However, Amazon’s share of the entertainment market is still growing. The latest data from the UK show that it accounts for 22 per cent of music, video and gaming sales and is the largest entertainment retailer in the country by some distance.
Amazon has come a long way since it was founded in 1995. It arrived in the UK in 1998 by buying bookpages.co.uk, but today it sells more than 100 million distinct products. The company is now using its clout to try to drive down pricing and secure better terms.
In some ways, Amazon’s clash with Disney and Hachette is similar to the rows Tesco has had with farmers in the past as it tried to pay less for milk and meat. The only difference is that Amazon’s suppliers are far more high-profile and have a public voice.
Amazon wants you to interpret its attempt to drive down costs as being in the best interest of shoppers. It claims it has improved access to books, films and music around the world by lowering prices and introducing new technology such as the Kindle, which provides up-and-coming authors with an unprecedented platform to reach readers.
Philip Jones, the editor of the trade magazine The Bookseller, says there is some truth in this, but warns that Amazon has to communicate better with publishers. “It is a victim of its own success,” he says. “It is so big that whatever it does it has the potential to do great damage. It’s like a giant that squashes a house if it takes a misstep. It has an attitude, which I think is from the top, of a relentless drive to get rid of the competition. Whatever its motives, it’s going to have a difficult time convincing people it is right.”
When Amazon floated on the New York stock market in 1997, Bezos wrote an extraordinary letter to shareholders. It laid out how Amazon would shun the short-term pressure to make a profit, and focus relentlessly on becoming the biggest retailer in the world. “We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions,” Bezos wrote. In other words, he was looking for world domination at any cost.
These words have turned out to be eerily prescient. Amazon’s sales were just $148 million a year at this time. At its current rate of growth, it will generate sales of more than $100 billion in the next 12 months. Given Bezos’s “us against the world” mentality, it is no surprise that Amazon has rubbed people up the wrong way during its rapid ascent.
However, the clash with Hachette should also be seen in the light of growing pressure on Amazon to deliver profits. Seventeen years on from Bezos’s letter, Amazon is still not making much money. The company’s most recent financial results show that in the three months to the end of June, it lost $126 million despite sales growing 23 per cent to $19.3 billion. This was not a one-off, and the company warned there would be worse to come in the rest of 2014.
Wall Street responded to these results by wiping more than 10 per cent off the value of Amazon shares and warning that it was time for Bezos to deliver. Michael Pachter, a retail analyst at Wedbush Securities in Los Angeles, said: “All of us understand making investments, and there’s a point where investors don’t know what the payoff is. What if they get to $200 billion in revenue and still don’t have profit?”
Amazon would not be the first retailer to respond to such pressures by leaning on suppliers, but the Seattle-based company has reached a crucial point in its development. The company seemingly has few qualms about attracting enemies, but with the pressure now on from governments, suppliers and shareholders, it could be time to start making some friends. (Business Insider)
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