As the endless shrill campaign by Hachette and its self-interested author allies against Amazon’s pricing terms drags on, to no apparent good purpose, it looks like the Bezos Behemoth has at last met its match – but not in the shape of Authors United. Rather, the financial markets and business commentators appear to be running out of patience with Amazon’s policy of endlessly reinvesting profits for expansion instead of returning money to shareholders and investors.
Amazon reported a third quarter net loss of $437 million, more than ten times the loss for the same period a year ago. And in particular, it took a $170 million write-down on the Fire Phone and associated investments. The market reaction saw an 11 percent slide in the value of its shares, equivalent to a loss in market cap of $15 billion.
Despite its interesting features, the Fire Phone obviously just hasn’t been the Kindle-level breakthrough into the mobile market that Amazon was looking for. Some analysts are also suggesting that the spats with publishers had their impact on Amazon’s bottom line, but I doubt that was the real issue, and the overall market consensus seems to agree. After all, $170 million is hard to miss, and much of the commentary was about the deficiencies of the Fire Phone, not the arguments of Hachette et al.
Here’s my thoughts as to what this means for Amazon’s strategy in future, and its faceoff against Big Publishing. (Oops, don’t you mean Little Mom-and-Pop Bookstores and Wee Authors? Yea, right …) Amazon has been caught out for diversifying too far away from its core USP, which has always been fulfilment. As Callie Oettinger outlined some time ago, Amazon has succeeded by its maniacal focus on giving customers what they wanted – including finding out for and from them what that was – and getting it into their hands as fast as possible. The Kindle succeeded because it became Amazon’s key channel to do that in one of its core product lines. The Fire Phone has failed because it isn’t dishing up an Amazon product line that people actually want in their hand. And there are enough question marks already against the future of dedicated ereaders like the Kindle, as opposed to Amazon’s back end.
And yes, this debacle may force Amazon to rein back its ambitions. And it certainly gives Amazon less cash to wage its wars with. However, if anything it’s likely to trigger a reversion to that core focus on fulfilment which is not going to help Big Publishing at all, because that is exactly where they continue to lag. Their own efforts to develop proprietary distribution and fulfilment channels seem to be flopping less conspicuously but just as completely as the Fire Phone, at the same time as they callously cut into the fortunes of their supposed allies in the book trade. So anti-Amazon nutcases like Franklin Foer are probably going to have to hold the champagne: Just because Amazon has demonstrated feet of clay does not mean it’s on its last legs.