This week saw the launch of Amazon.com's assault on Europe with the launch of two dedicated websites in Germany and Britain.

The world's leading Internet bookseller believes that the international market offers growing opportunities for its well known brand of e-commerce.

Meanwhile rival Bertelsmann, the German media giant, is investing $200m for a half-share in one of Amazon.com's main rivals in the US, the Internet site of Barnes and Noble, the biggest US bookselling chain.

And last spring the second-largest US bookseller, Borders, launched its own online books site.

Exponential growth

Internet bookselling is now one of the fastest growing businesses on the net.

Amazon.com had 180,000 customers in 1996, 1.5m in 1997, and has 3.2m now.

Sales increased even more, from $15m a year in 1996 to $147m in the latest quarter, or 40 times.

The newer BarnesandNoble.com is the sixth largest e-commerce site, with 700,000 customers, less than 18 months after its launch.

And customers stay loyal. Amazon.com says nearly two-thirds of its orders are repeat orders.

Personalised service

Internet booksellers have built customer loyalty on personalised, tailored services that target individual needs.

Amazon.com notifies customers when new books arrive in categories they have previously shown an interest in.

It is planning to offer a web-based personal information manager to its customers.

Borders.com and others have special chat areas (the Netcafe) where customers can talk about books to each other and share recommendations and reviews.

BarnesandNoble.com offers live discussions with authors on the site.

And they all offer a searchable database of some three million books, with discounts of up to 40% on list prices.

Huge cost savings

Online bookselling has the potential to raise profits by radically lowering the costs of production.

Despite its huge size, Barnes & Noble - with over 1,000 bookstores in the US - barely makes a profit.

In the latest quarter it only earned $10m on sales of $675m.

Rival Borders earned only $4m on sales of $545m.

The logic of their move into e-commerce was compelling.

Internet bookstores can offer heavy discounts on books because they have fewer costs - with low rents and employee numbers - than conventional booksellers.

And their ability to target customers means they can boost sales more effectively.

Big promotion expenses

But to be successful the big Internet book retailers have had to invest heavily in promotion to generate the hits they need.

They have had to pay to establish strategic partnerships with portal sites like Yahoo! and Lycos.

BarnesandNoble.com has developed a particular relationship with America Online (AOL), the biggest Internet service provider.

And they have had to develop the technology to make their websites attractive to customers.

All this has meant that despite growing sales none are yet profitable.

But the potential for growth has attracted investors. Amazon.com is now a $2bn business, as its share price has rocketed, making its founder, Jeff Bezos, a billionaire.

Mr Bezos is lucky he changed jobs. A former mathematician, his former job was developing the programmed trading equations for hedge fund D.E. Shaw, which has just been bailed out by its strategic partner BankAmerica after a loss of $350m.

CDs next

The next stage in the expansion of the electronic booksellers has come with the addition of music and video sales, with even higher profit margins.

As well as booksellers like Amazon.com and Borders entering the market, online music stores have proliferated, hoping to gain a share of the $40bn in worldwide sales. Some industry analysts expect online CD sales to reach $2bn by 2001.

One of the most well-known, CDnow has grown rapidly since its inception in 1996, with site visits up from 12,000 a day to 175,000 a day, and sales of $40m a year.

Recognising the threat from the booksellers, CDNow is in merger talks with rival N2K, and has formed a retail alliance with e-Toys and movie store reel.com to link to each others' sites.

But even bigger players are moving in. Bertelsmann, which owns Arista Records and RCA as well as publishers Random House and Doubleday, now has plans for its own online music store, BMG online.