Quote:
Originally Posted by rhadin
Amazon really didn't start to beat up on B&N until Amazon began subsidizing its book losses with its profits from nonbook items.
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If you're talking about ebooks, I'd agree. Paper is a very different story.
Amazon launched in 1994, and started selling other stuff in 1998. They didn't turn a profit until Q1 2001, and still lost money for the year.
During that time, they lost
boatloads of cash -- $719m losses of net income in 1999, $1.4 billion in 2000, $527 in 2001, $149m in 2002. Amazon didn't eke out a positive annual net income until
2003, when their total revenues were equal to B&N's.
Except for 2002 and 2011, B&N has had positive profit margins. They've also had access to credit,
and repeatedly went head-to-head with Amazon on price. (
A CNN article in '98 discusses how both had essentially identical pricing.)
Selling non-book items also wasn't a zero-cost change -- Amazon needed more warehouses, new vendor relationships, a bigger database, had to handle explosive sales growth, and hire more people.
For a blast from the past,
here's an article from 1997 which cited the conventional wisdom that B&N was going to bury Amazon. Among the advantages cited? B&N could get books cheaper, because they did so much more volume than Amazon.
And lest we forget, B&N
also expanded its business into music and video in the 90s with its "superstores."
Amazon didn't undercut B&N on pricing. They didn't subsidize paper book prices with profit from other items; they did it with
debt, in a calculated long-term plan to dominate the book biz and become the Target/Walmart of the Web.
Quote:
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Originally Posted by rhadin
That was and is a key difference between Amazon and other ebooksellers -- the ability to absorb losses in books for years because other divisions are profitable and able to support the book losses.
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By the time that was actually the case, it was already too late for the publishers to refuse to work with Amazon.
Again it took Amazon several years to build up its warehouses, direct-to-customer shipping arrangements with distributors, and to do enough volume to qualify for the same prices as B&N. (Publishers also spent a few years trying to ignore the Kindle. That tactic didn't stop Amazon from popularizing ebooks anyway.)
I also have a real hard time imagining that in the 90s and 00s B&N and Sony were small-fry players who had no access to capital, debt or other resources.
The key differences were:
• Amazon / Bezos think long-term and have made several moves ahead of everyone else.
• Most competitors react rather than plan ahead -- especially B&N and Borders.
• Most of the time, competitors didn't execute well.
• Amazon was willing and able to get away with accruing huge debts to create and expand their business.
Ultimately the book market was B&N's to lose, and they lost it. And I'm fairly confident if they hadn't, you'd be kvetching as much about the Bully B&N as you do Amazon.
