Amazon’s Fire Phone is Mainly for Amazon’s Customers

June 18, 2014

Several journalists took a small segue today in their coverage of the launch of the Amazon Fire Phone to note that Amazon’s Kindle Fire has been extinguished. Or nearly so. Based on IDC’s May report, the Kindle Fire has only 1.9% of worldwide tablet shipments, down 47% year-to-year.

However Amazon doesn’t make mobile devices to capture hardware marketshare. It wants to form a tighter bond with its customers, one that bonds them to shopping Amazon. “The most important thing that we’ve done over the last 20 years is earn trust with customers,” Amazon CEO Jeff Bezos said at the launch today. This led logically to a straightforward explanation of Amazon’s planning for the phone. Bezos said that Amazon executives simply asked themselves, “Can we build a better phone for our most engaged customers?”

Over at Mobiquity, Gene Signorini pointed out that the Kindle Fire Phone is “not about devices sold per se, but rather about the sale of content and merchandise and the overall value per Prime subscriber.” Amazon need only convince some 10% of (an estimated 20 million) Prime subscribers to buy the new smartphone to sell two million devices. “However,” he notes, “this would only represent about 1% of total US smartphone market share” in a six-month window.

Jeremy Greenfield at Digital Book World asked me for comments earlier today, in particular how the device might affect ebook sales. He printed a couple of my remarks in his Forbes report on the Amazon launch. Here is my full analysis of its likely impact on publishing:

Amazon Fire Phone

The phone is….do we call it “sexy”…with new (or recent) features like the 3D cameras, Firefly, Mayday and gesture controls.

The Firefly feature, which quickly recognizes products and gives you the option to buy them on Amazon, is bound to increase showrooming, including buying books from Amazon. But in the case of showrooming, the total number of books bought doesn’t change much, and shifting more book buying to Amazon apparently decreases publisher margins and clearly dimishes the power of book retailers.

The 4.7-inch display is better for reading than the iPhone 5′s 4 inches. Bezos did highlight that it will be “a great phone for reading.” In the research I’ve been doing for the report “Mobile Strategies for Digital Publishing” (to be published next month by Digital Book World) it’s very clear that reading is not a significant use for mobile phones today. Though with all of Amazon’s reading-friendly features this will be the best-yet phone for bibliophiles.

The downside is that not only is the mobile experience not optimal for reading, it is optimal for other purposes. Mobile is mainly about social media, texting, gaming and video. Each of these is more compelling on mobile than reading — you don’t buy a phone to read a book.

Also Amazon’s decision to go it alone on the OS — cannibalizing but not fully supporting Android — means that none of the top Google apps — Gmail, Maps, and Chrome — are available on Amazon mobile devices. Amazon’s substitute apps pale by comparison.

I’m sure the phone will take a share of the market, but with aggressive competitors like Apple, Samsung and Microsoft, that share won’t be easily gained. It’s good news for readers, but probably won’t much move the needle in terms of overall ebook sales.

But I wrote that before I read Bezos’s remark that the phone targets Amazon’s “most engaged customers,” and not, apparently, the much broader base of mobile phone users. Amazon Prime is the conduit helping consumers to get a better deal from Amazon, if they plan to spend lots of money with the company. The Amazon Fire Phone is another input device helping Prime users to fulfill their task.

June 19, 2014: Jeff Bezos, interviewed in the New York Times, says: “The phone will make Prime memberships better, and Prime looks great on this phone. It’s not that there’s no interaction between these elements. But to say that’s the primary purpose is too simplistic.” Farhad Manjoo comments in a related article “Though the device is called the Fire phone, Amazon’s new gadget is less a phone than a pocketable cash register hooked directly into the retailer’s intelligent warehouses.”

June 20, 2014: Christopher Caldwell in the Financial Times: “(The Fire phone) has more to do with connecting Amazon’s customers to merchandise via credit card than it does with connecting them to other people via conversation.”

June 22, 2014: @BenedictEvans provides the best analysis thusfar of the Amazon Fire Phone with an emphasis on Amazon’s “fork” of Android — are they solving a user problem or their own business problem?

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The March of the Toy Soldiers

June 1, 2014

Indigo Books and Music reported its 4th quarter and annual sales last week. A few of the news stories reached for an alarmist tone. Canada’s Financial Post headlined its account with “Indigo annual revenue falls for third consecutive year.” Publishers Weekly went for the more startling “Indigo Has Big Fiscal 2014 Loss.” The “big loss” was $31 million (all figures Canadian dollars) on sales of $868 million, i.e. a loss of 3.6% measured against total revenue. Indigo clearly explained that it incurred costs in “reinventing its business.” The loss was in part “the result of significant operating investments in the Company to accelerate its transformation.” For example, $29.2 million was spent on store renovations and on technology, i.e. investments in the future of the company.

The annual report registers full year revenues of $868 million, against 2013 revenues of $879, a mere 1% drop. This is hardly the kind of financial data that characterizes a corporate crisis.

There’s only one small chart in the entire annual report that interests me. It’s the first chart I’ve seen from either Barnes & Noble or Indigo that puts a number on the decline of print sales within either chain.

sales by product lineThe real Indigo story is told in its Annual Information Form (available through the Investor Relations section of Indigo’s web site). The company notes, in part: “To ensure that the offerings in Indigo’s physical stores are rich and compelling, the Company continues to adjust and expand its product mix, underlining Indigo’s commitment to becoming the premier year-round gifting destination in Canada. The Company’s main growth categories are lifestyle, paper and toy sales. This has been achieved through a reduction in the floor space allotted to books, given the erosion of physical book sales…”

Yes, you read that correctly: Indigo plans to become “the premier year-round gifting destination in Canada.” That doesn’t sound like a bookstore to me.

This is in contrast to Barnes and Noble’s far more subdued description of its transformation. In its last annual report the company noted that it “continues to experience positive trends in its Toys & Games business as a result of the successful execution of new merchandising strategies.” Barnes & Noble is still a bookstore.

But look again at the chart above. Indigo offers no comparable figures before fiscal year 2103, but the decrease in sales the last 12 months of all print products was a mere 3.6%, from some 70% of the total down to 67.4%. With an estimated drop in revenue of $28.57 million, the decrease in print sales is 4.6%. It’s well documented that newsstand sales of magazines are plummeting. While magazines can’t be a significant portion of Indigo’s print sales, that trend suggests that book sales may have decreased by even less than 4.6%.

“General merchandise” — all of the non-book items — was rewarded with a 17% increase. This must be encouraging to Indigo management, but most of the uptake wasn’t at the expense of book sales.

Having sold off Kobo in 2012, the only growth area of its business (albeit, an expensive one to operate), “eReading” dropped by 41%, representing perhaps $25 million in total sales.

For all the talk of the reinvention of merchandising at both Indigo and Barnes & Noble, the first data suggests that, as is so often the case, change will be gradual.

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Pomegranate Juice and Publishing Standards

April 26, 2014

My favorite news story last week concerns a lawsuit that has somehow reached the U.S. Supreme Court on the issue of how much pomegranate juice needs to be in a bottle before you can call it “pomegranate juice.”

Remarkably, Coca-Cola, through its Minute Maid brand, sells a juice called “Pomegranate Blueberry” which contains just 0.3 percent pomegranate juice and 0.2 percent blueberry juice. The rest is apple and grape juice and dark purple dye. Pom Wonderful, which in 2002 launched the current craze for pomegranate juice, and sells a product that’s 100% pomegranate juice, is understandably upset by Coca-Cola’s claims. (more…)

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Independent Bookstores vote for Big 5 Publishers’ Authors

March 21, 2014

You have to feel it was all a waste of time, this notion that somehow writing and publishing were being “reinvented” by new ideas and approaches and the startup companies behind them. Or even that being an independent publisher of any sort is worth the back-breaking effort. (more…)

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How Amazon Destroyed the Publishing Ecosystem

March 12, 2014

Everyone takes a shot at Amazon, and it’s not difficult to see why. Founder/CEO Jeff Bezos is blamed for just about every corporate crime imaginable, from pricing that destroys competition to suffocating warehouse employees on hot summer days (apparently no longer a problem).

My criticism of Amazon is about an issue perhaps more subtle, but, in my view far more serious. Amazon has destroyed the publishing industry by destroying its well-honed ecosystem. Sure, all of the other issues and criticisms stay on the table. This issue is for me the heart of darkness of our beleaguered industry. (more…)

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