In 1994, a 29-year-old financial analyst and fund manager named Jeff Bezos became intrigued by the rapid growth of the Internet. Looking for a way to capitalize on this hot new marketing tool, he made a list of 20 products that might sell well on the Internet. After some intense analysis, he determined that books were at the top of that list. Although Bezos liked the name Abracadabra, he decided to call his online bookshop Amazon.com. Today, Amazon.com has more than 40 million customers and sells billions of dollars worth of all types of merchandise.
When he started, Bezos had no experience in the book-selling business, but he realized that books had an ideal shipping profile for online sales. He believed that many customers would be willing to buy books without inspecting them in person and that books could be impulse purchase items if properly promoted on a Web site. By accepting orders on its Web site, Bezos believed that Amazon.com could reduce transaction costs in the sale to the customer.
More than 4 million book titles are in print at any one time throughout the world, and more than 1 million of those are in English. However, the largest physical bookstore cannot stock more than 200,000 books and carries even fewer titles because bookstores stock more than one copy of each title. Having a wide selection was important because Bezos believed it would help create a network economic effect. People would visit Amazon.com whenever they wanted to buy a book because it would be the most likely store (physical or online) to have a particular title. After becoming satisfied customers, people would return to Amazon.com to buy more books and would eventually stop looking elsewhere.
The structure of the supply side of the book business was equally important to Amazon.com’s success. Music CDs, which were second on Bezos’ list, were produced by a few major recording companies who.