Well, that was a turn up for the books. The expectation was that Waterstones would join forces with Barnes and Noble to compete in the digital market; it was almost a certainty. But, those predictions were dashed yesterday when Waterstones announced that it is going to get into bed with the digital devil itself: Amazon. The two companies have agreed a deal that will allow Waterstones to sell Amazon Kindle e-readers in its stores for the first time, while also offering free Wi-Fi in store as part of an extensive store upgrade funded by the company’s new owner, the Russian billionaire Alexander Mamut.
Precise details of the deal have not yet been released, which has prompted speculation across the trade press. Commentators’ main concern is what is in this for Waterstones, especially after the firm’s managing director, James Daunt, recently described Amazon as a ‘ruthless, money-making devil’. But, if you can’t beat the devil then you best submit to him. Waterstones has re-entered the digital market by teaming up with a market leader which offers consumers the best value for money. This is a more ready approach than devising its own e-reader so late in the day: Waterstones is already behind WH Smith, its major competitor on the UK high street, which has been forging a close relationship with Kobo, a rival tablet to Lindle.
It is not yet clear why Waterstones’s talks with Barnes & Noble floundered, but suspicions were aroused during last month’s London Book Fair when the two companies pushed back an announcement to an indefinite date in the distant summer. Then there was the news that Barnes & Noble had received a substantial investment from Microsoft and a guarantee that B&N’s software would receive a prominent place in the next version of Windows, which suggested that Barnes & Noble’s focus might not be on maintaining bricks and mortar bookshops on this grey and rainy island.
The Microsoft/B&N deal also had consequences for Amazon, strengthening the competition against it. Jeff Bezos, the company’s founder, welcomed yesterday’s announcement and said that Waterstones was his favourite bookshop and added that he shared Daunt and Mamut’s passion for books and readers. This has prompted fears that Bezos wants to ‘get his teeth into his only remaining rival on the high street’. It has always struck me as odd that certain voices in the media view Amazon as rapacious (although it has serious questions to answer over its tax position). It is, in global terms, a middling company, certainly in comparison with a giant like Apple, which is making large strides in the digital publishing world, a world hitherto dominated by Amazon. In Q4 2011, for example, Amazon generated $17.4 billion of revenue but just $177 million in profit, while Apple posted $46.3 billion in revenue and $13.06 billion in profit. (The US Justice Department has launched a suit against Apple and the ‘Big Five’ New York publishers over allegations of price-fixing.)
In addition to the threat posed by Microsoft and Apple, Amazon faces increasingly stern competition from Kobo, which is apparently outselling the Kindle at a rate of 2 to 1 in some European countries. Plainly, Amazon must keep innovating and expanding to remain competitive. A partnership with the UK’s most prestigious bookseller, and the beginnings of a firm presence on the high street, is perhaps the start of its latest wave of change.
Where does this leave traditional publishers? Last autumn, Waterstones was understood to have opened informal discussions with established publishers on how best to challenge Amazon’s dominance of the retail market. Those talks have clearly come to nothing, particularly if Amazon’s deal with Waterstones will allow the shop to take a cut of Kindle sales or if print and digital editions are bundled together in one sale, as many films now are. The deal seems likely to push established publishers further into the arms of Amazon’s more muscular competitors, such as Apple.
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