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Monday, June 07, 2004 - Page updated at 12:00 A.M.
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Northwest stock contest 2004 | Consumer affairs

Small sellers get the Amazon.com edge

By Monica Soto Ouchi
Seattle Times technology reporter

DEAN RUTZ / THE SEATTLE TIMES
In a nondescript warehouse on Mercer Street, Jason Meyer, left, and Daryl Butcher have amassed a collection of some 300,000 used books that they sell on Amazon.com. Amazon opened its platform to other sellers, and as a result Thrift Books is selling as many as 9,000 books each week.
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Jason Meyer and Daryl Butcher met at a boat party on Lake Washington last July. Days later, they purchased 10,000 used books from a charity, rented a warehouse in Kirkland and formed Thrift Books.

A year into the venture, the company has 300,000 used titles listed on Amazon.com and other online retail sites. Meyer, who oversees the company's finances, said he expects more than $1.2 million in sales the first year.

"It's all volume," Meyer, 32, said of their strategy, which is to sell a large quantity of books cheaply and to make a profit on shipping. "We sell a lot of books for a penny."

If selling used goods online isn't a new concept, selling them efficiently is — particularly for small businesses. Amazon Web Services, a venture the Seattle-based online retailer started two years ago, lets software developers use its sophisticated, back-end technology to invent new ways to display and sell goods online.

Butcher, 25, the software architect at Thrift Books, for instance, used the vast catalog of available product information made available by Amazon to develop a program that lets his employees scan a book's bar code to quickly and accurately price and list thousands of used books. Without the program, they would have to enter each item manually.

Jeff Barr, technical program manager at Amazon Web Services, said more than 50,000 developers use the program so far. Some tap the information to tailor their own sites and make a profit on referral fees, while others build software programs to help other merchants sell online.

It's a potentially lucrative market if those developers can persuade merchants to use their products. Roughly 700,000 sellers have offered new, used or collectible items on Amazon in the past 12 months.

"What can they do?" Barr said of the developers. "We said, 'Surprise us. Show us new things.' "

Dave Anderson started his company, ScannerPal, after his wife, Barbara, began selling used books on Amazon 2 1/2 years ago.

Anderson, who wrote software for wireless devices, had accompanied Barbara on a book-scouting trip when he saw his wife go through stacks of used books, holding up each one to determine whether it would sell or not.

When they returned home, half the books had no market value. He decided the key to running a successful business was to buy only books that sold at a higher price.
 
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Anderson developed a software program that allowed his wife to use her cellphone, or any other wireless device, to enter a book's bar-code number. The program returned important information, including Amazon's price for the book, how many others were selling copies, the item's sales ranking and the lowest price for which that book was available.

In December 2002, he started selling his software to the public through his Web site, www.ScoutPal.com.

It now comes equipped with a scanner that attaches to a wireless device, so users can scan books at a garage sale.

"You're going to pick up a book that's going for pennies at a resale shop and come to find out that it's worth $100," he said. "We call that the buried treasure and the gems. It's a lot like mining for gold."

Big partners upset

If the program furthers Amazon's goal to sell everything online, that vision has begun to clash with another side of its business. The company receives revenue through its Merchants@ Program, which enables larger, established retailers to list their products online.

Each of the deals varies in size and complexity. While Amazon lists products for some retailers, it powers the sites of others.

Toysrus.com sued Amazon last month, alleging it violated their exclusive partnership by allowing other retailers to sell toys and baby products on Amazon's site. Toysrus.com, a division of Toys R Us, has paid more than $200 million since the deal began for the right to exclusivity, according to the lawsuit.

Amazon Chief Executive Jeff Bezos declined to comment on the lawsuit, when asked at the company's annual shareholder's meeting recently. But a company spokeswoman said Amazon would file its legal response sometime this month.

Phil Forman of Newtown Video Distributors in Southampton, Pa., said he might be out of business if he hadn't started selling online, including on Amazon.

Forman originally sold VHS movies to video-rental stores but saw business dip as consolidation and the rise in video-store chains altered the industry.

Forman first began selling bits and pieces of his inventory online, entering each title individually. He then purchased a program from Portland-based Monsoon Retail, which developed software using Amazon's information. The software helps merchants manage the selling process from beginning to end.

Newtown now lists up to 30,000 to 40,000 movies at any given time. While Internet sales have increased sharply, his video-distribution business continues to decline. This means the company's overall sales might remain flat this year when compared with those of the year before.

"That to me is a big jump because without it, I don't know if we'd be making money any longer," Forman said.

Slim margins

For Thrift Books, which now warehouses its books in Seattle, the question now is how profitable it can become.

The company's average sale price per book is $2.

Amazon receives 10 percent of each sale, plus it requires used booksellers to charge $3.50 for shipping. Of that amount, the bookseller keeps $2.23 and it must use a large portion of that to pay for shipping and handling.

Meyer, who runs the company's finances, said it developed a mail manifest system that pre-sorts packages. This allows savings of roughly 20 cents per package, which drops to the bottom line.

The company purchases used books from major charities, but it's looking for other sources to bump up the average sales price per book. While the company's operations are generating cash, it won't pay off its initial investment — shelves, computers, and other startup capital — for another eight months.

Meantime, it searches for the gems. Thrift Book's best-selling titles are "Seven Habits of Highly Effective People" by Stephen Covey and "Men Are From Mars, Women Are From Venus" by John Gray. Both sell within 48 hours from the time they're listed.

The titles that sit on the shelves the longest: mass-market paperback books. Titles from authors such as John Grisham and Tom Clancy usually go for a penny.

Meyer said he wonders how much further prices will decline as more sellers go online, more used books are recycled, and more books are listed on Amazon.

"The bigger question to me is: How big can this get?" he said of his business. "I don't know. This market may be a thousand miles wide and one inch deep."

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com

Copyright © 2004 The Seattle Times Company

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