...Going forward, however, Amazon.com will stock an increasing number of music products at its 13 distribution centers around the country and step up direct sales. Noah Herschman, director of Amazon’s audio and video division, who also heads the music products initiative, says the potential appeal of the new music site can be traced to three basic elements: fast delivery, extensive product information, and competitive pricing. With fulfillment expertise honed in 40 distinct product categories, Amazon.com aims for two-day shipping on most items. Through a “Preferred Customer” program, for an annual payment of $79, consumers can receive free two-day shipping on all purchases during the year and overnight shipping for a $3.99 charge. (This offer does not apply to heavy items like guitar amps or drumsets.) Customer reviews of products, online spec sheets, and, in some cases, video clips provide information to help guide the buying decision. “The comments of our user community are sometimes easier for a customer to digest at their own pace than going into a physical store and chatting with a salesperson,” he explained. As to price, Amazon.com operates with a corporate-wide 23% gross profit. Although Herschman declined to detail the music division’s target gross profit, he indicated that “competitive pricing is a critical element of the company’s strategy.”
This combination of fast delivery, selection, and price has generated 38% compound sales growth over the past five years at Amazon.com. For the most recent quarter, sales advanced 37% to $4.13 billion. The electronic products division, which includes music products, grew at an even faster 56% rate. Sales for the division were $1.48 billion for the first quarter of 2008, versus $950 million for the same period a year ago.
Herschman came to Amazon.com after a stint at Tweeters, a consumer electronics chain. His first assignment was to persuade high-end audio makers to sell their goods online. “Initially, it was a fairly big stretch for many of these companies to start selling online,” he explained. “There wasn’t a lot of precedent and they felt that their products needed a live demo to be sold effectively. But we were able to show them that by not selling online, they were missing a growing portion of the market.”
Although he declines to offer specifics about the type of music products Amazon.com will stock and promote, it’s likely that he will be attempting to persuade industry suppliers that, like consumer electronics makers, they need to be on the Amazon site.
The “Best Sellers” on Amazon’s music page currently include a collection of entry-level guitars, metronomes, and a few crossover products that have broad consumer appeal, including handheld digital recorders and an ION turntable that converts LP records into mp3 files.
Many industry suppliers remain skeptical about Amazon’s ability to move up-market in the music industry. As one remarked, “They’re a mass market retailer online. Brick-and-mortar mass merchants like Wal-Mart and Target can’t sell music gear past an entry level price point; I’m not sure Amazon will have much more success.”

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