The digital living room market is fiercly competitive and extremely lucrative. On the one hand there are devices like the Xbox 360, PlayStation 3, TiVo, and Apple TV, not to mention TVs, DVD players, and countless other bits of hardware. On the other hand there is content; the music, movies, games, and television shows that make the living room the entertainment hub of the typical home. Then of course there is the marketplace that bridges the gap between the two.
When it comes to the digital living room, Microsoft, Sony, Apple, and a handful of others seem to garner the majority of headlines. However, there’s another company that deserves a closer look. Amazon could also become a powerful player in the battle for the digital living room. Yes the company sells furniture, but Amazon also has an impressive list of digital living room-related assets. Let’s look at some of these and how they work together.
Amazon started out selling books over the Internet of course, though the company quickly branched out into additional product categories like music, movies, video games, and toys. As an early pioneer in the nascent e-commerce industry, Amazon played a major role in helping to popularize shopping for physical goods via the Internet. It is now quite common to purchase the latest Harry Potter book or the newest DVD release at Amazon.
The first area where Amazon has a presence in the living room, is with the physical CDs, DVDs, and video games purchased from the retailer. Amazon makes it possible to order a new movie from your living room, say on a laptop, and have it delivered to your home in a matter of days, often with free shipping. You don’t even have to get dressed, let alone leave the house! With almost two dozen fulfillment centers around the world, and no need to keep store shelves stocked, the company has built an incredibly efficient distribution system.
Don’t discount the importance of physical media as part of the digital lifestyle, at least for the foreseeable future. There is definitely a trend towards digital media downloaded via the Internet, but perhaps there will always be a place for physical discs. If so, Amazon will be there to serve that demand.
Digital books, music and movies are somewhat new to Amazon, but the company is certainly making a splash in the market. Amazon Unbox is the company’s digital video download service, launched on September 7th, 2006. The service has generally received favorable reviews, and includes a number of unique features including RemoteLoad (you can purchase a video on your work computer but download it at home) and Unbox on TiVo (customers can send content directly to their TiVo device).
Via Unbox, you can purchase or rent television shows and movies from over thirty studios and networks around the world. Television episodes cost $1.99, movies range from $7.99 to $14.99, and movie rentals cost $3.99. Unbox content is encoded using the VC-1 Advanced Profile codec, which means the video quality is extremely good. And unlike most download services, Unbox uses progressive downloading which allows you to start watching the video before it has completed downloading. Amazon claims most customers can start watching a movie within five minutes of purchase.
Amazon’s digital music download store has yet to launch, though when announced on May 16th the company said to expect availability later this year. The store was widely anticipated, though the decision to go with DRM-free MP3s was perhaps a welcome surprise. Amazon plans to offer a catalogue containing “millions of songs” from more than 12,000 record labels, including EMI. Pricing for the service has not yet been announced.
It may not be immediately obvious, but a large part of Amazon’s business is related to what I’ll call information goods. The first, and potentially most valuable, is the information gathered from years of sales data. Amazon has an uncanny ability to suggest related products to the one you’re looking at, and it is all because of the sales information they have analyzed. The company knows far more about product combinations and purchasing trends than I can even begin to imagine.
Just like traditional retailers, Amazon displays specifications, pricing, and other general information about products in the catalogue, but they take things a step further too. Amazon allows customers to leave reviews and ratings about a product, to see sales rankings and inventory information, and of course to look at related purchases and products. The point is that Amazon displays more product information than the typical shopper could ever dream of.
Increasingly however, Amazon not only knows shopping-related information, but more general information as well. With sites like the Internet Movie Database (IMDB) and Digital Photography Review (dpreview.com) the company has amassed an impressive amount of information about specific products. In the case of movies, IMDB contains trivia, extensive cast and crew lists, release dates, production information, and much more.
How are physical goods, digital goods, and information goods related? How do they make Amazon a major player in the battle for your digital living room? The answer is, quite simply, integration.
It is very likely that most of the movies or songs that Amazon sells via its digital stores have also been made available in physical form via the company’s primary stores. By applying the extensive sales information they’ve gathered from physical goods to their digital stores, Amazon has a major advantage over competitors. They can offer far better recommendations and related products, greatly enhancing the customer experience, and likely boosting sales too. A large library of content is great, but a large library of content with an efficient way of navigating through it is even better, and Amazon can provide that.
Furthermore, they can tie in information from their portfolio of sites, such as movie details from IMDB. Unbox has already started to incorporate trivia, goods, and other bits of information related to movies purchased via the service. That’s something that no other retailer (at the moment) is capable of doing on their own, and it’s a feature that customers will love. There are lots of companies that can build a digital movie store, but only Amazon can augment the movies themselves with additional information and content.
Another really smart thing Amazon has done is to integrate with other established devices in the living room. As mentioned above, Unbox supports the popular TiVo DVR devices, but it is also capable of streaming video using a Windows Media Center Extender like the Xbox 360. Videos can also be copied to portable devices that support PlaysForSure. By utilizing Microsoft’s popular media formats, Amazon has removed the need to create their own hardware devices, essentially piggybacking on work already done by Microsoft.
I’ve speculated in the past that “cloud services” may become an important part of the digital lifestyle, and here too Amazon could have an impact. Amazon Web Services, launched in 2002, is a collection of Internet utility services such as storage (S3) and virtualization (EC2) that could form the basis of a future media-related service. Unbox may already use S3 for storage, but it could become an additional feature offering in the future – like RemoteLoad, but in the cloud instead of with a physical machine. [Ed. S3 is already used to power many third-party online backup services, and other digital lifestyle services]
Perhaps the only thing keeping Amazon from the forefront of the digital living room is the lack of a coherent strategy. The company certainly seems quite content at the moment to build out infrastructure and experiment with digital stores like Unbox, and it’s obvious that Amazon is first and foremost an Internet retailer. Microsoft, Apple, and other competitors would be wise to keep Amazon in mind, however. Amazon is flying under the radar right now, but the company’s unique combination of physical, digital, and information goods could enable it to shake things up in the digital living room at any time.