Founded as Cadabra.com by Jeff Bezos in 1994, Amazon.com was launched in 1995. It is an American electronic commerce company based in Seattle, Washington (Wikipedia 2006). It is one of the first major companies to sell goods over the Internet and one of the most recognized and respected online businesses. It has become the number one online retailer by steadily building its reputation and brand, beginning its operation in July of 1995 (cited in Haddad & Sheth 2001).
Moreover, it has expanded from its existing business of selling books to selling a wide variety of products such as DVDs, music CDs, computer software, video games, electronics, apparel, furniture, food and more (Wikipedia 2006). Similarly, Amazon aside from its domestically shared market also set up four other separate online stores in the United Kingdom, Germany, France and Japan, thus shipping globally on selected products (cited in Haddad & Sheth 2001).
Overview of the Online Industry
The population of the Internet and World Wide Web has raised fast since 1990s with the development and advancement of computer technologies. Many firms have launched their business through the Internet because of this technology innovation. This resulted in various and widely sales of products in the Internet business. Online buying grows at an amazing rate. Therefore, companies that carry out Internet based business have great opportunities to succeed. Conversely, there is a greater competition and threats are all around considering that many companies had entered the online business (cited in University of Texas at Dallas.com n.d.).
Amazon.com vs. Other Online Bookstores
Book retailing is one of the flourishing industries. Barriers to entry into this industry are quite high and suppliers have modest influence over booksellers. The introduction of the internet has brought about many changes to this industry because it has increased rivalry, buyer power and substitutes (American Booksellers Association 2002).
The largest market for books is the United States. Before, book publishing is still fragment, thus high percentage of publisher's sales occurs through the wholesalers. However, with the emergence of superstores like Barnes & Noble and Borders.com which are directly supplied with more than 95 percent of books from the publishers such percentage decreased (American Booksellers Association 2002).
Since these stores can reduce intermediates like wholesalers, they can sell their products at a discounted price. Because of this strategy, their sales growth rate raised to 71 percent compare to 4 percent sales of non-superstores. In addition, according to their self-report, they are growing almost 25 to 35 percent a month. Many independent stores have gone out of business because of this happening. Such scenarios are the threat to the success of Amazon.com (American Booksellers Association 2002).
It is necessary to understand the book industry as a whole and the competitors in order to remain competitive in the market. Two of the Amazon.com largest competitors are Barnes & Noble and Borders.com.
Book Retail Industry Analysis
The book retail industry was expanding at a phenomenal rate during 1970's and 1980's. New stores were opening and growing into markets previously not served by any bookstore. The number of new books published each year grew because new authors increasingly found their way into print. Similarly, the profit for publishers rose in robust percentages. The book retail industry began evolving into the maturity stage of the industry life cycle in the mid of 1990s. Mark Domnitz, ceo of American Bookseller Association, predicts that Internet book purchases will grow exponentially over the next few years (cited in University of Texas at Dallas.com n.d.).
Porter's Five Forces of Competition framework such as competition from substitutes, entrants, rivals, supplier power, and buyer power is a valuable tool in analyzing the industry (cited in University of Texas at Dallas.com n.d.).
Substitutes
Substitutes for reading include watching television, going to movies, renting movies, listening to CD's, tapes or the radio, playing computer or video games, talking on the telephone, surfing the Internet, playing sports, exercising, etc. Booksellers are conscious of their prices since some of these substitutes leisure activities do not directly cost the consumer like watching television and making local phone calls (cited in University of Texas at Dallas.com n.d.).
Entry
The book retail industry has very high barriers to entry. The capital requirements necessary to establish a bricks and mortar bookstore would be virtually impossible for a newcomer. Consumers know the big name players. High product awareness and large marketing budgets make it very difficult for new entrants to enter into this industry (cited in University of Texas at Dallas.com n.d.).
Rivalry
Looking at the entire book retail industry, competition is quite diverse. A consumer could purchase books from a bricks and mortar store, which could be a large chain, a non-book retail store, or a small independent store. A consumer could also choose to buy their books on-line. With the onset of Internet bookstores, price is even more of a factor in consumer book purchasing (cited in University of Texas at Dallas.com n.d.).
This online bookstore focus on University textbooks and college textbooks market. It does very well in students market. Prices are very good and all are Brand new textbooks there.