Books written by Ray Sullivan

Thursday, 31 January 2013

Amazon - profits down, eBooks up

Amazon, the biggest online retailer of them all, has just announced a dramatic drop in profits, down by $80 million for the last quarter compared to the same quarter a year earlier.   It's not for want of trying, though, as they increased their revenues from around $17.5 billion in that quarter a year ago to more than $21 billion this time around, a rise in trading of around 22%.  Jeff Bezos needn't panic, his profits were still nearly $100 million for the three months leading up to Christmas.

 However, this means Amazon are cutting margins aggressively, which given the current market conditions isn't unusual.  And let's face it, $100 million profit in a quarter isn't to be sniffed at.

Jeff has pointed out that one area that is in decline for his business is print books. To be fair, the decline is in the rate of increase - they grew  by 5% in December, which is the slowest growth rate in Amazon's 17 years as a book seller.  In contrast eBooks are growing like mad, up 70% or so on the same quarter the year before.  As Jeff points out, the eBook business has grown from nothing five years ago to a multi billion dollar category for Amazon.

So, with profits like this in such a tough trading environment being relatively buoyant, it should be no surprise that the market reacted positively to Amazon's announcement - I'm guessing the markets have noticed a little bit of tough trading conditions generally.

Jeff was certainly smart enough to realise that eBooks were ripe for the consumer market five years ago - up until then they had been quite niche and the almost blanket avoidance by the mainstream publishing industry helped to keep them that way.  But Jeff helped to take eBooks out of the shadows and into the spotlight, realising that for a major bookseller it is a heck of a sight cheaper to stock millions of electronic book files compared to the miles of racking needed to maintain stocks of physical books.  That and his move into Print on Demand stands to reduce his physical inventory, hence his real estate costs, big time, long term.

So Amazon have helped to create the eBook model that is driving us all forward right now.  They have also realised a long time now that volume sales of any given book isn't necessary as long as they have the lion's share of all the sales - they've eliminated the cost of storage as far as eBooks are concerned, so it doesn't matter if any given book sells well or even at all, in the round the total sales of data over the internet creates the wealth.

Which is why Amazon are pushing the KDP Select program again.  Like all Amazon self published authors I've just received my monthly eNewsletter pushing the program heavily.  Put it this way, if Amazon hadn't decided to incentivise KDP Select then they could have topped the $100 million profit.  On the face of it, KDP Select is pitched as a way of rewarding Amazon Prime customers, itself a vehicle to monopolise the online selling market.  But if it was just that, then Amazon wouldn't need to insist on exclusivity of sales, a concept that is pretty much illegal in most industries.

I worry about the day when Amazon have driven all the other major players off the planet - and Jeff is investing in space flight technology as well, so just being off the planet may not be sufficient in years to come - then how will that affect consumers?  To Amazon, choice is about being able to buy virtually anything through them.  To me, choice is much broader, it's about having different sellers available to pitch their wares.  I can make my purchasing decisions based on price or on service, or on quality.  Or on a thousand different parameters, some tangible, others less so.

Like most of you I buy from Amazon, including eBooks.  But I try to ensure that I don't become a dedicated funding line to Jeff and his empire.  Apart from my purchasing choices I actively resist the KDP Select program.  OK, my attempt to bring Amazon to its eBook knees a little while ago didn't result in a revolution, but did create enough interest to become my fifth most read blog entry ever almost overnight - if you haven't read it, or shared it with someone who might be of a like mind then you can access it here.


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