Amazon Your Industry: Extracting Value from the Value Chain
Amazon Your Industry: Extracting Value from the Value Chain
"Way cool" Web sites and measures of "hits" and "eyeballs" are clearly driving revenue in the dot-com world. To date, these metrics have provided the basis for the extraordinary market valuation of the new generation of Web retailers. In the near term, most "e-tailers" must focus on surviving the incubator phase of the Internet retail industry by gaining enough market shares to become a sustainable player. "Efficiency and productivity lie in our future," Amazon.com Inc. 's president, Joe Galli, has said.
Eventually, however, the basis of competition will change. In the long term, we believe that sustainable competitive advantage in the Internet Economy will result from fundamentally transforming the entire value chain - in other words, managing the physical supply web, not just the virtual computer web.
To understand how the Internet can transform an industry value chain, we explored Amazon.com 's original business of book-selling and the entire supply network of the publishing industry. After reviewing the players in the publishing industry value chain - authors, publishers, printers, wholesalers and retailers - we analyzed industry economics: What drives profits for each player? Surprisingly, the answer is supply-chain costs - much of which represents waste in the traditional model. For example, consider the 30-plus percent return rate for adult hardcover books through traditional channels, versus the 3 percent return rate through Amazon.com.
Although many have examined Amazon.com - the icon of the Digital Age - our analysis goes beyond Amazon.com to identify a number of Internet axioms worth consideration by dot-com startups and traditional retailers alike: * Inefficient supply networks are at risk from new players. * First-movers gain advantage from scale. * New delivery systems require big investments. * Defining a new distribution structure is strategically vital. * Companies
"Way cool" Web sites and measures of "hits" and "eyeballs" are clearly driving revenue in the dot-com world. To date, these metrics have provided the basis for the extraordinary market valuation of the new generation of Web retailers. In the near term, most "e-tailers" must focus on surviving the incubator phase of the Internet retail industry by gaining enough market shares to become a sustainable player. "Efficiency and productivity lie in our future," Amazon.com Inc. 's president, Joe Galli, has said.
Eventually, however, the basis of competition will change. In the long term, we believe that sustainable competitive advantage in the Internet Economy will result from fundamentally transforming the entire value chain - in other words, managing the physical supply web, not just the virtual computer web.
To understand how the Internet can transform an industry value chain, we explored Amazon.com 's original business of book-selling and the entire supply network of the publishing industry. After reviewing the players in the publishing industry value chain - authors, publishers, printers, wholesalers and retailers - we analyzed industry economics: What drives profits for each player? Surprisingly, the answer is supply-chain costs - much of which represents waste in the traditional model. For example, consider the 30-plus percent return rate for adult hardcover books through traditional channels, versus the 3 percent return rate through Amazon.com.
Although many have examined Amazon.com - the icon of the Digital Age - our analysis goes beyond Amazon.com to identify a number of Internet axioms worth consideration by dot-com startups and traditional retailers alike: * Inefficient supply networks are at risk from new players. * First-movers gain advantage from scale. * New delivery systems require big investments. * Defining a new distribution structure is strategically vital. * Companies