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Why the Waterstones/Amazon deal could hurt Waterstones

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UK bookstore chain Waterstones announced today that it’s partnering with Amazon (s AMZN) to sell the Kindle in its 294 stores starting this fall.

The deal is bad news for Barnes & Noble, which was rumored to be working with Waterstones on a deal of its own. But it may not be so great for Waterstones, either. Here’s why:

It’s not clear how Waterstones makes money off the deal. Terms weren’t disclosed and there may have been a large upfront payment. Waterstones presumably gets a cut of each Kindle sold in its stores.

As for e-book sales, publishing industry consultant Mike Shatzkin’s reading is that “the only e-books Waterstones will share revenue on are those that are purchased over Waterstones’ in-store wifi network,” which hasn’t been built yet. The Wall Street Journal says Waterstones managing director James Daunt “implied” as much and “shoppers who turn on a Kindle in a Waterstones store will be greeted by a Waterstones interface that guides shopping for books, whether physical or digital,” but “Amazon ultimately sells any Kindle e-books bought in a Waterstones store.”

Waterstones turns direct customers over to Amazon. Again. Waterstones’ outsourcing of its digital shopping experience to Amazon is reminiscent of the deal that the now-defunct U.S. bookstore chain Borders made with Amazon in 2001. By the time Borders ended that deal six years later, it had lost years of managing its own digital strategy and placed its customers right in Amazon’s hands. As a former Borders employee told Bloomberg last summer when Borders liquidated its remaining stores, Borders “ended up being a customer-harvesting vehicle for Amazon.”

The funny thing is that, as The Bookseller blog FutureBook points out, Waterstones has turned its website business over to Amazon once before — from 2001 to 2006. Here’s why things are supposed to be different this time around: “Without the overhead of having to launch its own device, or partner 50/50 with, say, Barnes & Noble (a deal that both sides would have had to invest in), Waterstones can focus on where Daunt feels it adds value, a ‘curated experience.'”

Waterstones appears to assume that e-books won’t grow that much. Daunt tells The Bookseller, “Our future is in the physical bookshop, selling physical books and doing other things around it.”

That may be Waterstones’ future — but the strategy doesn’t work so well if most readers see the future in e-books instead. And we know Amazon’s betting on the digital side.

Photo courtesy of Flickr / Globalism Pictures

6 Responses to “Why the Waterstones/Amazon deal could hurt Waterstones”

  1. Seems like a distraction for Waterstones. Many publishers such as us at Simply Magazine will benefit who don’t do physical books or do much in the UK. Amazon has helped us grow eBooks in the UK as well as audible doing audiobooks. All of this will bypass Waterstones.

  2. Amazon’s (NASDAQ:AMZN) publishing agreement with the historic book publisher Houghton Mifflin Harcourt has led the latter to file for bankruptcy as it tries to make its $3 billion debt go away. The partnership with Amazon was doomed, as sales of hardcover books fell sharply in a large part due to Amazon’s influence, while Houghton piled up more and more debt.

  3. They will go the way of Borders book chain in the US that also partnered with Amazon to run their web site and then went belly up a couple of years later. Book store chain partners with Amazon that works to kill all book store chains?!! These guys are total nuts.. So said, Waterstones will soon be yet another book chain to go soon.

  4. George

    I don’t see why this deal would be bad for Waterstones.

    For one thing, they will get a percentage from each Kindle they sell.

    For another, there’s a large and growing number of people out there who go to brick-and-mortar bookstores, take a few books off the shelf, read a bit of each, decide which books they want, then GO HOME AND ORDER THEM FROM AMAZON for 30% or 50% less. With this deal, Waterstones will get a cut of those sales too.