X-SciTech

Amazon.com Bookmarks Japan

November 1, 2000 / 2:44 PM EST / AP

Amazon.com Inc. extended its online empire Wednesday to one of the world's most book-loving nations, Japan. But razor-thin margins and an already glutted market make the venture a risky one.

Amazon faces stiff competition from online book vendors like Internet giant Softbank Corp. and major retailer Kinokuniya, which announced Wednesday it will open an eBook store with Microsoft.

And one of Amazon's biggest strengths, competitive prices, will be hard to offer Japanese consumers because of legal restrictions that prohibit large discounts and any bypassing of the sales tax.

Japanese books are already cheap, with the average paperback selling for about $4.50.

"The prices remain pretty much the same and in addition you have to pay extra for shipping and handling," said Hiromi Abe, an Internet analyst with Morgan Stanley Dean Witter. "It's going to be hard for an Amazon-type company."

At first glance, Japan appears an ideal place for the world's largest Internet retailer to set up a Web site.

Books are a multi-billion dollar industry here. The online market is starting to boom. And the economy is recovering from its doldrums.

But Japanese still remain averse to using credit cards online. Other Internet book sellers have introduced a system of payment and delivery at convenience stores, the sort of innovation Amazon might have to come up with.

Amazon.com founder and chief executive Jeff Bezos said that his company's customer-friendly business has already cultivated big clientele here even without its physical presence.

"If you do a good job with customers, they tell their friends," he told reporters in Tokyo. "The reason we have gotten so many customers is that we have concentrated on the customer experience. This is a big market and there will be lots of room for our competitors."

Amazon.co.jp, which promises a 30 percent discount on foreign books, will still be able to offer English-language books at a bargain compared to the wildly inflated prices they sell for at Japanese retailers that stock them.

At one foreign-language bookshop in Tokyo's swank Ginza district, Michael Crichton's "Timeline" was selling for $14, almost twice the publisher's suggested price of $7.99

That helps explain why Japan has been Amazom.com's largest market outside the United States, with 193,000 customers and annual sales of $34 million.

But English-language book sales account for only a tiny fraction of the $9.3 billion book industry that makes Japan such an attractive market for a company like Amazon.

Amazon.co.jp is the company's first Internet book sales site in Asia and its fourth internationally after the French-language Amazon.fr, the German-language Amazon.de, and Amazon.co.uk.

Bezos declined to say how much Amazon is investing to set up its Japan operations, restricting himself to saying it was "a lot."

Amazon, which also sells music CDs, videos, toys, computer software, eectronics appliances and other household items in the United States, said they are considering adding music CDs as part of their future business in Japan.

Amazon's best chance for success here may be to turn to areas outside books, where there are more possibilities for discounts. Publishers in Japan have a tight grip on pricing.

"If Amazon extends its operations to other areas there might be a chance to be a winner in Japan," said Abe, the analyst.

The overall timing for Amazon's entry into the Japanese market may be propitious.

The Japanese government has just launched a five-year plan to try to overtake the U.S. as an Internet power, and one of the pillars of the plan is to lift legal impediments to electronic commerce.

Amazon will offer more than a million Japanese and foreign book titles. Initially, it will offer a selection of 1.7 million titles, 1.1 million in Japanese and 600,000 in English.

Amazon, which has agreements with more than 20 telecommunications carriers in the United States and Europe, is considering offering its products through mobile phones that offer Internet access. The mobile phones are extremely popular in Japan.

Mobile commerce sales is still "incredibly small" and immediate growth is not expected, Bezos said.

"I think it will take as much as five years before you see meaningful sales through mobile commerce," he said. "I think that may be true even in Japan."