A.I. & Optimization

Advanced Machine Learning, Data Mining, and Online Advertising Services

Why Amazon Started with Books?

The Long Tail

Chris Andersonn in a wired article explains the long tail economy. There are inventories that have a long tail distribution (i.e. power-law) in terms of market demand. This means that there are a few number of items in that category that they become very popular. However, due to the size of inventory and the very large possible variation all of sudden the tail of distribution still has a powerful market impact. This means that if a business sample and maintain the items from the tail of distributions they can make a lot of money.

Entertainment verical

If you think about it there are a few categories that have shown such long tail characteristics. Books, musics, and movies from entertainment vertical are a few of them. However, one can simply argue that the books are more powerful than movies. This is because there are much more books out there compared to movies. There are also more musics out there than movies. Obviously this has a lot to do with the cost of making a book compared to the cost of making a movie.

Why books?

So, now if we think about it, when Amazon got started they realized that they have a better chance to differentite themselves if they start with books. In other words, starting with books all of sudden provide them the benefits of long tail distribution. There are many many book titles out there and it's almost impossible for a bookstore to keep and sell all titles in their physical stores. However, Amazon could setup a warehouse where they could keep a large number of book titles and sell them online.

Starting a marketplace

So, this strategy could be a great example for other companies who want to start a marketplace. You should think of a category that strategically differentiate you from existing competitors. There is a talk by Adam D'Angelo, founder and CEO of Quora who touches briefly on the topics and explains how one can do back of envelope calculation for such strategic moves.