Does Amazon Take Its Customers For Granted?

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No, we’re not saying it does, but this is a suggestion by a respected economist over at Forbes this week, with the attention-grabbing headline Is Amazon Making A Big Strategic Mistake?

Economics reporter Panos Mourdoukoutas opens with this observation:

Of all big strategic mistakes leaders of fast-growing corporations make, one stands out: Taking the customer for granted. Blinded by growth, these leaders assume that their products and services are unique and indispensable, so customers will always be there to buy them at any price.

Mourdoukatos was talking about Amazon’s wider customer base, not indie authors, but he could just as well have been.

As we noted in a recent post, Amazon has just 65% of the US ebook market. As noted in other posts Amazon has seen market share plummet in Germany (estimates vary from 60% to 65%), has seen market share on a downward slope in Australia (the new Kindle AU store was a desperate measure to stem the decline – down to 65%) and Kindle UK saw the supermarket ebook store Sainsbury challenge the mighty Zon head-on in 2013. With Tesco’s Blinkbox Books to launch this spring we fully expect Amazon’s UK ebook market share to be savaged in 2014.

And this is just the ebook retail markets. This takes no account of the wider ebook market share being grabbed by subscription services like Oyster and Scribd and by digital libraries supplied by wholesalers like OverDrive (one hundred million digital downloads in 2013) and other distributors.

No, you won’t see this reported on many of the Amazon-centred indie blogs, but here at EBUK we are not (and will never be) an affiliate site, which means we are totally independent. We don’t make extra money on click-throughs on ebooks to selected retailers so we have no reason to favour one retailer over another, either in listings in our daily promo newsletters or when reporting on the global ebook market scene.

That said, don’t misconstrue anything here as anti-Amazon. Amazon is still the most important retailer for most indies, and even if Amazon drops below 50% of the ebook market that still makes it one helluva player.

But indies need to be aware of the wider debates about the future of their favourite ebook store, and of the ebook markets in general. It’s not 2009 anymore, Amazon isn’t the only show in town, isn’t the biggest retailer in many countries now, and may not always be the biggest where it is now the dominant player.

The savvy indie author plans for the next five years, not the next five weeks, and to do that they need to keep an eye on where things are going, not just where they are now, and certainly not to make plans on how things were yesterday.

Bricks & clicks vs bricks & lockers

Amazon is the online giant of the world. The world’s biggest online retailer. But one that struggles year-in, year-out to make a profit. As the Forbes report notes, Amazon in 2013 “amassed close to $75 billion in revenues at razor thin margins.”

Now $75 billion in revenue is not to be sneezed at. By any reckoning that’s serious money. But Amazon brought in that money with a profit margin of just 0.37%,  and while Amazon shares are still remarkably high there’s no question the shareholders are getting restless.

To put things in context Wal-Mart is the biggest retailer in the world. Period. While Amazon brought in revenues of an impressive $75 billion, Wal-Mart brought in a rather more impressive $475 billion. While Amazon managed a profit margin of just 0.37% Wal-Mart managed a far more substantial 3.6%.

 Gunfight at the UK Corral

 Wal-Mart doesn’t have an ebook store. Yet. But it’s coming.

One possibility is for Wal-Mart to buy the (supposedly) ailing Nook, as we’ve predicted several times, or even B&N itself.

Wal-Mart has been watching the rise and rise of Sainsbury in the UK and will not miss a trick as Tesco’s Blinkbox joins Sainsbury in a pincer attack on Kindle UK that will see the mother of all price wars in Britain this summer.

Indie authors – already banned from W H Smith, and blocked from Sainsbury and Tesco (so much for Barry Eisler’s assertion that indie authors have the same distribution capacity as trad-pub  authors) – don’t stand a chance as Kindle UK desperately price-matches Sainsbury and Tesco to hold its ground.

If you’re quietly smirking at the thought of a couple of backwater British grocery stores snapping at the ankles of the mighty Zon, think again. Tesco is constantly in the top five largest and most profitable retailers in the world, just behind Wal-Mart. It has pockets more than deep enough to match anything Amazon can do, and like Wal-Mart is it past fed-up with Amazon’s constant encroaching into supermarket territory.

While the online giant Amazon talks about developing a bricks & mortar presence but never seems to get past warehouses, retail lockers and vending machines, the big bricks & mortar retailers have been very actively laying the foundation for their bricks & clicks future.

And ebooks are going to play a very big part in that. Both Sainsbury and Tesco in the UK are working very closely with the Big 5 to make sure Amazon UK’s stranglehold on the British ebook market is broken this summer.

Earlier this month is a post entitled What do we do if Amazon stops growing? Futurebook’s Philip Jones noted that UK publishers were “unfeasibly excited” by the prospect of the Tesco Blinkox Books launch.

In the US it’s no coincidence that Wal-Mart recently grabbed Nook’s top man with the connections with the Big 5 in America.

Indies complacently putting all their eggs in the Amazon basket need to see the way things are trending, not the way things were. Change happens, with or without us.

Prime reasons for diversifying your marketing strategy

As we reported yesterday, while Amazon had nothing to say about ebook sales growth in its report for 2013 it was a very different story for Kobo, reporting over 40% growth.

Indies who choose to go exclusive with Amazon rely on the co-called “free bounce” (the sales boost that comes after a free run using KDP Select) and Prime loans (Select ebook titles are available for Prime members to borrow free) to counterbalance the lost revenues on other platforms.

But a glance at any indie forum will show most authors are seeing ever-dwindling returns with the free bounce. Prime borrows were a novelty a year or so back but with ebook subscription services like Oyster and Scribd (among many) offering all you can read for  $10 a month, and digital libraries offering more and more, the ability to borrow one book a month free with Prime from a very limited selection of Select titles is ever-less exciting.

In a report entitled “Amazon Prime memberships poised to tumble with price hike” last week Investor’s Business Daily noted,

After posting disappointing fourth-quarter results on Jan. 30, Amazon said it’s considering raising the price (of Prime membership).

Of course a rise in the price of Prime will be just one of many price hikes across the Amazon spectrum. We’ve already seen Amazon cut back on free delivery in both the US and UK, and other cost-cutting exercises are expected, along with price rises, as shareholders get ever more restless that the world’s largest online company can’t make a profit.

Yes, it’s been investing heavily, but so have Wal-Mart and Tesco, and they seem to manage just fine. In the Forbes report we opened this post with, Panos Mourdoukoutas, talking about over-capacity and weakening demand, concludes,

But with customers resisting a price hike, Amazon may find itself with too much capacity in the face of slowing demand, extinguishing already thin profit margins.

Is Wall Street ready for this prospect?

Never mind Wall Street. Are indies?

Retailer Round-Up

Amazon – all Amazon sites are accessible direct through KDP or through pretty much all aggregators.

Kobo – direct through Kobo Writing Life or through most aggregators.

OverDrive – direct or through Ebook Partnership.

Scribd – direct or through Smashwords or Bookbaby.

Update: we are advised Bookbaby’s feed to Scribd is purely for the Scribd store, not for the subscription service. For that you need to be with Smashwords. Thanks to Jim for the tip.

Oyster – through Smashwords.

W H Smith – not a chance.

Sainsbury – not a snowball’s chance in hell.

Tesco Blinkbox Books – not a fire-proofed snowball’s chance in hell even if you say please.

Update: There may be a back door into Tesco Blinkbox Books after all, See comments, and thanks to Jen for the tip.

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3 responses to “Does Amazon Take Its Customers For Granted?

  1. Tesco Blinkbox is accessible via Gardners Wholesale – they have an ebook department and Blinkbox is among their distribution channels. You do need to buy eISBNs to get into their catalogue, though.
    By the way, a customer representative at Gardners told me they were trying to get Sainsbury’s to distribute their titles too 🙂

  2. Jen, this is a turnaround from when we last contacted them, but very exciting news. We’re putting the champagne on ice ready to pop as soon as we get a confirmation on this, but for some reason the website isn’t responding. Do you have a link, perchance?.

    Gardners supplied ebooks to the original Tesco ebook store back in 2010-11 but that was one of the most dire websites ever created by man or beast and we were quite relieved to see it closed.

    Tesco also bought Andy McNabb’s Mobcast which they relaunched as Uncuva, but then it was taken down as Blinkbox came on to the horizon and we were told quite bluntly by the reps at Tesco that it was Big 6 (as they then still were) only. Sainsbury have said much the same.

    To borrow a phrase from Philip Jones of Futurebook, we are now “unfeasibly excited” by the prospect of a Gardner’s back door into Blinkbox for indies.

    We’ll be running a post next week on how to go with Gardners direct, and for those that prefer the easy route you can also get into Gardners via the aggregator Ebook Partnership, who by pure coincidence are based just a few miles from Gardners on England’s south coast.

  3. I was told by email that Gardners supply to Blinkbox, but I don’t feel comfortable posting the guy’s email address on here – please contact me at jenminkman@hotmail.com to find out more about what I’ve heard from them!

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