[FaceKicker]

How does Amazon have a "strong network effect"? I'd still use it even if none of my friends did; it's not like Facebook (or instant messaging networks, to use the 11-year old example from the article) where my friends not using it would render it useless (or even less useful).

The only things I can think of is that (1) customers will advertise for you by word-of-mouth, and (2) it's cheaper per user the more users you have (economies of scale), but Ben and Jerry's has both of these properties as well and the author says it has "no network effect". It is true that its reviews have a strong network effect, but that's not the part of their business they profit from directly - you can easily just check Amazon for its reviews and then go to Buy.com to actually make the purchase.

Can someone clarify what he might mean when he says Amazon's business has a strong network effect?

I also don't really understand how Amazon has "strong customer lock-in", either. Maybe "weak customer lock-in" would be appropriate, as once you make an account it's easier to order more items, since you don't have to figure out the design of the website and re-enter your credit card and shipping info. Amazon Prime clearly has strong lock-in as you're paying for a one-year subscription in advance, but nowhere near the majority of customers use it (I would assume) and it didn't even exist in when this article was written.

[ljf]

Amazon plays off its suggestions of what else to buy, that data is from the network, not your personal network, but the data is only valuable once you have enough users, or else the data is too spiky.

These suggestions to just throw one or two more targeted items into your basket is where they really excelled.

[FaceKicker]

Do people really use these suggestions though? I don't think I've ever used them personally (maybe once?), but maybe others do. And even if people use them very frequently, I still don't think that would make the usefulness of Amazon grow as a "square" of the number of users as the article implies.

[ljf]

Yes, I've used them many time, and I know my (non technical) girlfriend does too.

I've found similar novels that I've liked through the suggestions, bands I've enjoyed and recently when buying the 'Lean Startup' I ended up buying 2 of the suggested books.

Many time I end up not buying the item I originally went there for, instead buying one of the suggestions, or the suggestions on a suggestion... depends how the reviews look.

As I see it Amazon were the first to really use this data successfully and meaningfully.

The other networks I guess would be the Amazon Wishlists which for a time were hugely popular. I still see wishlist links on personal and informational sites, as a way to give back to the site creator. That network is pretty powerful too!

[demallien]

I think he was referring to the fact that people talked about Amazon, even outside of geek circles. It was the first big online retailer - before that, people just didn't buy things online. Amazon changed that by generating suffcient word-of-mouth buzz. That buzz in return allowed Amazon an easier job negotiating with publishers to distribute their books, which made Amazon cheaper than bricks and mortar stores, which increased the buzz, which allowed them to negotiate even better prices.

[FaceKicker]

I mentioned word-of-mouth buzz in my post, but it didn't make sense to me that that could be the reason as Ben and Jerry's ice cream has the same thing going for it (as an anecdotal example, I never bought it until my girlfriend bought a couple flavors and I tasted them and found out how much tastier than generic ice cream it was).

And even if Amazon has more of this word-of-mouth going for it than Ben and Jerry's, I would think this would be a result of their implementation (i.e., it's a well-done site and that's why people tell their friends), rather than something inherent to its business model which is what the article is talking about.

[wccrawford]

I don't think it's what he was talking about, but Amazon also has their 'Prime' service which means free 2-day deliver on every item in their warehouses.

For me, that means I'm -way- more likely to buy from Amazon than anyone else, because it's both free and 2-day delivery. Yes, I pay $80 per year for the privilege, but that's still way cheaper than what I used to pay for shipping before Prime, and I always chose the 5-7 day option.