Stacking weekends and the long tail

When was the last time you savoured a 'stacking weekend'? No, I don't mean endless hours of family fun playing Connect 4 or Jenga; I refer instead to the practice of ordering a box set of your favourite television programme and setting aside many hours to enjoy a series back-to-back before gorging on the DVD extras!

For Amazon – one of the internet success stories of the last decade, this aspect of social behaviour is having a huge effect on the sales and operating profits. TV box sets are mega sellers as people engage in behavioural changes, opting more and more to watch their TV from a DVD. Amazon can offer eye-watering discounts on the entire West Wing – for the record, they are retailing a 44 Disc Box Set at £49.98 – this is £110 below the original price and it works out at around 50 pence per episode.

Stacking weekends and other examples of behavioural change by consumers lay at the core of a superb talk given by Brian McBride, the CEO of Amazon UK to a packed meeting of the Keynes Society at on Thursday 6th November. With more than twenty years of top level retail experience including spells in charge of Dell UK and T-Mobile, Brian McBride has an almost unrivalled record in delivering growth in businesses that must face the challenge of tremendously rapid technological change.

Mr McBride highlighted three salient changes in the nature of retail markets for e-commerce businesses. The first is the long-term impact of Moore's Law which predicts a doubling of processor power every eighteen months. As the power of processors has soared, so the cost of putting PCs into the home has collapsed whilst storage density has expanded beyond expectation and bandwidth has speeded up.

The second structural change has been the success of e-commerce companies in personalisation of the internet, be it through virtual communities online to personal reviews of products (from films to hotels) – essentially a process of humanising the web which itself is simply an enabling technology.

To these two factors is the willingness of e-retailers such as Amazon to embrace the concept of the Long Tail which was developed in a book written by Chris Anderson a couple of years ago. Amazon has over one and a half million books available online, over half a million films and an-ever increasing array of products from digital cameras to leaf-blowers, some of which are available direct from Amazon or from their growing army of affiliate sellers choosing to find a space in the market-place.

I was struck by Brian McBride's observation that selling through internet platforms is – at heart – about connecting small amounts of demand with supply, be it meeting a phenomenally steady annual demand for textbooks on electrical wiring which meet the needs and wants of a niche group of consumers – or using the latest print-on-demand technology to supply books that, in days of old, would have been permanently out of print.

Their customer centric approach works well and I am unashamedly an avid Amazon UK user. The three core components of their competition position – namely selection, price and availability – are no different from many other online or bricks and mortar retailers. But for me buying from Amazon UK has become a default option and whilst the 24-44 age group remains their most significant demographic in terms of sales revenue, the generation aged over 55 most of whom are more web savvy than ever before will become increasingly important for the continued growth of the business.

Mr McBride handled a large number of questions with aplomb. They ranged from the attractions of the new Kindle e-book reader (and the high price of downloadable e-books) to the prospects for high street retailers now that the web accounts for over ten per cent of consumer spending. Mr McBride was optimistic about how Amazon would weather the recession – they have traditionally built their operations on a frugal basis only taking on extra staff when it is absolutely necessary. And these people are some of the fittest people around since the average warehouse worker walks at least fourteen miles a day.