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What Does Amazon's First Brick-And-Mortar Bookstore Tell Us About The Future?

This article is more than 8 years old.

Amazon's decision to open its first brick-and-mortar store  in Seattle is an interesting new departure for Amazon, but it also offers us the chance of some enlightenment on some of the larger questions of business, in both online and physical worlds. Here are two questions to bear in mind as you watch developments.

How Does Data Match Up Against Insight And Local Knowledge?

One of the great things about the old independent bookstores was that, if they were successful, they were well-matched to their local areas. In fact, I always thought that if you wanted to get an impression of what a neighborhood was like, or whether you'd enjoy living there, the best thing to do was to visit the local bookstore. This geographic/demographic/psychographic match was achieved by the insight and instinct of the bookseller, developed through interaction with their customers.

Amazon's product selections will rely heavily on its treasure trove of data, but what else will they use? According to the Seattle Times, Amazon says the store won’t be stocked solely on data. "It’s data with heart,” said Jennifer Cast, VP of Amazon Books. “We’re taking the data we have and we’re creating physical places with it.”

But what does this mean? If the local manager thinks a particular title will do well, but the data thinks otherwise, what happens?

There's an interesting parallel here with human-vs.-computer chess. Once computers became so good at chess that they could consistently beat any human, it all became boring and the action moved to human-and-computer chess - that is humans and computers playing in partnership. Then the  whole thing  became very interesting again. In one tournament the winner was a team of humans with quite modest chess skills, playing in partnership with three chess programs,

When it comes to product selection, will Amazon be attempting some analogous human-algorithm partnership, and if so will it outperform humans or algorithms on their own? If so, it could be the beginning of a whole new era in online business - big data as a supplement to human insight, not a substitute for it.

Can Amazon Revive A Dying Real-World Business Model?

The reason that brick-and-mortar bookstores have been disappearing at such a rate is that Amazon destroyed their economics. How could Amazon now restore economic viability to the sector? I can see three ways, two of which are positive and sustainable and one of which is not.

To take the negative first and get it out of the way, can Amazon squeeze the publishers harder than the booksellers were able to do, and hence restore adequate margins in the sector? I desperately hope they will not try. Publishers remain a vital part of the ecosystem, and they need to make a living too. The same is true of authors, who are also suffering from the squeeze on publishers. (I am published author myself, and so speak from the heart on this one).

There are, however, two positive and sustainable ways in which  Amazon could restore viability to the bookstore:

  1. Could better product selection, whether by algorithms alone or algorithms in partnerships with humans, raise sales per square foot, the crucial criterion for financial viability?
  2. The book trade is plagued with inefficiency in the form of returns of stock which did not sell. Again, could better product selection reduce this and raise margins in bookstore and publisher?

Even if you have no interest in the book trade, this is a development to watch very, very closely. The experiment will shed new light on the questions of humans vs. machines and virtual vs. real-world. And what bigger questions are there at the moment?

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