Wall Street was clearly displeased with Amazon's (AMZN) second-quarter earnings, letting the online retailer know it didn't care for underwhelming revenues and increased expenses by pushing its share price down 15% in aftermarket trading on July 22.
However, Amazon has many reasons to ignore what analysts think. And it can shrug off tut-tutting within book-publishing circles. Why? Because when it comes to e-books, despite the increasing competition, Amazon remains top dog, and it looks very likely to stay that way in the future.
Sure, it would be nice if the online retailer would actually release quantifiable data about how many e-books and Kindle devices it has sold instead of playing its typical proportion-based math games comparing e-book sales with hardcovers sold through its website. Amazon did inch ever closer to more useful data on July 20 by dangling several carrots about how various best-selling authors have sold electronically.
Amazon reported selling 867,881 Kindle editions of megastar writer James Patterson's books (roughly 76% of the 1.14 million e-book versions sold to date worldwide). It touted a half-million e-book sales of Stieg Larsson's Millennium Trilogy. It also declared the first volume, The Girl With the Dragon Tattoo, is the top-selling Kindle book of "all time"-- i.e. 33 months. It also boasted of similar big sales for juggernauts Stephenie Meyer, Nora Roberts and Charlaine Harris.
The More E-Reader Devices the Better
And the funny thing is that publishers now back up Amazon's fuzzy math, such as its claim that for every 100 hardcovers it sells, it has sold 143 Kindle editions, bumped up to 180 in the past month alone. Publishers Weekly reported that in interviews with many top executives at major trade publishing houses they indicated "they were selling at least as many e-books as hardcovers through Amazon." One said the e-book-to-hardcover sales ratio was even higher than Amazon's statistic.
But what of the iPad (AAPL), which has sold 3.27 million copies according to Apple's latest quarterly report? What of Barnes & Noble's (BKS) nook e-reader, which has increased its own digital market share to as high as 20%? And what of Borders (BGP) pinning its hopes on the Kobo e-reader and its goal of ramping up to 17% e-book share by next year. Or Sony (SNE) and its line of e-readers? Well, they aren't going away, and Amazon doesn't think they will, nor does it need them to.
As DailyFinance has repeatedly pointed out, a smaller share of a larger pie benefits Amazon because its strategy, especially in a post-iPad world, has been more about software than hardware. Amazon can afford to slash the Kindle to $189 because it's the Trojan horse that introduces millions of potential customers to the magic of the Kindle Store, where e-books can be downloaded wirelessly with a single click.
And if they don't have a Kindle? That's no problem, because Kindle-compatible platforms are available on practically every major e-reading device under the sun -- at least, on the multimillion-selling ones like the iPad, iPhone, PCs and Macs. (But don't look for Kindle on the Nook anytime soon, or ever.)
A Brewing Tempest in Publishing
The ubiquity of Kindle books creates a path of least resistance for both customers and, as it turns out, literary agents. Hours before Amazon reported its second-quarter results, Andrew Wylie -- infamous for his canny ability to entice top authors, dead or alive, to join his illustrious roster -- decided to do something about his pent-up frustration with the way big publishers handle their backlists. He created a separate company, Odyssey Editions, to license select backlist titles of classic books exclusively to Amazon for a two-year period.
Naturally, those big publishers weren't happy. Macmillan CEO John Sargent blogged that he was "appalled" by Wylie's move. Random House went several steps further, saying Wylie's move "undermines [Random House's] longstanding commitments to and investments in our authors, and it establishes this Agency as our direct competitor." Which means: no new business with Wylie's authors until "the situation is resolved."
As Random House and Wylie duke it out, possibly through litigation, it's clear that Amazon has divided and conquered, playing off a major agent's unhappiness with traditional publishers against Random House's belief that all formats of intellectual property it signs up are by definition Random House's, even if old contracts don't spell out such terms.
Market Share Above All
And guess what? Amazon doesn't care. It doesn't care if readers want some other device than a Kindle because Amazon will be on just about any device customers use. Amazon doesn't care if authors want to stay with big publishers or publish on their own (or through Amazon!) because Kindle editions will exist for the traditionally published and self-published alike -- and at attractive royalty rates for those who choose the latter option. Amazon doesn't care if big publishers want the agency model or, like Random House, stick with the status quo, because Amazon will still sell more e-books than any other retailer.
In an industry built squarely on love and caring for books, authors and readers, Amazon is a company that expects to win a market at all costs, even if means upsetting Wall Street. Amazon doesn't care.
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