Amazon Has Been Online for Twenty Years. What Has Changed About Online Shopping? | QDaily Business History

"Buy, buy, buy" wasn't always like this.

Today, if you want to advertise yourself as an oddball, "I have never bought anything online" is a good way to do it. Twenty years ago, not buying anything online was simply the norm.

On July 16, 1995, a website called Amazon.com went live, and buying things online changed completely.

You may or may not remember that era: magazines ran mail-order ads listing books for sale, and a book club called Bertelsmann mailed out a booklet every so often, recommending new titles you could order by phone or by (paper) mail.

Apart from walking into a bookstore, mail order was about the only way. For everything else, there was the exaggerated shouting of the TV shopping channels.

Amazon was not the first online retail site, but it was the first of the pioneers to really change how people live. eBay, Taobao and JD.com, which came online later with their own kinds of trading, went on to change how billions of people shop over the next 20 years.

At First It Looked Like a Mail-Order Service

In 1994, Amazon founder Jeff Bezos rented a garage in Seattle and converted it into office, warehouse and storefront all at once. He spent $60 on light-yellow door panels and turned them into two desks.

After a few months of tinkering, amazon.com went live on July 16, 1995:

This is what Amazon.com looked like when it first launched

Open Amazon's site today and it is hard to connect it with what it once was. The design was crude: a marbled background mostly covered in text, nothing to catch the eye. In a prominent spot it said, "One million titles, consistently low prices."

In the site's early days, every new order set off a bell on one of the office computers, and everyone would crowd around to see whether the customer was someone they knew. A few weeks later the bell was ringing so often they had to switch it off.

In its first week open to the public, Amazon took $12,000 in orders. Its early supply arrangement was not "smart" in the least: it held no stock. When the bell rang, Amazon ordered the book from a distributor and then shipped it on to the customer.

Amazon earned a thin margin between the price it charged the customer and the wholesale price it paid — counting postage, it was in fact losing money.

A book often took weeks, sometimes a month, to reach the customer, because the speed depended entirely on when the distributor sent it to Amazon's office. In that first week they delivered $846 worth of books.

Those early customers probably did not represent ordinary book-buying demand. Most of what sold were obscure titles you could not find in a mainstream bookstore. Back when going online was still a new toy, Amazon's first customers ordered computer manuals and guides to repairing classical instruments. A fair number of orders came from outside the US.

The first book Amazon ever sold: Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought

You could call it the smallest and least professional bookstore in the world — and at the same time the one most likely to contain every book ever published. Even in a big, busy city, the largest bookstore can hold only so many titles.

Amazon kept adding book listings to the site while sending staff out to independent bookshops and antiquarian dealers to hunt down scarce and out-of-print titles.

Publishers treated it as a savior, because Amazon offered a channel outside the chain stores. To many readers it felt more like an independent bookstore for book lovers. Three years after launch, Forbes was already calling Amazon the largest online bookstore in the world.

But Bezos's ambition did not stop at "the biggest bookstore on Earth."

In 1998, a report from Amazon's marketing department showed that a sizable share of users would never use the site at all, because they had no interest in reading. That "bad news" excited Bezos: it was time to widen the business. If they would not buy books, Amazon would sell them something else.

Everyone knows what happened next. Amazon became the largest direct-sales e-commerce company in the world, and its business model directly inspired JD.com.

Amazon.com today

Today what you can buy on the site goes far beyond a million books. In 20 years, it has grown into a company worth more than $200 billion, selling an average of $240 million of goods a day.

Everything it does still comes down to selling goods, even if what is being sold may not be a physical object at all.

Annual growth rates of Amazon's business lines (2003-2014); books count as media

Twenty years on, the one thing that has not changed is that Amazon still gives users almost unlimited choice at prices below its traditional competitors. The e-commerce companies that succeeded after it — Taobao, JD.com, eBay — are no different on either count.

Walmart cannot put every version of a product on sale in its stores: no shelf is large enough to display every option, and no single Walmart store can stock them all.

On the Surface E-Commerce Is Just a Webpage, But the Story Behind It Keeps Getting More Complicated

Amazon first chose Seattle partly because it sat close to the warehouse of Ingram, one of the largest book suppliers in the US. As orders grew, the Seattle warehouse moved from the garage to the basement of a new office, and by the time Amazon went public in 1997 its warehouse space had reached 93,000 square meters.

That was not enough, of course. In 1998 Bezos hired away Walmart's vice president for logistics, Jimmy Wright. That summer he told Wright that Amazon needed a logistics system: warehouses ten times the size of the current ones, plus distribution centers in new markets outside the US.

Over the next year Wright spent $300 million on Amazon's behalf. Inside the company the new warehouses were called fulfillment centers. Goods sat in fulfillment centers around the world, and when a customer placed an order the items were picked from whichever centers held them and sent on to the customer.

Today they are no longer the "garage workshop" packing books on a door panel

Building the warehouse system brought the pressure of stock and payment cycles. When the internet bubble burst in 2000, Wall Street analysts accused Amazon of a reckless expansion into new categories. A bond analyst at Lehman Brothers, an investment bank that had not yet gone under, argued that Amazon would probably not last to the end of the year.

Even then Bezos did not give up on building his own warehouses. He cut losses through layoffs and better operations, turned a small profit in 2001, and came through the crisis.

Building its own logistics centers shortened Amazon's delivery times and satisfied users' demand for speed, and it became the base for the company's fast growth afterwards. Amazon now has at least 155 fulfillment centers worldwide.

To offer more choice, from 2000 Amazon followed eBay and opened its platform to third-party merchants and individual sellers. By 2014, goods from third-party merchants accounted for 40% of everything sold on the platform. They gave users a nearly unlimited range of options.

High-margin goods the site sells itself, paired with the wider selection third-party merchants bring, is now the standard shape of online retail. In China, though the details and the timing differed, JD.com built the same combination of its own goods plus third-party sellers.

JD.com met the same doubts Amazon had. The company has put at least 9.3 billion yuan into building and leasing warehouses across China. It buys from manufacturers and distributors and hires its own couriers to deliver.

This expensive model does not suit every company — Richard Liu ran into one closed door after another when he went looking for funding in 2006. But for those who stuck with it, Amazon and JD.com alike, the reward was substantial.

JD.com is now the largest direct-sales retailer in China. Over the past few years no other direct retailer's annual revenue has grown as fast.

Your Patience Keeps Getting Worse

You can buy anything online now. If anything still pulls customers into a physical store, it is probably only "buy it and use it right away."

It is hard to say what difference a few hours makes to most online orders. But there is no denying that over the years e-commerce has spoiled its users: once you have had a package arrive the next day, it is hard to go back to two weeks of waiting.

After years of work, Amazon's and JD.com's standard delivery can now largely promise two days inside a big city, and sometimes the same day for an order placed in the morning.

That is not the finish line. E-commerce companies have tried every method to move faster. Their target now is one hour.

In 2000 Amazon invested in a company called Kozmo, which was aggressive about delivery time: books, food or everyday goods at your door within the hour. Kozmo eventually folded, having expanded too fast with too few customers.

But over the past year startups have taken up the same idea again — medicine, meals, flowers within the hour. One-hour delivery never really stopped.

• In January 2014, a delivery patent of Amazon's came to light. Using years of accumulated data on shopping behavior, Amazon planned to predict what users would buy and move goods to nearby distribution centers before the order arrived.

• In May 2014, Amazon launched same-day delivery in some US cities. To get packages into Prime members' hands quickly, it even considered using the New York subway.

• In September 2014, Amazon began working with the US Postal Service: when postal vehicles were not delivering mail, they would be sent out with more than 50,000 everyday items — food, dairy products, books, video games — guaranteed to arrive by the next morning at the latest.

• In October 2014, Amazon used the Flywheel app to round up idle taxis in San Francisco and Los Angeles to deliver goods to customers.

• In December 2014, Amazon put Kiva robots to work in 10 US distribution centers. Following instructions, the robots move through the warehouse and help staff fill orders faster.

• In December 2014, Amazon launched Prime Now, its one-hour delivery service, in Manhattan, New York. To let couriers outrun the traffic in a crowded city, it recruited a corps of bicycle couriers. Thirteen cities, Atlanta, Austin and Baltimore among them, now support the service.

• In March 2015, more than a year after unveiling its drone delivery system Prime Air, Amazon finally received approval from the Federal Aviation Administration to test drone flights outdoors. Actually taking a package off a drone will probably have to wait for the technology to mature.

• In April 2015, Amazon and the courier DHL launched an "in-car delivery" program in Germany, letting Prime members have packages put straight into the trunk of their car. For that, though, you first have to trade up to an Audi.

• In May 2015, the goods covered by Prime Now expanded from Amazon's own stock to groceries from local shops. JD.com, one of the giants of Chinese e-commerce, had launched a similar service, JD Daojia, back in March of the same year.

• In June 2015, JD.com and four clothing companies announced that shoppers could order online and have couriers collect and deliver the goods from these brands' physical stores.

• In June 2015, Amazon announced a "crowdsourced logistics" program, paying ordinary people a fee to act as its "temporary couriers"; it also wanted to rent more physical retail stores to use as its own warehouses. Before that, JD.com had begun recruiting "couriers" from the public too, letting you drop off a package on your way home from work or out to lunch.

Amazon testing "in-car delivery" with DHL and Audi

Plenty of companies are now doing what Kozmo could not, even though it means new business models and higher operating costs. As for users' patience, e-commerce traded it for orders long ago.

There Are Fewer and Fewer Big Supermarkets

If Amazon's physical-store plans look like tentative experiments, the online sales channels traditional retailers have opened in recent years look more and more like serious business.

Once, in order to carry as many products as possible, giant chains like Walmart looked for cheap, large plots of land, so that people could buy everything they needed in one trip to an ever-bigger store. E-commerce has made that strategy hard to sustain.

Even Walmart, for all its legend, cannot match e-commerce on selection and price. An e-commerce company only needs warehouses that cover several cities at once and are stocked well enough to meet demand; the rare item a local warehouse lacks can be pulled quickly from another. Walmart has to compete, store by store, against a nationwide warehouse network. That is an impossible job.

Under that pressure, in 2014 Doug McMillon, newly in charge of Walmart's US operations, shifted the company's plans for new stores for the first time away from traditional supercenters and toward small and mid-sized stores. People have grown used to letting a courier finish the last leg of a purchase, but the small shops spread through neighborhoods have survived in the gaps.

People do not stay with convenience stores for the buying alone. We once ran a QDaily survey asking "why do you love convenience stores?", and the answers showed that, besides the thoughtful, comforting warmth of the place, the most important reason was convenience.

They cannot offer as much choice as a big store, but they basically "have whatever you want," and when there is no time to wait for a delivery, they are always "right beside you" when you need them.

In China, Japan, the US and elsewhere, e-commerce companies' pickup partnerships with neighborhood shops are already mature. These small shops are not in direct competition with e-commerce; on the contrary, people who collect a free delivery at a shop often add a little to its takings while they are there.

Thanks to e-commerce you have one more reason to visit a convenience store — and that is exactly how the big supermarkets have been drifting away.

You Can Spend Tomorrow's Money Without a Credit Card

Paying for things online posed different problems in different countries. The "cash in one hand, goods in the other" of a physical store does not carry over to the internet.

In the US people were used to paying by credit card, and one of Amazon's main jobs in its first years was to persuade users to trust it with one. PayPal offered another route to safe payment: you could pay by card without handing your card details to the merchant.

The biggest problems, and the biggest inventions, happened in China.

In May 2003, Taobao, a Chinese platform for trade between individuals, went live. Unlike auction sites such as eBay, it was completely free to use.

Taobao faced a bigger problem of trust than Amazon did. As a platform it had no hold over either side of a deal. Even with a record of past transactions to go on, sellers could only ship after payment arrived, which left buyers carrying real risk. Deals on Taobao tended to be small.

A platform where buyers and sellers cannot trust each other obviously cannot grow much of a market.

In October 2003, Taobao launched Alipay and solved the trust problem with a stricter arrangement. The buyer sent the money to a third-party account — Alipay, acting as the middleman — and only after the buyer confirmed the goods had arrived did the seller receive it.

Only then did Taobao's registered users and transaction volume really begin to grow. Within a little over a year of launch, Taobao had beaten EachNet, which had held more than 90% of the market, and over the following decade it became the $200 billion company it is today. Alipay was the single most important part of that.

Alipay itself became a business more important to Alibaba than online shopping. Money can sit in Alipay for 2 to 15 days between the buyer paying and the seller finally receiving it. Add the balances users leave in their Alipay accounts, and the sums Alipay moves in a day rival those of a large investment bank.

And that is exactly what it does with them. Over the past two years Ant Group, Alibaba's financial arm, has appeared in public view more and more; starting with Yu'e Bao, it has offered more flexible ways to manage money. And of course, wherever your money sits, that is where you spend.

Payment now carries more meaning than an exchange of value. How you pay can even change what you buy on an e-commerce site.

To get you to spend a little more, e-commerce companies have set their sights on money that is not yours yet.

As though that money were already in your account. These newcomers to internet finance use products like Huabei and Baitiao to foot the bill for your spending. Buy an electric toothbrush on Tmall Global or JD Worldwide and you do not even need a credit card: you can start paying in installments 50 days later.

What sets them apart from traditional financial institutions is that JD.com, Alibaba and Suning, which have moved into consumer finance one after another, feed personal spending records, even browsing data, into their credit scoring. The more a user spends, the larger the credit line and the better the installment terms.

The more a user spends, the larger the credit line and the better the installment terms — a loop. That is how buy, buy, buy works: once it starts, it does not stop.

Even the Form Goods Take Has Changed

For an e-commerce company, what it spends on shipping and what it gets back are not necessarily proportional. But stretch the definition of "goods" beyond physical objects and "have it at once" becomes possible again.

Over the past few decades e-books have eaten into the market for paper books, music sales moved from cassettes and CDs to MP3s, and people rarely buy DVDs any more, buying digital content online instead. Streaming has further dissolved what it means to "buy" a song.

Strictly speaking, owning these goods no longer means anything. You can never touch these books, songs and videos that live in the digital world. People read e-books on a Kindle and play music or video on a phone, a computer or a home theater; books, CDs and DVDs, once physical objects, have become a service.

For Amazon, which started with books, the media business of books, music, DVDs and games was its most mature line and an important source of profit. But books, music, games and video are all abandoning carriers like paper and discs for online consumption. The most important thing paying for Amazon's expansion into new businesses would sooner or later disappear.

The Kindle e-reader, launched in 2007, was Amazon's most successful attempt to use a new business to kill, with its own hands, the business it was best at. The first Kindles were inconvenient in all sorts of ways, but Amazon, having sold publishers' paper books for a decade already, obtained more e-book rights than anyone before it. Over the next eight years the Kindle changed how books were published, how they were sold, and how they were read.

The first-generation Kindle

A year ago Amazon launched Kindle Unlimited, a monthly e-book subscription: $9.99 a month for as much reading as you like from 700,000 titles. Amazon recently announced that the number of pages a reader gets through on a Kindle would become one of the ways an e-book is billed. It will pay authors by pages read as well, rather than by the number of copies sold.

The same change is happening in music: from selling CDs, to Apple selling MP3 downloads, to unlimited play on QQ Music and Spotify today, with a monthly fee for the premium tier. Film is the same story. Movie downloads were never a big business, but the rise of video sites quickly destroyed the DVD industry.

Through the change, people's sense of owning things has changed too. You no longer buy individual works carried on paper and discs; you buy the right to play almost any work at all.

You Don't Need a Computer to Buy Things

Twenty years ago, users logging into Amazon to buy something were still on dial-up, at speeds and prices no one would accept today. High-speed wireless networks now cover nearly everywhere and connect people to the world far faster — and back then nobody could have imagined that the smartphone would become the main vehicle for shopping.

Over the past two years the share of purchases finished on a smartphone has climbed fast. During last year's Double 11, of the 70 million in sales between midnight and 1 a.m. on the 11th, 50 million came from mobile devices, mostly phones.

Lin Yizhang, CEO of eBay Greater China, told QDaily in an earlier interview that one of the clearest trends of the past two years was the shift to mobile.

People have got used to browsing, comparing and buying in a phone app. What changed is not only the move from a big screen (the PC) to a small one (phone, tablet); the way into e-commerce has changed completely.

At last Sunday's Women's World Cup final, 65% of merchandise sales came from mobile devices, and 50% of that from smartphones, according to Fanatics, the largest online seller of licensed sports goods. As David Katz, Fanatics's head of product, put it: "Anything that can make the transaction easier, we're doing, because we understand very well how painful a mobile keyboard is to use."

The Whole World Is E-Commerce's Free Shuttle Bus

An e-commerce company, existing inside the network, cannot draw people in with a free shuttle bus the way a big supermarket can. But it found a better method.

In its second year online, Amazon launched an affiliate-marketing service called Amazon Referral. When another site sent a user to Amazon to buy a book, Amazon paid a commission at a rate that varied by product. None of it needed staff on Amazon's side: the user registered an account, clicked once to get a product link carrying a string of special characters, and passed it on — whether sending it straight to a friend or running a whole website as a traffic channel.

Sending shoppers to e-commerce sites is an old business. It is the same as taking a colleague to a shop you know and getting an extra discount from the owner. The Amazon Referral affiliate program played no small part in Amazon's growth into a retail giant.

Smzdm ("What's Worth Buying"), which just celebrated five years online, grew on shopping guidance alone, turning itself step by step from a shopping-sharing blog into a major gateway to e-commerce. It works with the large e-commerce sites and takes a share of the commission on the traffic it sends them. Smzdm has now raised tens of millions of dollars and hired a JD.com vice president as its CEO.

Guide sites, referral links, social-network marketing, keyword results in search engines — all are ways for e-commerce companies to get more page views.

The whole world can now be e-commerce's free shuttle bus, feeding a steady stream of users into the largest store in the world: the internet. In the twenty years since Amazon went online, buying things online has gone from nothing to niche to ordinary.

And the Holidays Never End

The world's first online shopping holiday was Cyber Monday, fixed in 2005. On the first Monday after Black Friday, the traditional American discount day for shops, online retailers would generally run promotions to encourage orders. In 2005 the consumer research site shop.org named this kind of push "Cyber Monday," and the "holiday" stuck. Nobody remembers which retailer started it.

The biggest of them, though, is Double 11, which Alibaba created in 2009.

Today Black Friday and Cyber Monday have stretched from single days into a whole holiday shopping season. Last year Amazon used Black Friday to bring its Chinese-language overseas shopping service into China. Beyond that, on Mother's Day, Valentine's Day, National Day and other holidays, e-commerce companies use promotions to get users to place more orders.

Buy, buy, buy hardly needs an excuse, but e-commerce companies still rack their brains to invent new reasons for you to browse a few more times and buy a little more.

Daniel Zhang became Alibaba's CEO not long ago

In 2009, what is now Tmall was still called Taobao Mall, and it had a fraction of the merchants it has today. Daniel Zhang (nickname: Xiaoyaozi), then in charge of Taobao Mall, decided to make an online shopping festival that would let users "have a really good time." That became Double 11.

By Zhang's own account in interviews, November was chosen because it lies quiet between October's Golden Week and December's Christmas, with nothing much going on, and because the change of season — deep autumn in the south, winter in the north — handed e-commerce companies an excuse to encourage spending. Only 27 brands took part in the first Double 11. In 2014, Alibaba's Double 11 sales reached 57.112 billion yuan, almost 1,000 times the 2009 figure.

Numbers that get crazier every year

Today almost every online store in China runs a promotion on November 11.

After Tmall created the Double 11 shopping carnival, other e-commerce brands wanted a main battlefield of their own. For JD.com that date is "618" (June 18). A few years ago JD.com explained the thinking behind 618 bluntly: "We at JD.com need a shopping holiday of our own, something like Double 11. At this stage, promotions and price wars are still the best way for an e-commerce company to draw a crowd."

This year JD.com stretched 618 further, turning what had been a one-day anniversary into a 20-day mid-year sale. In China, 618 has been worked up into a promotional season answering Double 11 from the other side of the calendar. The reasoning matches Double 11: June 18 comes after the Spring Festival and before the summer holidays, always a slow season for e-commerce platforms.

Now the practice of inventing holidays out of thin air has been carried back to the US. Earlier this month Amazon US declared July 16 Prime Day. These invented holidays are the battlefields where e-commerce companies fight it out, and the starting point of a buying urge users cannot switch off. At this rate, out of 365 days in a year, there really are not many left that are unsuitable for buy, buy, buy.

Cover image from WWF