
For publishers, the meteoric rise of Amazon and other online retailers was a welcome addition to the existing channels to market. At a time when terrestrial retailing was being consolidated increasingly in the hands of the large retail chains and many independents were falling by the wayside, the emergence of online retailing represented a major reconfiguration of the bookselling business. It proved to be particularly good for selling backlist titles and books of a more specialized kind, or books by authors who were not already well known, which the bricks-and-mortar bookstores were becoming less inclined to stock. One of the appealing features of Amazon as a retail channel – for publishers as well as authors – is that it responds quickly and visibly to demand: the more frequently a book is ordered on Amazon, the higher it is ranked in Amazon’s sales rankings. So even if a book is not strongly supported by the central buyers at the retail chains, it can find an effective market through Amazon; and if it does particularly well on Amazon, the central buyers at the chains may, on occasion, reconsider their initial decision and place a more substantial order after all. ‘Every retailer looks at Amazon all the time,’ explained one bookseller who used to manage a team of central buyers for a major chain. ‘Because it’s live, it’s an honest chart, it changes frequently on real sales and you can see that in action. So you can fix something in a day if needs be. You can order stock and it can be there the next day. And that’s something you have to really get engrained into the culture of the buyers – if you make a mistake don’t panic; you can fix it very easily.’
At the same time, the rise of Amazon, and of online bookselling more generally, created new dangers for publishers and exacerbated some old ones. For one thing, the online environment proved to be particularly well suited to the selling of used books, as online retailers like Biblio, AbeBooks and Alibris could operate as clearing houses for hundreds of small used-book merchants who were spread across the country and, indeed, the world. When Amazon and b&n.com entered the used-book market, acting as clearing houses for used-book merchants and listing used books alongside new books in the search results, this brought much larger customer bases into the used-book market – not just individuals who were specifically looking for used books and were familiar with the specialist online booksellers who supplied them, but anyone who was buying books online. While college textbook publishers in the US had been accustomed to dealing with the used-book market for many years, used-book sales were now becoming a matter of growing concern for trade publishers as well. And there was some evidence to suggest that their concern was not without foundation: a survey carried out in 2005 suggested that sales of general trade used books reached $589 million in 2004, up 30 per cent from 2003.20 Total used-book revenue in 2004 exceeded $2.2 billion and while textbooks and other course materials represented the largest share (73 per cent), most of them sold through college bookstores, the most dramatic growth was in the area of general trade-book sales and in sales through online channels. At a time when overall sales growth in the industry was very modest, a growth of 30 per cent in used-book sales was very worrying indeed, since used-book sales, while very profitable for booksellers, contributed nothing to the revenues of publishers or the royalties of authors.
A second concern for publishers was that, as Amazon grew in size and became an increasingly important channel to market, so too it became more powerful and more able to use its size as a bargaining tool to try to extract better terms and conditions from publishers – higher discount, more co-op advertising money, better payment terms and so on. Publishers were accustomed to facing pressure from the large retail chains for better terms and conditions, but now they were faced with similar pressure from a new player that was rapidly becoming one of their most important customers. ‘Whether it’s payment terms or co-op or freight, there are lots of ways that 800-pound gorillas can force you into things,’ reflected one seasoned sales director. ‘Do I worry about that? Sure I do. The bigger they are, the more power they can wield.’ His worry was reflected in his behaviour: he hesitated to talk about these issues, my questions were followed by pregnant pauses while he carefully weighed up his words,
