Amazon’s public relations machine was in overdrive early this week, as the company announced that Black Friday sales of Kindle e-readers on Amazon.com were three times what they were last year, and Fire tablet sales were four times 2013 levels. The company also unveiled to the press its latest fulfillment center, where robot versions of Santa’s elves, and some 80,000 seasonal workers, pack up and dispatch all those orders from customers.
Cool stuff, and clearly, Amazon.com isn’t exactly struggling. On the other hand, the “Everything Store” may be approaching a turning point in its corporate life.
The company’s stock is trading well below its highs of the year, at only $315 or so a share, down from above $400 in January and $360 as recently as the summer. And Moody’s cut its ratings outlook for the online retailer’s debt to negative, pointing out that it faces intensified competition from traditional rivals and its expenses are simply going to mount as it invests heavily to stay ahead of the pack.
Indeed, Amazon recently posted its worst loss in more than a decade, thanks in part to that outsized spending. A big part of the costs are going toward new technology, like those fulfillment center robots. If you think that it’s a coincidence that the flurry of publicity for Amazon’s tech hit the airwaves just ahead of Cyber-Monday and so soon after the news of the company’s big losses, well, there’s this bridge in Brooklyn that I can let you have for far less than the cost of a board lot of Amazon stock.
Amazon is at a point now where it needs to sustain customer loyalty, while at the same time reassure its investors that all that money that is being spent is being put to good use. Up until now, Amazon’s shareholders have given founder and CEO Jeff Bezos a remarkable degree of latitude, more or less content (depending on the specifics of each quarter) to sacrifice growth in profitability for big gains in revenue.
This last quarter, however, was too much for some. A 20 percent increase in revenue? Great. But accompanied by a net loss of $437 million, the largest in 14 years? Whoa, Nelly. It forces usually short-term oriented investors to ask themselves just how long they are willing to wait in order for Bezos to achieve his goal of global retail domination — and perhaps to question whether that goal is really achievable. The quarter was enough for hedge fund manager David Einhorn to add Amazon to his “bubble portfolio” as a short position.
If it were just the dollars and cents, perhaps investors would be less jittery. But around the margins, there are signs that Amazon’s once-dominant position is more vulnerable. Witness the world of the Kindle and its related products, where Amazon was a first mover or has attempted to challenge established incumbents.
Amazon got its start selling books, so it’s logical that it would try to become the first to popularize an e-book reader, as it did when it launched the first Kindle in 2007. Ugly and expensive ($400), the device by today’s standards looks clunky and slow — but it beat Apple to the market and established Amazon as the first place to go to for e-books. Amazon now has a 65 percent share of the e-book market and its dominance is almost unchallenged, as Apple discovered to its cost.
This autumn, we entered the seventh generation of Kindle products, with the advent of the Kindle Voyage (see the related review) and Amazon is marketing a third generation of its Kindle Fire devices, which can be used as tablets or to stream digital media purchased via Amazon.
In recent weeks, Amazon customers have seen a steady stream of special offers encouraging them to snap up another Kindle, or to upgrade from the one they have. Try a Kindle Paperwhite free for 30 days! Spread the payments for your device over 120 days; no credit approval required (just a credit card number on your account)! Buy a Kindle Fire at a discount price, and get a six-month subscription to Kindle Unlimited (a $60 value) as well!
These and other special offers haven’t been confined to Black Friday and Cyber Monday, and they don’t seem to be aimed solely at sparking holiday gift-giving. Rather, the intent seems to be to keep folks buying older-model Kindles even as Amazon roles out the new seventh generation Voyages, and to convince them to consume more content by signing up for Prime (now $99 a year, offering digital video and music) and Kindle Unlimited (books, at $120 a year). The good folks at Amazon just loaded, unsolicited, The Washington Post’s app onto my Kindle Fire for the next six months — free. (Bezos is the Post’s new owner.)
How many Kindles can Amazon customers buy, and how much content do they want to consume? When it comes to both, I’m probably an outlier — I want to try the latest e-reader technology as soon as possible, and have owned every Kindle device (other than the Kindle Touch, and each iteration of the Fire tablets) since the Kindle 1, acquired in 2008. Even so, my orders for new content are falling. This year, the number of digital orders I placed with Amazon (which include orders for free books and for heavily discounted “Kindle Daily Deals”) fell below 300 for the first time, and probably will end up being half that of two years ago.
At the tablet end of the device market, Apple is nipping at Amazon’s heels, and it isn’t alone. Unlike the market for e-book readers, the tablet domain never belonged to Amazon’s Kindles: Apple owns about 80 percent of this market today, with Amazon, Samsung, and Google trailing behind. Amazon’s goal in what remains an ultra-competitive market is to offer consumers a product that is priced at a break-even level (rather than Apple’s premium-priced iPads), stuffed with features — a higher-resolution screen , a Mayday feature giving them the ability to access live tech support.
But not all of Amazon’s big, costly ideas have been hits. The company’s first stab at creating its own smartphone — the Fire Phone, which would (what a coincidence) steer its owners directly to Amazon for their shopping — was a high-profile failure, forcing the company to take a $170 million writeoff on unsold inventory. Its latest bright idea, the Amazon Echo, a speaker/voice control system, is “too much of a work in progress” to recommend at its $199 list price, CNET wrote in the item’s first major review, published Monday.
And as Amazon’s ambitions grow — as it tries to hang on to its customers, to get them purchasing more, whether by upgrading to the newest device or persuading them to try a newly launched service like Amazon Fresh — the sheer breadth and scope of its ambitions are starting to alienate customers.
In England, thousands are signing up with Amazon Anonymous, pledging to do their holiday shopping anywhere but with Amazon, citing (among other factors) the working conditions at the company’s warehouses. Some of the same concerns are getting more attention in the United States as well, even as the long-running dispute between Amazon and Hachette over e-book pricing have caused others to abandon the site. And as I’ve written about before, Franklin Foer of The New Republic recently published a damning and widely read argument that “Amazon Must Be Stopped.”
Amazon needs to find a way to remind customers of what it was when it was young and scrappy, delivering the joy of instant gratification without the threat of being a “Big Brother” monopolist or oligopolist. It also needs to find a way to convince shareholders that it takes their concerns seriously. It’s hard to tell which is more important, or which will be tougher to accomplish.
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