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The beginning of Amazon: E-commerce history

Published date: 7th December 2017
Last modified: 13th December 2017

How Amazon became the biggest online distributor of stuff from the back of one man, a crazy idea and some old books.

 

The Amazon is the largest river in the world, so it is no coincidence that this was the name chosen for Jeff Bezos’ 1994 online bookseller start-up company. Originally called Relentless, which is also a suitable formula for the organisation (and this domain still takes you to Amazon’s website), Amazon is now the largest and most relentless online retail giant in the market.

Jeff Bezos five-year business plan for online bookstore turned retail giant, Amazon, surprisingly included several years of $0 turnover. “Continued reinvestment of funds into the business has allowed Amazon to expand into areas far beyond the grasp, or perhaps even aspirations, of a traditional retailer”, (Mintel, 2017) By constantly reinvesting into the company, Bezos’ hard worked for money cannot be taxed and the business prospers and grows, this is called ‘no- profit growth’.

Although being the largest online retailer with over $67.8 billion worth of products in its inventory, success has not come without failure to the Amazonians*.  Although having many successful products i.e. the Kindle,  the Fire (a rival for Apple’s iPhone) was a huge failure leaving little marks of destruction within the company’s funds.

When deciding what Amazon was going to distribute, Bezos used books as there, “are too many in and out of print, they are hard to break when delivering and there were far too many to be held in a physical book store. However, Bezos had no passion for books, they were just a way to get names and data and therefore a customer acquisition strategy.”

Supplier Relationship

Amazon’s supplier relationship has been extremely rocky and controversial throughout the 23 years the company has been operating. In the beginning, to get a feature on Amazons home page publishers would be spending a lot of money, for example one former employee suggested that publishers paid $10,000 (Packer, 2014) for a book to be predominantly featured on the home page.

Bezos was also known to have a temper and had feuds with publishers and in the process, would remove the ‘buy’, button from their books pages, making them suffer huge losses. In the mid noughties Amazon brought out the first digital e- Book reader. After seeing what main competitor Apple had done with iPhone and iPod and the digital music industry, Bezos sensed they would soon be testing the water in books if he didn’t get to it first.

The ‘Kindle’ was then prototyped and made. As a result, in 2007 Amazon controlled 90% of the Market in digital books, however this didn’t come without a huge power struggle. In order to get the publishers on side, Bezos’s use scaremongery as a persuasive tool to get them joining his e- Book movement. He approached and got on board 90% of the best sellers list on the hardback charts. However, Amazon failed to mention that when launching the Kindle, all books would be priced at $9.99. Publishers had no pricing control over their stock.

Mr Monopoly

Amazon were accused of holding a ‘monopoly’ and with the launch of the iPad in 2010 Apple didn’t like this and the publishers/ suppliers felt that Amazon was devaluing books and were looking for any competition/ business rival to pull Amazon down. Therefore, Apple approached the 6 publishing giants, Penguin, Random House, Macmillan, Simon & Schuster, Hachette, HarperCollins and needed 5 to sign their deal, Random House was the publisher that held out.

Although Amazon was offering a better deal the publishers didn’t like that they had no price control over the retail price Amazon was selling at. However, this didn’t work quite as Apple had planned, Amazon took them to court and all 5 publishers and Apple were sued heavily for “Conspiring to raise prices and restrain competition” by the Federal Trade Commission’s Justice department in April 2012. Chevalier and Goolsbee (2003) noted that “a price below the static profit-maximizing level … would be attractive in a growing market with switching costs,” cautioning that when “Amazons growth stops, we may see prices rise substantially.”

Do you have an Bezos-esc idea and want to start up an e-commerce website? Get in touch today and see how we can help.

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