The hike in Amazon’s free shipping threshold in the U.S. to $35, already picked up by Chris Meadows earlier, has led to some interesting speculations out in the blogosphere. One, from Paulo Santos on “Seeking Alpha,” is that “Amazon.com must be under tremendous earnings pressure.” Santos’s reasoning goes back to the launch – low key and sans ballyhoo – of the new HDX line of Kindles, which already led him as early as September to forecast a “Q3 2013 revenue miss” and to ask ” How ugly will Amazon.com’s earnings be?” Deducing that this lack of fanfare pointed to revenue shortfalls, Santos took the news of the minimum shipping hike as confirmation of his view.
“We already knew that the new Kindle Fire HDX was selling poorly,” Santos stated. “Free shipping has long been a cornerstone of Amazon.com’s growth strategy. Moving this threshold is a borderline desperate measure.” His conclusion is that to cut this growth driver could kick Amazon into a vicious circle.
Well, it could be so. I don’t see any reason to dispute that higher shipping fees will impact Amazon’s bottom line. But financial markets have been very resistant to bad news where Amazon is concerned. As Santos himself conceded earlier, even with his warnings on the table, markets saw “UBS raising its [Amazon] price target from $305 to $385 on a hodgepodge of reasons including confidence for Q4 2013 and the supposed strength of the Kindle platform.” Santos freely discloses that he is short Amazon’s stock, but isn’t slow to put his mouth – and his reasoning – where his money is.
But even if his conclusions are correct, I don’t think they will amount to a long-term crimp in Amazon’s growth, let alone a slide into reverse gear. The more likely consequence will simply be that Amazon moves further and further out of the physical shipping business entirely, whether print books or other goods, and drags its own effort, and those of the entire publishing industry, further onto the digital book platform instead. I mean, what’s the most obvious way to deal with shipping costs? Shift to a sales platform with zero shipping cost.
As I observed before, Big Five publishers as well as Amazon itself find the economics of ebook publishing hugely persuasive through flexibility and time to market, even without factoring in shipping and distribution costs. If Amazon hurts on the hard copy side, it will simply move into digital even more aggressively. I don’t expect to see Jeff Bezos have too many sleepless nights this quarter.