Friday, October 7, 2011

Amazon versus the big-6 publishers

Is it any wonder that Amazon isn’t too worried about competing with Big Publishers? It’s like the Army Rangers taking on the Des Moines elementary school crossing guards.
- PG, Why Publishing is Like Baseball and Politics
PG has written an excellent commentary on Kris Rusch's post, The Way We Were.
Datastreams can be very valuable. Lots of people are working to parse Twitter’s datastream these days.

Passive Guy recently read an article that said news of the big East Coast earthquake south of Washington DC reached New York City faster by Twitter than it did via official disaster warning networks. Researchers are watching Twitter for everything from who’s rising and who’s not in Republican presidential politics to how the latest revolution is progressing in the Middle East.

At this point, the most valuable part of Amazon is the proprietary datastream it receives from its sales each day. An enormous competitor with bazillions of dollars could set up an online store, regional warehouses, etc., but it would be blind compared to Amazon because it doesn’t have the current and historical data and the ability to predict what customers will want next.

Wal-Mart was the first big retailer to actively exploit the value of its sales data. That was one of the reasons it beat Sears, K-Mart and some store chains that don’t exist any more.

Before widespread internet access, each Wal-Mart had a satellite antenna that beamed daily, then hourly, then real-time sales data back to the mothership in Bentonville, Arkansas. Bentonville is a fine place to operate the world’s largest retailer. When you’re digital, it doesn’t matter where you are located. Being in Manhattan is becoming a less and less valuable business asset, but PG doesn’t want to fight with any New Yorkers. He agrees it has a unique vibe and enjoys his trips there. He never heard a cab driver speaking Farsi in Bentonville.

Wal-Mart began to rearrange its stores based upon its sales data, featuring different items on its end-caps (displays at the end of aisle) each day depending on what it knew would sell best on Thursdays. One illustrative story has Wal-Mart putting diapers next to beer on the weekends. Dad’s at home. When he is sent to the store to buy diapers, he decides he deserves a beer for his sacrifice.

Unfortunately, PG heard the Wal-Mart data guru speak at a conference a few years ago and he said the beer/diapers story is apocryphal, but confirmed that Wal-Mart knew about a lot of products that sold better when they’re placed next to each other. With today’s technology, Bentonville data gnomes can drill down to sales made at individual cash registers located half-way around the world.

As Kris points out, sifting through a datastream the size of Amazon’s or Wal-Mart’s to discover important information about where customers have been and where they’re likely to go was impossible before the tremendous boom in computing power. The area is usually described as business analytics or data mining and smart companies do a lot of it. When PG was an executive in a business analytics software company a few years ago, he negotiated contracts with every big and rich firm on Wall Street.

But no contracts with publishers. As we’ve read, Big Publishing is having problems getting ebook royalty reports from Amazon and Nook plugged into their ancient royalty reporting software, a trivial programming job. PG doesn’t see them moving into data mining very quickly.

People sometimes believe that Amazon’s major advantage over traditional booksellers is its willingness to aggressively discount. That certainly plays a role, but the folks in Seattle are also much, much smarter about what sells and what doesn’t.

Amazon doesn’t discount everything every day. The people making pricing decisions know exactly how much money they make from selling a currently-available Kindle ereader. They have a very good idea of how much profit they’ll make from each Kindle Fire they sell for $199 even if Amazon pays more than that to buy the Fire.

Amazon is not just selling a tablet. They’re selling a tablet that will generate a stream of new purchases of ebooks, movies, music and almost everything else they sell. Whatever loss they take on the tablet itself is an investment in a future customer.

Is it any wonder that Amazon isn’t too worried about competing with Big Publishers? It’s like the Army Rangers taking on the Des Moines elementary school crossing guards.
Read more over at The Passive Voice.

4 comments:

  1. Excellent post. I don't want to say controlling information, because though Amazon does control their data, it isn't really what makes that data powerful. The big six, they control sales data, but they are unquestionably in decline.

    I think, as Passive Guy says, how do you use the data that you have to the best advantage. I have several family members who have worked as department managers at wal-mart for years and the amount of information available to them is amazing- and all from Bentonville.

    I just wonder if we all should be talking so openly about this, in case the big six start to take notice. Of course, they don't seem to take us seriously, do they?

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  2. Heh, good point.

    Silly of me, but before I read PG's comments I hadn't put too much thought into how Amazon could boost revenues by using their sales data to predict buying habits and how this might give them an edge over any company that doesn't.

    It's odd, but for me this is the first time that a rivalry between corporations has affected my life in ways other than financial ones. It seems to be getting to the point that how one feels about Amazon (savvy corporation vs ruthless destroyer) determines ... well, lets just say that it can turn a conversation awkward, at least in writing circles.

    Interesting times!

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  3. Amazon is just being kind to its customers for giving discounts. In which I think is a smart move.

    What would be other options if they won't do that? How much do you think the Amazon revenue would be?

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