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Amazon goes for broke

1 January 2007

The Christmas figures are not yet out, but it's a racing certainty that customers will once again have flocked to Amazon and further increased its grip on gift sales. Just in the UK, volume purchases from the Internet increased by 151% between 2002 and 2005 and Amazon's international divisions have all been growing fast. During the same period sales from independent bookshops in the UK decreased by 1%, with widespread anxiety about the declining number of independents still trading.

In spite of all the talk about 'if you liked that, you'll like this too' Amazon appeals particularly to book buyers who know what they want and are happy to buy it at a discount online. Heavy book buyers, those darlings of the bookselling world, are rewarded with free delivery as well as discounts.

Competitors have struggled against the rising tide of Amazon's Internet sales., the Bertelsmann group's attempt to compete with Amazon, closed down years ago. The difference now is that bricks and mortar booksellers realise that they have to have an Internet arm to stave off the long reach of Amazon, and thus Waterstone's relaunch of its online bookselling operation in 2006.

But Amazon itself is trying to move on. Jeff Bezos is tooling up the Internet giant to use all the backroom knowledge and systems it has to provide services for other businesses. These might consist of rack space in its 10 million square feet of warehousing around the world or perhaps spare computing capacity, or other services provided by the millions of lines of software code it has written to keep its businesses running. Bezos says: 'The company is in the business of managing complexity. No other e-commerce player does that.'

But has Bezos over-reached himself this time? Only time will tell, but Amazon is no longer the darling of the financial markets, which have looked in vain for the big profits which would justify its enormous growth and huge borrowings. Perhaps the site which started by revolutionising the business of bookselling will go on to near-global domination of retail and services. But in the meantime there are upstarts like Google which are challenging its hegemony, and 2007 could turn out to be an interesting year for Amazon.