Amazon has not shown signs of great profitability in its short existence. It's all about growing the marketplace, rising sales, but there comes a time when shareholders take stock and decide if their long term goals will be met, or if it's just a slow grind to insolvency. Those with a stake in the company tend to become alarmed when a new avenue turns into a dead end with a great deal of unsold stock piled up at the end of it. They often flinch when the firm they have invested in gets bad publicity, especially when that bad publicity is splashed in the pages of the New York Times and is written by a respected economist.
Why did Amazon miss Wall Street expectations?
In part, it's a trend that has been hurting book sales in general. Expensive college textbooks are available for rent instead of purchase, and with the cost of third level education skyrocketing, anything that saves on expenses is going to become the most popular option.
The book selling market has been in decline for a while, on a downward trend that coincides with the downturn in the economy. People had lots of money when Amazon appeared, and they were mad for the books. Now there is not enough cash on hand to cover the cost of tonight's dinner, and the last thing the average reader will splurge on is a book. They'll borrow from a public library or a friend. Or they'll download an e-book, maybe, but even that is not a fast-growing segment of the market.
It's apparent, after getting the numbers from Amazon, why it has been so fierce in its negotiations with Hachette Book Group. Amazon desperately needs every penny of discount they can wring out of a publisher, and the news from the investment world only serves to boost Hachette's position. You need us more than we need you, in other words. Amazon can't hide the wound and the hemorrhaging of cash is evident.
But what makes things particularly difficult for Amazon?
It just might be a misstep, a slight attack of hubris that is costing more money than the company can afford to lose.
|Free Amazon Prime! Such a deal!|
Competing with everyone, in every way, brought up the Kindle to take on Apple's iPad. But there is no exclusivity because anyone can buy an iPad and download the free Kindle app. Then they can use that Kindle app to download free e-books from the public library via Overdrive, and just because a reader has a Kindle account does not mean they are using it in a way that benefits Amazon.
Where else do people download books? More and more, they are downloading to a smartphone. So Jeff Bezos decided that Amazon would make smartphones as well.
Just because he wanted to compete does not mean he had a product that was equal to an iPhone.
The Amazon warehouses are stuffed to the rafters with Fire phones, unwanted by the general public because a free subscription to Amazon Prime just isn't enough of an incentive to make the purchase.
The phones cost money to develop. They cost money to manufacture. They cost money to store. And none of those costs are recouped by a phone that is not being sold.
Which leaves shareholders to wonder if Amazon has lost its way. And when they think a company is headed in the wrong direction, they dump the stock and when the stock gets dumped the price drops and when it drops precipitously, potential investors take notice.
All of which is likely to be pointed out by negotiators representing Hachette Publishing Group when next the parties meet to discuss the level of discounts offered on Hachette titles and who will determine the price of the e-books. Perhaps something along the lines of the deal struck between Amazon and Simon & Schuster, the one that resurrects a pricing model that Amazon said was a violation of anti-trust laws when Apple did it.