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Summary:

Amazon’s success as an online retailer is the stuff that entrepreneurial dreams are made of. In 15 years, Amazon has defined and continued to shape how we shop online – especially for media like books, movies and music. But something unexpected is happening as more media is consumed in the cloud and less on printed pages and plastic disks. Amazon isn’t being as successful here.

Amazon’s success as an online retailer is the stuff that entrepreneurial dreams are made of. In 15 years, Amazon has defined and continued to shape how we shop online — especially for media like books, movies and music. The company controls 8 percent of media sales, whether online or in stores. Wal-Mart, by contrast, controls 7.7 percent of all retails categories. So Amazon has emerged as the Wal-Mart of media retail.

But as opposed to printed pages and plastic disks, media is increasingly being consumed in the cloud. And there, from a media sales perspective, Amazon is finding much less success.

According to NPD Group, Amazon controls just 12 percent of the market for Mp3 sales, roughly one-sixth of Apple’s 70 percent share. True, Amazon is growing that share, mostly at the expense of smaller rivals like Rhapsody. But it has yet to put a dent in Apple’s dominance.

And thanks to portable, cloud-friendly devices like smartphones and iPads, Amazon is up against tougher competition in movies and books as well. Netflix’s subscription-based iPad app is a much more immersive and intuitive movie experience than downloading a movie from Amazon’s site. Kindle, meanwhile, seems destined to become a niche e-reader. The iPad dulled Kindle’s status as a must-have device. Instead, Kindle’s best hope is as an e-reader app on tablets, where it must compete with iBooks, Nook and scores of other e-book options.

Sales from its media business is central to Amazon’s business model. But media revenue in North America rose 11 percent last year to $6 billion, while sales of electronics and other non-media merchandise grew 43 percent to $6.3 billion. So even though non-media revenue was larger than media revenue, it was still growing four times as fast. In the first quarter of 2010, the trend continued: Media revenue increased 22 percent while non-media grew by 73 percent.

To be clear, Amazon isn’t in danger of being the next Yahoo — a tech giant that lost its way and can’t find it back even with a sharp CEO at the helm. Amazon’s flagship retail site is still the biggest online retailer, and continues to expand its share of the global retail market. It will sell plenty of e-books and Mp3s. And Amazon will remain a crucial player in determining how companies, startups in particular, tap into the cloud for their operations.

But it’s Amazon’s early and deep expertise in cloud computing that makes all the more puzzling its lackluster performance in cloud-based media. Amazon should have been the leading retailer of cloud-streamed media, but instead it’s handing that over to companies that write the OS for the most popular cloud-based devices, companies like Apple and even Google, which may not sell digital media but will try to sell ads on top of it. And that’s a pretty big missed opportunity.

What could Amazon do? Aggressive, smart acquisitions could help — Amazon has $5 billion in cash and marketable securities. But in some cases, its hands are tied. It’s long been suggested — and frequently rumored — that Amazon buy Netflix. It would be a strong fit except that it would open Amazon up to sales taxes in states where Netflix operates. Amazon could also simply rely on its core market of selling printed books, CDs and DVDs. It’s still a big market, but it’s also dangerous to peg your future sales on media formats that are becoming less popular by the day.

  1. [...] Is Amazon Losing Its Edge as a Media Retailer? [...]

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  2. Interesting. I appreciate the comparison in the numbers.
    Just a couple days ago I wrote on my site about how I prefer the iPad to the Kindle — not just overall, but as a eReader.

    However, I have only ever purchased ebooks via Amazon. But clearly they need to work on making the experience, price and transaction for all digital media as easy and cheap as possible.

    On the other hand, my Netflix Roku box makes it easy to rent films via Netflix or Amazon. But, I never use Amazon. Netflix is so much easier to rent and search and recommend. It’s the experience…

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  3. instead of trying to reinvent their entire service offering and emerge as the black horse in the enterprise reference architecture of the future, why doesn’t amazon go back its roots and dominate retail? remember in the late 90′s when they scooped up all sorts of interesting retail sites like eniche? why not use their cash to buy up categories like high end group shopping (gilt et al) or jewelry (blue nile et al) or some other category in which they simply do not dominate – then they can own all of internet retail instead of spending 10 years figuring out that in the enterprise, after IBM, SAP and Oracle, there’s MSFT (distant fourth) and then everybody else, and that’s their best shot…???

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  4. Honestly, it’s like your trying to advance the Pong console system to compete with a Nintendo Wii or X-Box 360. The Amazon Kindle is old and is a snooze fest technically speaking. It’s a one-trick pony show and Walt Disney World (a.k.a. tablets) just opened up across the street from it.

    Stand-alone ebook readers are now old-technology and are not appealing when you see things like Apple’s iPad or the upcoming Google Android OS based tablets made by various companies. Tablets and MID are the future it seeems. Stand-alone ebook readers are now dated and part of the decreasing niche market of reading-enthusiasts. The vast majority of people don’t read for fun or for passing the time. The majority buyers with the money are more willing to pay an extra 100 to 200 dollars for a tablet that does more than one-trick ebook reader device.

    I’ll say this, stand-alone ebook readers can excel in one area that tablets cannot, and that’s in the arena of public-schools. And that is due to the point that you can (as of now) make a stand-alone ebook reader cheaper than a tablet in terms of mass-production. I could see making a stand-alone ebook reader for about 75 dollars a piece, funded by the government/school-system, and make sure every kid in middle school and elementary had one to put all their ebooks and basic lesson plans and quizzes on. No more bulky, ugly physical books to carry around or to kill forests. There’s no way, as of now, that most public schools could afford to have tablets given to every kid and too also maintain, replace, and repair them. Maybe in more than 5 years, sure, that could be different, but for now, stand-alone ebook readers are a viable option there. However, tablets and MID will be the norm in 10 to 20 years for all ages. Say goodbye to the age of the Kindle, nook, and various other stand-alone ebook readers. Computer Technology always moves forward, it does not stagnate and become nostalgic.

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  5. Hmmm…

    If recent history is any guide: going on a buying spree rarely improves the bottom line in the long run. Apple has gotten to where it is today without any notable acquisitions.

    If Amazon is really worried, and it’s stellar performance would seem to indicate that it needn’t be, it should study why Apple is so dominating: a superior user experience, breath of offerings, a good price point, etc.

    Amazon has two choices: beat Apple at its own game with content owners and consumers or acquire somebody that can. If somebody has the secret sauce to smother Apple, I think we would have heard about them. That leaves the first option: as good as Apple is, there’s nothing it does that couldn’t be bested by someone with the imagination, resources, patience, and desire to do so.

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  6. I’m surprised Amazon hasn’t increased their share. They’ve got the same selection as iTunes, yet their prices are much better. Plus, they have awesome daily mp3 deals. I grab a few of the daily deals each week, usually for around $3 or so. I use a google gadget for tracking and listening to the deal – great way to track it. It’s at this site:

    http://www.frugalgadgets.com/amazon-mp3-daily-deal.php

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  7. As you state in your article, Amazon’s non-media business is now bigger and growing much faster than its media business. Is it possible that sales from its media business are no longer as central to Amazon as they once were? One could look at these numbers and say that the future for Amazon is in non-media products and IT services.

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  8. Amazon should make an awesome Music player for phone platforms and integrate their music store, that would be awesome for them.

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  9. It always amazed me how successful Amazon is considering how painful it is to use their site. Trying to find what other books are part of an author’s series is ridiculously painful. You’re often better off using Google as a proxy interface than Amazon itself.

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  10. [...] Is Amazon Losing Its Edge as a Media Retailer? [...]

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