Amazon announced that it purchased Goodreads, the book recommendation social networking site with 35 million users, for an undisclosed amount on Thursday. Since then, speculation has risen about what Amazon paid for the company, and how the acquisition will help Amazon grow. But the acquisition points the next step of ecommerce: recommendation.
A Bloomberg article pegged the valuation at close to $1 billion based on its users, while All Thing D said the number was between $150 and $200 million. The Bloomberg article based the $1 billion number based on its potential to direct readers to more sales. Goodreads shares some attractive qualities with Pinterest: it curates objects for sale for for a spendy user base. The model is any retailer’s or advertiser’s dream.
Amazon began as a book-selling operation and despite its growth into an omni-retailer it has worked to establish its prominence in the bookselling and publishing world. Just two weeks ago, it launched a digital literary imprint, Little A. Amazon’s first foray into publishing was quiet. In 2009, it started signing contracts with and promoting successful self-published authors. It slowly added imprints that signed on unpublished writers. It expanded to the European market in 2012.
The acquisition of Goodreads, regardless of the price (which will be revealed in the company’s next earnings call), suggests that Amazon is looking to gain a foothold in in what it considers to be the future of ecommerce. Recommendation has been on the forefront of other retail sites as well. Knick-knacks and clothing e-retailer Fab.com and online women’s clothing store NastyGal.com ($140 and $128 million estimated 2012 in sales respectively) have earned a reputation and success based the curation abilities of their founders.
But that direct curation is only possible on the small scale, on relatively boutique sites, not at a company such as Amazon with revenue in the double-digit billions each quarter. Fab.com and NastyGal cater to a certain type of customer (young, quirky, and similar to the founders/curators). Any recommendation service looking to become scalable in the ecommerce world, and to cater to all types of shoppers as Amazon does, will need to automate the curation process. Goodreads started out as a social networking site where users could see what their friends read. It was successful, with six million users, but it truly became valuable once it bought Discovereads, the book recommendation algorithm, in 2011. With that purchase, it was no longer dependent on a growing user base for book recommendations; it could transform the data it already had to recommend more services.
The acquisition suggests a metric other than users and revenues being a factor in acquisition and company value: the ability to mathematically predict users’s tastes and purchases. Which means we should expect the rush to collect consumer data — the raw material those predictive algorithms work their magic on — to become even more intense.