We learn today that Amazon has acquired Goodreads, a social network for people who love to read. Goodreads has roughly 16 million members. More than 30,000 book clubs use the site. Many people see the move as a perfect fit for Amazon. The company gets the opportunity to learn about people's likes and dislikes regarding books, and they have an opportunity to promote to this active book-loving community. Moreover, they can use analytics to mine this tremendous amount of data about books that the social network will provide. Early reports indicate that they intend to integrate Goodreads more closely with their Kindle reader devices as well.
For me, this move clearly extends the powerful network effect that Amazon already benefits from in the book business. The network effect means that the value for each Amazon user goes up as more people use the site. That effect increases now with the addition of this powerful and broad social network. Book lovers will derive even more value from Amazon, as the online marketplace enhances its ability to provide informative reviews and highly personalized recommendations to each customer.
What's the downside? Goodreads has cultivated an independent status up to this point. Some Goodreads users will undoubtedly worry about the link with Amazon and the loss of that independent status. Amazon will have to manage this tension, much as firms do any time they vertically integrate.