We not only help readers find books, we also help books find readers, with personalized recommendations based on the patterns we see. I remember one of the first times this struck me. The main book on the page was on Zen. There were other suggestions for Zen books, and in the middle of those was a book on how to have a clutter-free desk. That's not something that a human editor would have ever picked. But statistically, the people who were interested in the Zen books also wanted clutter-free desks. The computer is blind to the fact that these things are dissimilar in some way that's important to humans. It looks right through that and says yes, try this. And it works.
This is an example of Chris Anderson's long tail idea.
I think online ultimately will be 10 to 15 percent of retail. The vast majority of retailing will stay in the physical world because people have acute needs, they want things now. Also, there are products, like a yard rake, where the economics of delivery don't make sense. But a 600-pound table saw is a great item to sell online because it always gets delivered. And it's expensive enough that there is enough profit in it to cover the cost of shipping. Plasma TVs, same idea.
Bezos believes that physical bookstores have some advantages over online ones,
One thing is face-to-face meetings with authors. And what Howard Schultz at Starbucks likes to call a third place, where people go and sit and spend time. We humans are a gregarious species; we like to mingle with other humans.
but print-on-demand will work better for online stores than for physicals stores. Apparently, Amazon are already printing books on demand for online orders today.
That's a possibility, but I think that's a pretty small part of what would happen there. Print-on-demand actually plays more to the strengths of the online world. We already have many in our catalog, but it's invisible to you, the customer. We use a number of companies that do the actual printing, but we mail them like regular books. They look like regular trade paperbacks.
On Amazon's expected launch of a business competing with Netflix,
that is a business we know something about. One of the big costs here is that an extremely large fraction of those monthly subscription fees are used to acquire new customers. Amazon is well positioned to offer a low-priced service of high quality, and we wouldn't have to pay heavy marketing fees.
Bezos then goes on to add that Amazon believes its better to put the marketing spend into improving service and making it great rather than shouting about your service.
About three years ago we stopped doing television advertising. We did a 15-month-long test of TV advertising in two markets - Portland, Oregon, and Minneapolis - to see how much it drove our sales. And it worked, but not as much as the kind of price elasticity we knew we could get from taking those ad dollars and giving them back to consumers. So we put all that money into lower product prices and free shipping. That has significantly accelerated the growth of our business.
I'm not saying that advertising is going away. But the balance is shifting. If today the successful recipe is to put 70 percent of your energy into shouting about your service and 30 percent into making it great, over the next 20 years I think that's going to invert.