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Tech Industry

Amazon is an anachronism

The whole concept of a "retail brand" is an anachronism on the Internet. The vertically integrated e-retailer is a holdover from the physical world that is entirely out of place online.

    The whole concept of a "retail brand" is an anachronism on the Internet. The vertically integrated e-retailer is a holdover from the physical world that is entirely out of place online.

    The Internet empowers consumers over retailers for the first time. E-retailers will no longer be the force--or the bottleneck--that they are in the physical world. This implies a dramatic shift of who has power in the e-commerce domain.

    New media mimics the past
    The first approaches in any new medium mimic what is already well understood in prior media. Marshall McLuhan first espoused this idea in the '60s, and it has played out to this day with remarkable accuracy. The early movies were "filmed theater," with a single camera angle capturing the view from the audience seat. Early TV shows were televised radio programs. People start with what they understand, and the unique expressions of the new medium take time to emerge.

    The Internet has grown much more quickly than any of the preceding media did, but it has not yet matured. Many millions of people are using the Web, while it is still in the "filmed theater" phase. Untargeted banner ads, like subway billboards, are simplistic and increasingly ineffective. We have yet to see the widespread adoption of business models that are uniquely derived from the Internet media and that would not have been feasible in the physical world.

    So what do we have so far? On the Internet, one of the first e-commerce metaphors was the shopping mall. MCI and several now-defunct start-ups built online versions where consumers would see rows of retailers and rows of products on their shelves. Some of them even went so far as to create a 3D rendition of the physical shopping experience.

    Those shopping malls failed in part because they ignored the Internet's power to collapse geographical distance; such an aggregation of commerce sites under one virtual roof was unnecessary when people could go anywhere with a few keystrokes.

    Vertically integrated e-retailers
    The next physical-world model transplanted to the Internet was the "vertically integrated retailer," a single vendor like that handles the shopping experience from product selection to shipment. E-retailers have scaled much more quickly than traditional shops serving a geographic locale, but they do not represent the great step forward that the Internet enables.

    In the next few years, merchandising and product selection will be decoupled from product fulfillment and support. Today they are smashed together out of habit because that is what we are used to in the physical world. We browse the products on the shelves, ask a sales clerk for advice, pick a product, pay for it, and take delivery all from the same store. In the physical world, it is cumbersome to segregate these activities to different companies, as the customer would have to shuttle across town for each step in the buying chain.

    The retail store is orchestrated around maximizing efficiencies of the physical supply chain--the logistical relationships that move the goods from production to the consumer. The consumer is engaged only in the final step with the binary option to buy or not to buy from a fixed set of options at fixed prices. Power rests with the store. Geographic constraints defined this optimal retail chain, one that has undergone little change for hundreds of years.

    Vertical integration is not optimal for consumers. Let's say you want to decide which DVD player to buy. Do you want to go to a company that is trying to sell you a DVD player? Do you want to seek advice from a company that only profits when they close a sale? Would you seek advice from a sales clerk who barely knows you?

    Theory of objectivity
    What if your alternative was a "shopping agent" service with a brand like Consumer Reports, which has no economic incentive to sway you one way or another, will give you honest consumer feedback, and will get to know you and all of your purchase habits across the entire Web?

    Any one merchant knows only what you have done on that particular site. Other companies (like NetZero, ThirdVoice and the "browser buddies") will stay with you as you surf and can make personal recommendations for you based on your buying habits across the entire Web.

    So for both objectivity and pan-Web personalization, there will be separate consumer companies that focus exclusively on product selection and reviews. They can innovate in many ways, like consumer feedback networks, collaborative shopping and buyer aggregation (imagine ad-hoc groups with fleet purchasing power). When a vertically integrated industry breaks apart, there is rapid innovation at each horizontal layer, just as we saw in the computer industry when IBM ceased to be the one-stop shop for computing.