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Great price and great service

10 November 2008

Amazon's latest figures don't look all that good, as they too have been hit by the recession. They are projected to fall between $6 billion and $7 billion in the final quarter and their operating income could be down as much as 46%. This sounds alarming but it will probably just be a blip in the onward march of the giant Internet retailer.

Amazon was set up by former investment banker Jeff Bezos in 1994, going public in 1997, and it focused on books right from the start. As the stock market rose, shareholders were able to take a relaxed approach to the company, in spite of the fact that by 2001 it was losing $1.5 billion annually and only managed to hit profitability in 2004.

This autumn marks the internet retailer's tenth anniversary in the UK. Amazon had already been operating for three years in the US when it bought Bookpages in the UK in 1998. The company relaunched the site with aggressive discounts of 40%, just three years after the end of the Net Book Agreement in the UK. Earlier this year there was a dispute over terms with Hachette, the UK's biggest trade (general) publisher, and Amazon showed its teeth by removing the 'buy' button from Hachette titles.

It's been a bumpy ride in other ways. In the US the company was condemned when it insisted that publishers should use its print on demand facility, Booksurge, for POD books to be sold on It has not built this insistence into its recent UK and German POD launches. It does not currently offer this service to self-publishers but it might do so in the future.

American owners of Amazon's Kindle are now able to pick from 185,000 titles. The wireless facility which enables them to get the e-books downloaded directly onto the device has indeed proved to be a killer application. It is a bit of a puzzle why Amazon has not yet released the Kindle outside the US, but no doubt there is some improvement in store which the company thinks will give it the edge internationally.

Of course for many years Amazon had competitors, but these all dropped away and it is only recently that the bookshop chains have reinstated their websites, with a huge loss of competitive advantage. Amazon has successfully used books as a starting-point to build itself into a giant Internet retailer, selling a large range of goods, and for several years no-one has had any chance of catching them.

Recently the company has taken the acquisition trail and just this year it bought Audible, giving it a dominant position in the audiobook market, Abebooks, the giant second-hand book site, and social networking site Shelfari.

Perhaps it's too late to talk about the danger of one company dominating the market so completely. As regards the book business there is nothing to stop Amazon flexing its muscle more and more. Will Atkinson of Faber says that Amazon has been a boon to some smaller, independent publishers: 'because it offers something like a level playing field'. But an independent publisher says: 'Every monopoly is detrimental to the market and if they are too powerful imbalance occurs'.

Alan Giles, the former CEO of HMV Group, which owns Waterstone's, says of Amazon: 'Instead of opting for just great price or great service they opted for both and they had first-mover advantage and enormous support from the capital markets.' The rest is history.