Webonomics: Nine Essential Principles for Growing Your Business on the World Wide Web 
by Evan Schwartz.
Penguin, 244 pp., £11.99, October 1997, 9780140264067
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What is ‘earth’s biggest book store’? It’s American like every other biggest thing. But, nonsensically, a court case, settled on 21 October concluded that two book-retailers can legally trademark the ‘earth’s biggest’ claim. One is the Barnes and Noble octopus, with 25,000 employees, franchised outlets in every mall in North America and a $3 billion annual turnover. The other, Amazon.com (‘Amazon-dot-com’), is a bookless high-tech office in Seattle, with a mere five hundred employees, and yet to make a cent’s profit for its shareholders. They can both call themselves ‘biggest’ because they operate in different dimensions: one is a ‘physical’ or ‘walk-in’ bookshop; the other a ‘virtual’ or ‘web-front’ bookshop. The latter is growing very fast and the former is very worried.

Barnes and Noble has established itself as a market leader by traditional, and legitimately predatory, commercial practices over many decades. Its major expansion came with the ‘chaining’ of US bookshops in the Eighties. The UK usually lags behind America in retail bookselling so this process is only now underway in Britain, with Waterstone’s assault on W.H. Smith. In historical terms, a late 20th-century chain is threatening to swallow a 19th-century wholesaler (which has done its share of swallowing in the past). On historical precedent, Waterstone’s should win; but, like Barnes and Noble, it may lose the next battle. Smith’s and Waterstone’s are fighting a civil war, while the real enemy invades from cyberspace.

Amazon.com began as a one-man operation in a garage three years ago. The garage-owning founder (now chief executive officer), Jeff (now Jeffrey) Bezos, was just 30. Apparently, in the early days, he would drive down to the local post office to dispatch orders by hand. Bezos is no tweedy ‘bookman’. He originally had 20 product categories in mind, but settled on books as the most appropriate for web-merchandising.

It was an astute choice. If they are to attract customers, bookshops have to lumber themselves with vast quantities of slow-moving stock. A high-street bookshop in this country may have as many as fifty thousand titles on display – most of which will never be sold at full price. The www ‘virtual’ bookstore can display without the expense of physically handling books. You see what’s not there.

The Web makes millionaires (or billionaires, in Bill Gates’s case) early in life. By 1996, Amazon.com was offering visitors to its website a choice of 1.5 million titles. In late 1997 there are 2.5 million. This is not ‘stock’ in the traditional sense. Amazon.com does not ‘hold’ books. What it offers, via the Web, is electronic speed and convenience of inspection, ordering and dispatch. You browse the Amazon.com site, open an account (e-mailing half your credit card number, faxing or phoning the missing digits), and dump orders into your electronic ‘cart’. Amazon.com contacts the supplier, and the books are on their way – Federal Express if you want them fast. ‘One-click shopping’, they call it.

Amazon.com offers crazy discounts – up to 40 per cent of recommended retail price. Even with postage and packing, this makes it competitive with American chains. The prices are higher than those of book clubs like BOMC and Literary Guild, but there is very much greater choice – and, most important, the choice of buying nothing. As with a traditional bookshop, you can enter its website as often as you like, browse, and leave with an empty cart. Unlike book clubs (which can get very mean if you don’t keep up with agreed purchases), Amazon.com is non-coercive, customer-friendly.

Amazon.com is growing fast – much faster than its ‘physical’ rivals, Barnes and Noble, Walden Books and Crown Books. It served its millionth customer in August. (Mr Bezos drove the order to the local post office, in commemoration of the old days.) It is, Bezos likes to say, in its big-bang phase. More significant, its share price has gone up like a rocket – from $18 to $60 in the first ten months of 1997. During the mid-October meltdown, when the other ‘techs’ quoted on NASDAQ took a terrible beating, Amazon.com stock (AMZN) held firm.

Investors have faith in it. On the other hand, and rather worryingly, Amazon.com is still not in profit. Nor is it clear when it will be. Bezos used to hazard late 1998. But asked by CNN a few weeks ago, he testily refused to make a prediction. Second-quarter earnings in 1997 were $28 million – an increase of 74 per cent over the equivalent quarter in 1996, and a tenfold increase over the year before that. Big bang indeed. But the 1997 figures still represented a trading loss of $6.7 million. With 610,000 customer accounts, Amazon.com is bleeding money. It’s easy to see why: if Bezos stops offering 40 per cent discounts, the customers will stop buying – they’ll use his website for ‘research’ and then go down to their friendly local bookstore to make their purchase. But 40 per cent cuts Amazon.com’s margin to the bone. Either Bezos has to have a gigantic volume of sales; or (as he no doubt hopes) customers become addicted to web-shopping and don’t mind when the discounts disappear. What little web history there is suggests otherwise. When newspapers go online and offer free access they get thousands of hits. As soon as they start charging, the number of subscribers slumps to hundreds. Surfers don’t expect to pay for using the ocean.

Is Amazon.com a bubble, or the new wave? Will it continue to expand at its present phenomenal rate, until it is manifestly bigger and better than its physical competitors? It all depends on what Evan Schwartz calls ‘Webonomics’. There have been some very expensive flops. Schwartz cites cybermalls like marketplaceMCI (backed by Rupert Murdoch), World Avenue (backed by IBM) and the Internet Shopping Network (backed by Cable’s Home Shopping Network).

A lot of big players have lost millions on the Web. But Schwartz believes that Amazon.com is a potential winner. And Barnes and Noble was so worried that it set up its own ‘web-store’ (Barnesandnoble.com, ‘the world’s largest bookstore online’) 18 months ago – cutting its own throat with Amazon-scale discounts. Worried firms do irrational things. It was in an ill-advised attempt to kill the pesky newcomer that Barnes and Noble brought a suit against Amazon.com over the ‘earth’s biggest bookstore’ tag. It ‘settled’ (crumpled) when it realised that the court publicity was familiarising its customers with its rival’s web address. Barnes and Noble, one commentator observed, was behaving like ‘someone who comes to a party late and starts throwing drinks at people’. It may be that those who have been buying into AMZN stock so enthusiastically are doing so in the expectation that Barnes and Noble, if it is to survive, will soon take over Amazon.com – with the inevitable surge in share value.

Amazon.com’s hopeful, but uncertain, future raises a larger question: can big business ever make big money out of the World Wide Web? The basic problem is that the system was not designed to sell books, or anything else. The Internet began as a military communication system: ‘ARPAnet’, father of Internet, was assembled in the early Seventies by the Defence Department as a network that would continue to function even if the Pentagon were knocked out by a sneaky Soviet missile attack. It was an elegant concept, and probably far ahead of anything the computer-poor Russians could come up with.

Much US military research is done on American campuses, and out of ARPAnet and its derivatives sprang Local Area Networks, connected by ethernet, or telnet programs, using UNIX, a complicated operating system, capable of communicating, via hub-computers, with other colleges. In the early Nineties, e-mail – electronic correspondence via these Unix-based college networks – spread like wildfire among the academic community. An e-mail address was for professors what the cellular phone was for their students: a sign that they were ahead of the game.

The World Wide Web, son of Internet, was another essentially non-commercial system. It was put together at CERN, the European Particle Physics Laboratory, and initially intended to allow scientists all over the world to work collaboratively and creatively on big-science problems. Whereas the Internet could conveniently carry only words and text – typically in stripped ‘ASCII’ form – the Web used ‘hypertext’ to incorporate imagery, icons and ‘browsing’, or lateral links. In other words, the Web introduced a new, non-linear architecture: duck did not have to collocate with green peas, it could also go in other contexts, alongside cricket, eider-filled duvets and any number of other things. Lateral jumps could be made instantaneously simply by clicking on an icon, or using a ‘search engine’, such as Yahoo, Lycos, Alta-Vista or InfoSeek.

To gain entry to the Web you have to have an ‘access provider’. If you aren’t a member of an institution, AOL (America On Line) or CompuServe will supply the connection for a monthly fee. In addition, you will need a proprietary browser or ‘navigator’ – software capable of handling hypertext. Netscape and Microsoft’s Internet Explorer are the current market leaders. Once you have bought your way in, you have a packaged, menu-driven range of options which, unlike the UNIX-based Internet, anyone can master with minimal instruction.

As the World Wide Web has grown – particularly as it has become commercial – the reasons for its existence have become less and less clear. Will it serve Mammon as efficiently as its predecessors did the military, academic and scientific communities? No one knows – at least, if they’re honest and not trying to sell you an expensive piece of equipment. But everyone seems sure that the Web has a great future if only they knew what it was. Every day the British press in one way or another trumpets the marvels of imminently online Britain. Tony Blair has decreed that, by the turn of the century, all Britain’s schoolchildren will be linked in a ‘national grid of learning’. It’s not evident that he or David Blunkett knows precisely what they mean by this feeble echo of Al Gore’s ‘Information Superhighway’. But they have touching faith that Bill Gates has the interests of British schoolchildren close to his heart, and that if we buy his products, we shall effortlessly take a quantum leap into the second millennium.

There are legitimate reasons to be sceptical. The entry stake is dauntingly high (with huge commissions for US-based firms), and shows no sign of getting cheaper. It costs around £1200 to get a machine and peripherals which can handle the information and image flow. Unless you have an institutional affiliation, annual subscription to a commercial access-provider will cost between £100 and £200. Home use with a modem can be awkward, slow and may tie up your phone line. With the arrival of Windows ’98, in the third quarter of next year, ambitious web-users will need to upgrade or buy new machines (no one ever wears out a computer nowadays). The ‘browser wars’ – between Gates’s Explorer and Netscape’s Navigator, principally – have not been resolved. But one thing is certain: once commercial monopoly or duopoly is established it will not be cheap to get the next versions of this essential software, which is free at the moment. And the software will, of course, be updated every couple of years.

The Web is an American possession. For UK users this has the advantage that English rules. It has the disadvantage that, with 30 million American users, the only practical time to browse the Web is in the brief interval between London and New York breakfast times: effectively, from about eight o’clock until noon. There is no less appropriate metaphor for using the Web than ‘surfing’. Do it in the afternoon, and it’s more like swimming with bar-bells.

Two areas of merchandising, as Webonomics reports, look particularly hopeful: sex and books. According to Alta-Vista – one of the more sophisticated search engines – seven of the ten search words most commonly used are: Sex (1), Nude (2), Pictures (3), Adult (7), Women (8), Naked (9) and Erotic (10). Since between 70 and 80 per cent of identified users are male and under 40, the Web is clearly testosterone-driven. Bianca’s Smut Shack and SportsZone are, apparently, among the most frequently visited sites.

So, too, is Amazon.com. Bezos claims that 4.5 per cent of American ‘web households’ visited his site in August 1997. Although he foresees more losers than winners in the great game of web merchandising, Schwartz has high hopes for Bezos’s firm and for electronic bookselling generally. The product lends itself to the peculiarities of webonomics. Book readers and advanced computer users overlap. Both are ‘literate’ constituencies. ‘Browsing’ – aimless inspection – is something that both book buyers and web-surfers like to do. Books are diverse and each title is ‘unique’. Customers like to sample books before making a purchase. You can’t go into Sainsbury’s with a tin-opener and dig into a can of Heinz baked beans to see if you want to buy them, but you can go into Dillons and read as much as you want of a book (often making it unsaleable in the process).

The main appeal of Amazon.com is that it gives you more useful information than a physical bookshop can and in so doing changes the whole book-buying operation. Amazon.com claims to offer a very much wider selection of titles than any traditional retailer. In fact, you can’t buy all the ‘2.5 million titles’. If, for instance, you search ‘London Review of Books’ as a subject word, Amazon.com will, in seconds, throw up eight anthologies of material from the paper, published over the last fifteen years. Only two titles are ‘immediately available’ however (with a 20 per cent discount). The others are listed as ‘hard to find’ (though Amazon.com will try) and one – a 1986 anthology edited by Nicholas Spice – is described as ‘out of print but if you place an order we may be able to find you a used copy within one to three months’.

Where Amazon.com really challenges the traditional bookshop is in its hypertext links and its 22 ‘browsing areas’. If you order a book it will, for instance, tell you what other titles other people ordering that book have selected. You can thus profile yourself. If you don’t want to profile yourself Amazon.com will do it for you, extrapolating from your previous purchases. There’s a ‘customer buzz’ link and an e-mail conversation ‘room’. There is a ‘Right Book for the Right Place’ link. If you’re in jail, for example, top recommendations are Power Yoga, Discipline and Punish and Questions and Answers about Depression. Amazon.com can supply interviews with the authors of bestselling and other ‘hot’ titles and will e-mail you current reviews in a range of journals from the New York Review of Books to TV-News. It has a daily updated news service, telling you what ‘everyone’ is reading and what Oprah recommended on her show this afternoon. There are gimmicky interactive features such as ‘mood-matcher’ and ‘book-matcher’. You feed in love-it/hate-it responses to 50 titles, and it tells you which are the books for you (for me, P.D. James and Goethe).

If you have an American bank account, or internationally recognised plastic, Amazon.com will supply British customers in much the same way that (in defiance of rights’ conventions, as I understand them) Blackwell’s has been supplying the American mail order market for decades. But it is unlikely that Amazon.com as it is presently formed poses any direct threat to the UK book trade. Shipping charges are too high and delivery times from Seattle too long. If the American firm continues to grow at big-bang velocity, however, and (crucially) if it starts making money, then Smith’s and Waterstone’s will have to stop worrying about each other and start worrying about Amazon.co.uk.

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Vol. 20 No. 1 · 1 January 1998

Some errors have been pointed out to me in my article on Amazon.com (LRB, 27 November 1997): Barnes and Noble are not primarily a ‘mall chain’, and their subsidiary outlets are firm-owned not franchised. Also, Waterstone’s is a wholly-owned subsidiary of W.H. Smith – this invalidates a point I was making about civil war in the British book trade, and arose from my confusion about what Tim Waterstone, as opposed to the firm he founded, has been doing.

John Sutherland
University College London

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