UK: Smart cookies - Get set to Amazon - Amazon has revolutionised the way we do business on the internet. It ...

UK: Smart cookies - Get set to Amazon - Amazon has revolutionised the way we do business on the internet. It ... - Smart cookies - Get set to Amazon - Amazon has revolutionised the way we do business on the internet. It is now revolutionising the way we

by ANDREW WILEMAN.
Last Updated: 31 Aug 2010

Smart cookies - Get set to Amazon - Amazon has revolutionised the way we do business on the internet. It is now revolutionising the way we talk about doing business.

Since when have companies been grammatical elements?

As a verb form McDonalds entered the global business lexicon in the 1970s - 'we're McDonaldising the contract cleaning'. McDonaldisers broke service businesses down into their component activities, then applied production methods to re-engineer cost and quality standards.

Amazon has achieved the same status just five years after start-up - becoming the model for how e-commerce will re-engineer whole industries.

Venture capitalists' desks are thick with business plans promising 'we're going to Amazon the insurance/travel/ property business ...' And old-economy businesses, such as Barnes & Noble or Waterstones in books, or Virgin and Tower in music and video, are obsessing about how to avoid 'getting Amazoned'.

So Amazon isn't just 'an online bookseller'?

That's like saying the Apple II was just 'a small computer'.

When Jeff Bezos set up Amazon, books were an attractive entry product: you didn't need to see or feel the product before buying, and the established industry was high-cost and unresponsive. Online, he could offer far greater choice and convenience, lower prices and more information.

But Bezos has never seen Amazon as just a bookseller. Amazon is in the e-commerce customer-relationship business. Its core competencies are acquiring customers, selling them stuff, and delivering high levels of customer service. It is better at this than any other e-commerce player. Amazon sets standards and leads innovation: it was first with numbered steps in the purchase process, proactive e-mail order confirmation, credit card and one-click purchasing.

Those core competencies are applicable to all e-commerce markets. Amazon is positioning itself as the Wal-Mart of the web: already selling books, music, videos, gifts, greeting cards, drugs, pet supplies, and even holding auctions.

How do I Amazon a business?

Pick a target industry, then figure out how online delivery could radically change industry economics and the customer proposition.

Take the economics of the travel business. Distribution costs (mainly bricks-and-mortar travel agents) used to make up around 20% of an airline ticket price; the internet (plus e-ticketing) can reduce that by up to 75%. Airlines historically sold only around 70% of their seat capacity; the internet can increase that to 80%-90% by better matching supply, pricing and demand.

And the customer proposition can be radically improved. An e-commerce travel site can offer greater choice and convenience, and much wider and better background information and advice, including (soon) interactive video tours. It can track customers' travel habits and preferences, tailoring information and marketing to their individual profiles, and integrating with frequent-flyer programs - all at much lower cost and lower prices.

Of course, who you are is a key question when you're thinking about Amazoning a business. Are you a retailer, a reseller of other people's products - as Amazon is with books and CDs? Or are you a producer, bypassing retailers and intermediaries and going directly to the end customer - as is the case of the North American airlines or Dell?

If I'm an old-economy target, can I avoid being Amazoned?

No, so Amazon yourself first. As quickly as possible.

What can you get in a physical bookstore that you can't get online? The pleasure of physical browsing and discovery - but Amazon offers other, new ways to browse and discover. Instant purchase and consumption - but Amazon is working towards same-day delivery. That leaves cappuccino and nice armchairs - Amazon does have a problem there, although it can always run a promotion on home espresso machines.

Barnes & Noble, the USA's largest physical bookstore chain, was in denial over Amazon until this past year. Now it has woken up and is fighting back, with barnesandnoble.com. But stock analysts are unimpressed with its 15% share of online book sales versus Amazon's 75% and, in 18 months, it has gone from being undisputed king of the US book industry to being the under-threat underdog.

Schwab, in contrast, has embraced e-commerce fully and aggressively - accepting potential cannibalisation of its traditional phone and branch brokerage business, and focusing its investment and pricing strategy on online - and has been rewarded with a stock market valuation higher than Merrill Lynch.

So get Schwabing, before you get Amazoned.

Andrew Wileman is a strategy and organisation consultant; e-mail: wilemanae@aol.com.

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