Why Overstock decided to start a price war with Amazon

Overstock.com’s was founded in 1999 with the purpose of selling surplus office goods after the burst of the dot-com bubble, and like many companies from that era, it went through plenty of turbulence.
But the site has gradually drifted away from outlet goods and is now selling everything from rugs to name-brand women’s apparel. It has, in the process, become a stable billion-dollar business.
It’s always been dwarfed by Amazon (s AMZN), which had $61 billion in revenues last year. But Overstock says it’s now ready to take on the goliath. Its first strike? Overstock’s decision this week to undercut Amazon’s prices on some books by 10 percent, which forced the mega-etailer to quietly bring down its prices as well. We asked Overstock CEO Patrick M. Byrne (pictured above) why he thinks he can go toe-to-toe with Amazon.
What was the impetus for challenging Amazon on pricing in books?
We have sold books for about 10 years, and we have a book business — it’s in the tens of millions of dollars. We used to call it “BMMG” — books, movies, music and games. We have had a nice book business, but we have not been in the position where we could really challenge Amazon on pricing before.
Amazon is a huge, popular brand. What do you think is your competitive advantage?
We’re not going to have as broad of a selection as Amazon, but we’re going to be less expensive. To be honest, our selection has grown over time to a million products. Amazon may have 10 million or 20 million, but how many products do you need?
For example, we have 360,000 books available under this promotion. A typical mom and pop (store) may have 10,000 books. A Barnes & Noble super store may have 120,000 titles. So by having 360,000 titles, you’re getting to 98% or 99% of the books that are being bought these days.
What are the most popular products on Overstock? 
Home products, jewelry and apparel collectively give us the bulk of our sales share. We have a non-negligible sales in BBMG, but we didn’t use it in a strategic way. The rest of the business had to be prepared for this move. But I’ve been really planning this move for many years, just waiting for the right time to pull the trigger on it. And we do think that we represent a credible alternative to Amazon.
What about Amazon’s data analytics and vast supplier network?  Can you compete with that?
Amazon has developed a thick share of online sales, and that gives them the ability to squeeze, especially on the supplier side.
What Amazon does, when you put your product on Amazon, is they analyze what sells well, they cut you out and they source directly themselves. There’s a lot of suppliers who are shifting over because they recognize that we’re not in it to screw our suppliers.
Are you planning to open up other fronts in this pricing war with Amazon? 
Yes. In fact, we’ve bided our time to do this but now we think they’re ready. My old football coach used to say, “It’s not the size of the dog in the fight, it’s the size of the fight in the dog.”