Jeff Bezos setup Amazon in 1994 and began trading on the Web in 1995 in the initial, subsequently regarded, commercialisation period of the Internet’s development. Many consumers adopt technology in a relatively passive process, likened to following fashion (as opposed to making informed decisions about standards or scalability) – demonstrated by a study of mobile phones in colleges (Katz, 2006). By default, one may therefore see Amazon’s business success from a hard-deterministic perspective i.e. the availability of technology enabled Amazon to (luckily) thrive.
However, Amazon’s strategy, in its early adoption of e-business technology, involved a process to co-construct the e-business technologies (i.e. Web) to bring about change – the ‘digital revolution’. Amazon’s innovation lay within the use of technology to transform commercial and the social landscape so this essay focusses on Amazon as a retailer of books in its first decade of growth.
The Digital Revolution
The ‘digital revolution’ describes the “changes to society and business, beginning in the 1990s, that were brought about by technologies such as digital networks, computer software and new digital media” (T320, Block 1 Part 1, p.26). Despite a widespread acceptance in contemporary society that the digital revolution is humanity’s most radical technological leap, some such as Coltman et al. (2001) questioned how revolutionary the technology was.
An adaptation of Schumpeter’s model, shown below, suggests the digital revolution can be regarded as the fifth of a series of technological revolutions over the last two centuries.
The model provides a good overall perspective on technological revolutions but does not account for all technologies nor the impact of individual technologies (e.g. the printing press) within each revolution. Indeed, the model shows the impact of power (fuels) on the economy but the digital revolution is more abstract.
Viewing the model and using the term ‘revolution’ could misguide one to think that the technological innovation replaced previous technologies but new technologies typically co-exist with existing technologies. As a retailer, Amazon still used telephones and fax machines, for example, but actively embraced the opportunities the Internet provided.
Importantly, Schumpeter (cited in T320, Block 1 Part 1, p.5) postulated that economic changes were the result “of the relationship between technological innovation and business activity”. This suggests the mere emergence of technology alone does not have socio-economic impact (too any discernible degree) but must be utilised within industry to, for example, make processes more efficient (or feasible). Jeff Bozos identified the Internet as an emerging technology and, after recognising its increasing rate of diffusion, sought an opportunity to exploit it. With a skillset in commerce, he aimed to commercialise the Internet, through its most synonymous medium – the World Wide Web.
Feeny (2001) states “E-service opportunities give companies new ways to address an identified set of needs.” The Web offered Jeff Bozos a method of competing in a space with all the characteristics of an established industry such as resistance new entrants. He was able to exploit the Internet pervasion in order to become a viable competitor by:
- Maximising market potential: Geographic restrictions were not as relevant compared to the territories of physical book stores.
- Combining Richness and Reach so as to more effectively market a wide product range to a wide audience but on a personal basis. An employee recalled Jeff Bozos saying Internet, with “its bottomless capacity for data collection,” would “allow you to sort through entire populations with a fine tooth comb.” (cited in Wasserman, 2012)
- Competitive Advantage: Amazon could reduce costs to the consumer
Amazon did not just become a viable competitor though. As an innovator of e-commerce technologies over a decade, Amazon would transform the established book publishing and retail industry and inspire others to the same in other industries such as the music, travel or news and media.
Technology Adoption
The revised technology adoption model (cited in T320, Block 1 Part 1, p.17), shown below, is useful to understand how technology is adopted by consumers.
The area of this graph represents a population size and it illustrates that consumers can be segmented by their readiness to adopt new technology. Moore (cited in T320, Block 1 Part 1, p.18) adapted the original model to show a ‘chasm’ between the innovators and early adopters on the left (who adopt ‘experimentally’ based on perceived future benefits) and the majority (who adopt based on realised practical benefits).
Amazon was an innovator of the commercialisation of the Internet technology and co-created E-business – primarily E-commerce. Amazon’s services (the sale of books) ‘crossed the chasm’. One reason was the inception of Amazon’s business model to utilise the Web to sell commodity items: “They were pure commodities; a copy of a book in one store was identical to the same book carried in another, so buyers always knew what they were getting.” (Stone, 2013, Chapter 1). Jeff Bozos did not particularly want to open a bookstore but looked at the rapid diffusion of the Internet in the early 90s and identified a product that would suit an E-Business model. Shel Kaphan, his former deputy, stated “It was totally based on the property of books as a product” (cited in Packer, 2014). This commodity property gave Amazon the edge in an industry where rivals, like Boo.com, failed around the dot-com collapse of the early 2000s.
Amazon helped ‘commercialise’ the Internet so that the technology had appeal to the majority i.e. consumers and by the end of 1996, had 200,000 customers (T320, Block 1, Part 1).
Tregurtha and Vink (cited in T320, Block 1 Part 5, p. 5) identify three tiers of trust:
- Institutional: The legal framework of the trading environment.
- Characteristic: Reputation and brand of a company.
- Process-based: Developed on customer’s experiences or testimony of others
Amazon’s services ‘crossed the chasm’ and because it engendered trust from the public. As a retail store, Amazon already operated within legal and regulatory frameworks established by, for example, financial institutions. In 1999, Jeff Bozos appeared on the front cover of Time magazine, shown right, with the heading “E-Commerce is changing the way the world shops” that gave the public confidence in both E-commerce and the Amazon brand.
With a circulation exceeding 4 Million in 1999, visible endorsement of Amazon and E-Commerce helped inspire the remaining adopters of the Internet to see the practical benefits in accordance with characteristics associated to the idealised types of the technology adoption lifecycle model according to Rogers (cited in T320, Block 1 Part 1, p.18).
Amazon’s process-based trust emerged through several factors. Early on in 1995, a reviews feature meant customers could review books (un-censored) and this was acknowledged by Jeff Bozos as part of the proposition value of Amazon: “…we don’t make money when we sell things. We make money when we help customers make purchase decisions.” (Stone, 2013, Ch. 2). The provision of a customer review feature helped solidify Amazon’s e-Business relationship as two-way, supplementing a Business to Consumer (B2C) transaction with a C2B transaction – information.
Industry Value Chain
Amazon’s ability to offer peer reviews was not the only aspect of its value proposition. Through the website, Amazon offered the convenience of shopping from home at any time. Principally Amazon offered an information service: A virtual catalogue of books, which provided customers with a greater selection than could be economically stocked by the physical high street competitors.
Electronic databases existed widely prior to Amazon but it was Amazon who pioneered the concept of making information available to the consumer. This revolutionised the existing supply chain as Amazon didn’t need to even stock the range on offer and this contributed to the disintermediation of the book industry.
The traditional models of a linear supply chain and Porter’s Value Chain can be extended to the concept of an industry value chain where the focus to “look at entire industry is on meeting customer requirements and creating value” (T320, Part 6, pp.11-12). Figure 4 below shows the industry value chains before and after Amazon’s involvement.
It is evident from the illustrated industry value chain that Amazon has combined the functions of, and replaced, intermediaries. This net effect of reducing the transactions between the key stages of creation and consumption meant products (books) were handled fewer times in the process, which reduces transaction costs and lead times between intermediaries – major components in Amazon’s value proposition to customers.
The diagram also indicates an enhancement of the value chain as Amazon visibly extended it beyond consumption. Where a book was previously purchased, read and deposited on a shelf at home, Amazon defined an aftersales service e.g. further engagement via reviews. Additionally as Jeff Bozos’ business model as a Market creator, rather than just a virtual merchant, was realised; consumers could then re-sell books via Amazon again.
Although the transaction cost savings from disintermediation enabled Amazon to be price competitive, Chen (cited in T320, Block 1 Part 7, pp. 2-3) identifies 6 further less-visible costs of a B2C transaction, where time can be ‘spent’. These costs are integrated into the table below which show Amazon reduces these costs, adding value to the customer.
Table 1 – Example of transaction costs and Amazon’s impact on their reduction
| Cost Type | What this Involves | Amazon’s Impact |
| Information | Cost incurred when buyer researches a product e.g. visiting a book store | Can visit Amazon.com at own convenience |
| Search | Finding a bookstore that stocks the particular book sought | Amazon has a wide ‘long-tail’ selection of books |
| Decision | Comparing sellers and prices e.g. visiting multiple bookstores. | Amazon is extremely price-competitive for reason discussed. |
| Negotiation | Agreeing the terms of sale e.g. haggling in a bookstore | No mechanism for negotiation – some alternatives suggested (used) |
| Monitoring | Can see and skim-through a book in a store. Return to the shop if needed. | Can now see a sample “Look Inside” online. Return via mail. |
| Legal | Can see a salesperson or often speak to the manager. | Clear returns policy and process – need to mail back returns. |
Amazon’s e-business model may provide an opportunity to comparatively reduce transaction costs (information, search, decision); other costs are more challenging. Unlike for more bespoke goods, negotiation is less of a customer requirement. However, monitoring and legal costs are still challenges Amazon tries to address through policy and procedure as consumers often prefer to verbally discuss problematic transactions.
Whether the ‘digital revolution’ is regarded as a radical change or just the rapid progression of digital technologies into a mix, it is undoubtedly synonymous with the Internet’s diffusion. This Internet adoption by the consumer majority was due to the day-day benefits its commercialisation brought – as characteristically indicated by the technology adoption lifecycle model.
Amazon was the original pioneer in transforming a technology from its academic roots and government institution roots into a mature commercial and mass-desirable technology. Amazon did this by demonstrating how a technology can be adapted to a new purpose and that in this process (e.g. transforming the industry value chain), many parties can benefit.
Amazon continues to innovate with e-business technologies and diversify its portfolio: Opening a marketplace, ebooks and readers, offering web 2.0 services and investing in R&D. Amazon’s contribution to the digital revolution is not invention of the underlying technology but its enhancement and, more strategically, purposing that technology to inspire wider appeal.
References
Katz, J, & Sugiyama, S (2006) ‘Mobile phones as fashion statements: evidence from student surveys in the US and Japan’, New Media & Society, 8, 2, pp. 321-337. (Accessed 12 November 2014).
The Open University (2014) T320 The relationship between Internet technologies and business, Block 1 Part 1, ‘E-business technologies: foundations and practice’, Milton Keynes, The Open University
Coltman, T, Devinney, T, Latukefu, A, & Midgley, D (2001), ‘E-Business: REVOLUTION, EVOLUTION, OR HYPE?‘, California Management Review, 44, 1, pp. 57-86, EBSCOhost, (Accessed 17 November 2014)
Feeny, D (2001) ‘Making Business Sense of the E-Opportunity’, MIT Sloan Management Review, 42, 2, pp. 41-51, EBSCOhost, (Accessed 17 November 2014)
Wasserman, S. (2012) ‘The Amazon Effect’, The Nation (New York), vol. 294, no. 25, pp. 13-22.
Packer, G (2014) ‘Cheap Words’ [online] http://www.newyorker.com/magazine/2014/02/17/cheap-words (Accessed 16 November 2014)
Stone, B (2013) The Everything Store: Jeff Bozos and the Age of Amazon [ebook], London, Little, Brown and Company
The Open University (2014) T320 E-business relationships and business models, Block 1 Part 6, ‘E-business technologies: foundations and practice’, Milton Keynes, The Open University
The Open University (2014) T320 The opportunities and challenges of e-business, Block 1 Part 7, ‘E-business technologies: foundations and practice’, Milton Keynes, The Open University