The problem isn’t quality or price, it’s availability.
Amazon may be the leading online retailer, but the majority of shoppers still spend their money in brick-and-mortar stores — more than 90% of U.S. retail sales in 2012 were in stores. And it’s been getting tougher to find Kindles in U.S. stores thanks to backlash from retail giants over Amazon’s aggressive tactics.
Walmart (WMT) and Target (TGT) both carry a wide range of tablets and e-readers in-store, including Apple’s iPads and Barnes & Noble’s (BKS) Nook, but both have removed Kindle devices from their shelves. Online shopping traditionally increases during the holidays as gift-givers avoid busy malls, and Amazon’s Kindles have benefited from that seasonal spike. But without having the devices in front of consumers the rest of the year, sales are suffering.
They may not have the same presence as a Walmart or Target, but independent book sellers’ customer base is Kindle’s target demographic. However, there’s one problem with Amazon Source — outside of any animosity the booksellers might feel.
It’s always been considered the quirky also-ran of e-readers, but Rakuten’s (RKUNF) Kobo operates a big online e-book store with 3.5 million titles — which are free from Kindle’s proprietary DRM, meaning they can be read on competing e-readers from Sony (SNE) or Barnes & Noble. Kobo sells a line of e-readers, including the Aura HD (currently my go-to device among my collection of e-readers — even above my Kindle), and the company offers Android tablets that compete directly against the Kindle Fire. And Kobo was there first.
Kobo already offers a program that gives booksellers a 5% discount on hardware and splits profits on Kobo e-books sold using the device (typically 8% to 20% per title) without any time limit on the profit sharing. Kobo has close to 500 independent bookseller signed up on the program, and it’s hard to imagine one of these stores jumping on Amazon’s offer. Sure, they’ll make an extra buck or two selling a Kindle, but they’ll likely see less money from e-book sales if they sell a customer a Kindle instead of a Kob. And that Kindle e-book profit will dry up altogether in two years.
We’ll have to wait and see what kind of uptake Amazon sees with Amazon Source, but the program’s very existence illustrates the fact that Amazon’s online advantage can sometimes be its weak spot too. Especially when it comes to Kindles.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.