2. AMZN has Competitive Advantages
b. Head Start.
* Yet, CFO Joy Covey warned that Barnes & Noble and Borders have just recently opened up their more easily navigated sites and have begun aggressive advertising campaigns that are expected to impact competition with Amazon.com and making per customer acquisition costs increase further (they already increased this past quarter) both in absolute dollars and as a percentage of sales terms (no doubt pushed higher next quarter by the .01 for a book promotion started 10 days ago).
* A comparison between AMZN and NSCP is instructive. Indeed, if it is easy for people to switch browsers, it is even easier for people to switch a book seller. NSCP got into the sorry situation while still commanding nearly 75% of browser market despite the fact that switching a browser is not very easy for many switching from Navigator to MS's Internet Explorer requires one to export hundreds of bookmarks and to adapt to the new interface. On the other hand, the barrier for switching vendors, on a purchase by purchase basis, is almost nonexist. In fact, most people will go to different site to make price comparison before buying. Isn't that what the Internet is for?
* While AMZN does have a number of exclusive ad and "associate" contracts with some high traffic sites, the exclusive contracts Amazon has are all coming up for renewal in the next 3-12 months. Thus AMZN will be fighting a two front war in bidding for exclusive deals with deep pocketed competition in books, such as Borders and Barnes & Noble and in music, such as CDNOW, NTKI's Music Boulevard, BMG, Tower, Sony, and Columbia House. As well, you will find very few sites listing Amazon for music because those sites have exclusives with other music vendors. Bidding wars for high traffic sites tends to be good for AOL and YHOO, but bad for retailers. |
