Why the Waterstones/Amazon deal could hurt Waterstones

Waterstones window

UK bookstore chain Waterstones announced today that it’s partnering with Amazon 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

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