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Strange Bedfellows

30 May 2012

From The Economist:

JAMES DAUNT, the managing director of Waterstones, once described Amazon as a “ruthless moneymaking devil”. On May 21st he announced a Faustian pact with the online retailer. Mr Daunt will not only sell Amazon’s Kindle e-reader in his stores, but will also streamline the process by which customers can buy Amazon’s e-books while they browse the shelves. The aim, he says, is to improve the Waterstones shopping experience.

Critics think he is mad, comparing the move to Sainsbury’s inviting Tesco to set up shop within its branches. Earlier noises about a partnership between Waterstones and Barnes & Noble, an American bookstore chain with a rival e-reader, could have created competition for Amazon. This deal, by contrast, seems to strengthen the internet giant. Amazon has already cornered some 90% of British e-book sales, according to Enders Analysis, which tracks the industry. Waterstones’ plan threatens to send yet more customers towards e-books and Amazon, reinforcing its stranglehold on the market.

. . . .

But Mr Daunt, who took charge of Waterstones last July, defends the deal by explaining that while readers like e-books, they also like bookshops, particularly those with well-curated choices, helpful staff, Wi-Fi and a café. He laments that Waterstones moved too slowly to launch its own e-reader, but insists it is now wise to accommodate the device most people prefer. Customers still buy print books, he adds.

. . . .

Though e-book sales are rising, Mr Daunt is gambling that they will level off at around a third or even half of the market. He can take heart from the music industry, says Benedict Evans at Enders Analysis. Though music is “the perfect digital medium”, there is still a decent, albeit declining, market for CDs—more than 86m albums were sold in Britain in 2011. “Books will be even more resilient,” he says. Publishers and sellers hope so.

Link to the rest at The Economist and thanks to Hunter for the tip.

Amazon, Bookstores, Ebooks, Non-US

24 Comments to “Strange Bedfellows”

  1. Don’t worry, it’ll be just like the music industry!

    A 50% digital market doesn’t leave a lot of share for a big expensive bookstore to cover their costs. I guess the cafe pays for itself and maybe then some, but not the rest. Hopefully they can avoid transforming into a toy store like Barnes ‘R Us.

  2. I wonder if he really had a choice. It’s not like he owns Waterstones. There’s no mention that its going to be happening at the Daunt bookstores which I think are still around.

  3. Wow, talk about whistling past the graveyard.

    Though e-book sales are rising, Mr Daunt is gambling that they will level off at around a third or even half of the market. He can take heart from the music industry, says Benedict Evans at Enders Analysis. Though music is “the perfect digital medium”, there is still a decent, albeit declining, market for CDs—more than 86m albums were sold in Britain in 2011. “Books will be even more resilient,” he says. Publishers and sellers hope so.

    Worst analysis ever. Here’s a fun task for analysts in this industry. Make a chart of the price of the Kindle from time of introduction until today. Now, add in a chart of the list price of a hard cover best seller over the same time period. Project those two curves into the future to predict the date that the cheapest Kindle costs less than the list price for a hard cover book. Now, tell me that you really think that ebooks are going to level off.

    Also, there is a difference in music because a lot of people had an existing investment in CD players. There’s no equivalent “book player” for print books. You can re-purpose your bookshelves.

    • Another difference in music: You can easily rip CDs and play them on your music player. You cannot ‘play’ a physical book on your iPad or Kindle.

      And another: The files you download are usually treated with lossy compression, so you don’t get the same quality of audio as the CD. If you want uncompressed audio, you still have to buy the physical product. There is no such thing as lossy compression of text.

      I don’t expect ebooks to completely replace print on paper. But you couldn’t possibly support that position with Messrs. Daunt and Evans’s arguments. They are logically fallacious, factually incorrect, and riddled with holes of which they appear blissfully unaware.

  4. Shame on The Economist for this sloppy journalism. Reporting the Enders Analysis of Amazon’s past market share without making any attempt to look at other key developments in the UK paints a very distorted picture.

    Kobo currently operate the ebook store of Waterstone’s main bricks and mortar rival W.H. Smith, and are currently engaged in a major program to promote the Kobo devices in the many W.H. Smith stores (far more than Waterstone’s has) with wi-fi kiosks and trained staff.

    Kobo’s b&w devices are all cheaper than the b&w Kindles, and Kobo’s tablet is cheaper than the best b&w Kindle device available. There is still no KindleFire available in the UK.

    Kobo has already knocked Amazon into second place in Canada, and is belatedly making huge strides in the UK.

    When the Waterstone’s-B&N partnership fell foul of a better offer from Microsoft, both Waterstone’s and Kindle-UK stood to lose significant trade to W.H. Smith-Kobo.

    The new deal is, short-term, a win-win for Amazon and Waterstone’s both.

    Amazon get their bricks and mortar presence in the UK in the best possible way and challenge Kobo’s threat head-on while still keeping the huge tax advantage by supplying the actual ebooks from Luxembourg. Kobo have to charge full VAT, Kindle just 3%.

    Waterstone’s get a major brand e-reader in store, a major brand association, and presumably Amazon footing the bill for the in-store modernization required. Plus who knows what little extras yet to be revealed.

    Lots of clichés doing the rounds about Daunt letting foxes in hen-houses and mortgaging the company’s future. How about keeping your friends close, and your enemies closer still?

    Whatever the detail, it’s clear Amazon and Kobo will be going head-to-head this Xmas for the hearts and minds of the British reading public. Those indies who continue to ignore Kobo stand to miss out on a major opportunity to find new readers.

    • Mark Williams–Thanks for this “big picture” look at the Waterstones/Amazon deal. I suggest people read your blogpost that gives an in-depth look at the e-publishing climate in the UK right now. It’s a must-read. http://markwilliamsinternational.com/2012/05/28/the-state-of-play-in-the-uk-an-update-and-merry-christmas/

    • Many thanks for this better and balanced perspective. Can I, however, point out that here in the UK the book buying public’s relationship with W H Smith is uneasy at best. The shop is seen as a stationer and newspaper/magazine seller with books thrown in (sometimes literally). The big station and airport outlets have more stock but this is almost wholly limited to glossy bestsellers, much like our supermarkets. There are smaller branches in most UK High Streets, but they are uncomfortable places for browsing. When I analyse my own behaviour, as a fairly consistent book buyer I realise that I would never dream of going into Smiths looking for a specific book or even in order to browse and buy. The purchase would be random and incidental, before a journey, while buying stationery, while looking for a magazine, or even visiting the post office, which – with its vast queues and a passport photo booth – is now crammed into a corner of our local W H Smiths, displacing a heap of books in the process. The staff in Smiths seem to know very little about books and are always far too busy to answer questions. In fact, Smiths was a reason for not buying a Kobo. I looked at it but my first and abiding thought was ‘not from this store’. People will go in at Christmas to buy the latest cookbook or blockbuster, and I’m assuming for Smiths this diversification has been a successful commercial decision. But a straw poll among friends reveals I’m not alone in disliking it as an outlet for books per se. We do, however, still go to Waterstones, even Amazon addicts like me. It has a coffee shop, some local interest books, events and book launches and friendly, knowledgeable staff. The fit between Waterstones and Amazon therefore, seems like a good one, even though Daunt may feel as though he is supping with the devil! And if you were going for a bricks and mortar presence for books and booklovers in the UK, it would definitely be Waterstones you’d go for, any time.

      • You’re right, Catherine. Given the choice I’d prefer Waterstone’s on most occasions, although WH Smith often does better for popular non-fiction and education titles, and they do a lot of great promo deals.

        The smaller WHS stores can be very cramped, but bigger stores compare well, and the few with decent coffee bars can be pleasant. As a peripatetic freelancer I find the uneven spread of Waterstone’s stores very frustrating, whereas WHS stores are pretty much everywhere, and one can invariably rely on WHS to get a title available for collection the next day.

        • That’s quite true – there are nowhere near enough branches of Waterstones and their siting seems very random. I haven’t come across a WHS with a coffee bar in Scotland (maybe Glasgow or Edinburgh?) so my experience is probably coloured by the general nastiness of our local WHS particularly after they incorporated the post office.

  5. Chapters/Coles/Indigo is the biggest chain of bookstores here in Canada and is working with Kobo.

    • Wayne, that’s useful to know. I think this presence in the bricks and mortar stores, along with offering a colour e-reader and a tablet, while Amazon continue to treat anywhere outside the US as worthy only of the all-but obsolete b&w devices is key to Kobo’s current and future success.

      • It’s not that Chapters/Indigo is working with Kobo; it’s that they were the majority owner of the Kobo to begin with (up until January of this year). It’s kind of like saying Amazon is working with Kindle. Or that Barnes & Noble is working with the Nook.

  6. Why do Kobo and Kindle have to pay different VATs? It may be crystal clear from your side of the Pond, but from this side not so obvious.

    • The placement of their ‘shipping’ location. The amazon.uk location is actually in Luxembourg if I understand right which has a lower VAT tax on books, plus they avoid UK taxes there.

      • Print books are VAT exempt in the UK, whereas ebooks are taxed. I believe the current rate is 17.5%, which all UK-based ebook stores (and there are a lot in the UK) are forced to charge. Amazon charge just 3% via Luxembourg.

  7. Can indies upload to Kobo without going through Smashwords?

  8. Daunt. Dante. COINCIDENCE???

    (Sorry; I am low on brain and can only do crude humor right now.)

  9. A thought: Kindle needs WiFi to access Amazon and download books. Were I a bookseller with a coffee shop, I would provide free WiFi access throughout my store, become an Amazon associate, and find some way to make a percentage off every download that passes through my WiFi.

    Amazon associates get pennies back off every purchase made through their websites. Why not set it up for WiFi downloads?

  10. Sounds to me like Mr. Daunt has figured out ways to adapt to the new market, despite his protestations to the contrary.

  11. Depends on the bookstore’s cut. If it’s 80%+ of Amazon’s 30% that’s a lot of money.

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