You’ve got to hand it to Jeff Bezos. Amidst ongoing news coverage of Amazon’s popular Kindle Fire HDX, its online foray into Netflix-esque digital programming, and its familiar role as nexus of the online holiday shopping season, Bezos managed to pull yet another PR ace from his company’s burgeoning sleeve this past weekend with the announcement of Amazon Prime Air. The new service is expected to launch in 2015 and will supposedly deliver small packages via drone shipments within 30 minutes of placing an order.
It’s an amazing, terrifying idea, and one that will probably have to clear miles and miles of regulatory tape before any drone levitates a single inch off the ground of one of Amazon’s storage facilities. So what other aces can Bezos play in the meantime to keep up his company’s ever-increasing public profile?
Here’s one suggestion: acquire Barnes & Noble. My friend Jamie and I began talking about this idea about a month ago, and it’s increasingly clear that such a move would be a highly sensible avenue to buttress Amazon’s identity as a known and trusted brand.
The immediate impetus for this move would be to consolidate Amazon’s power as the largest market force in bookselling. Barnes & Noble is the last major challenger to Amazon’s cost-effective behemoth and absorbing it into the Amazon portfolio would give Amazon a great deal of additional power in controlling book marketplace standards. It would also remove the competition of B&N’s Nook which, although an increasingly marginal player in the e-reader and tablet market, still has a relatively robust digital infrastructure. Acquiring this infrastructure could have important implications down the road. Example: Microsoft owns a 10% stake in Nook and an Amazon purchase of the entire B&N brand would eliminate the potential of Microsoft adding a Nook-based reading application to Windows if and when Nook is spun off.
There would also be direct financial benefits from such a deal. Amazon can easily afford the $985 million market cap of Barnes & Noble as well as a hefty stock purchase premium. And given that B&N still earns $374 million in annual profits from its physical bookstores, it’s a deal that would eventually pay for itself.
More important than market share consolidation, however, is the new public narrative that Amazon can create from such an acquisition, as well as the previously untapped footholds it can gain in local communities. The conventional bookseller lament is that Amazon is destroying the joys of the physical book store with its soulless, algorithmic cost-slashing. In one acquisition Amazon becomes the cultural proprietor of the local bookstore, a global force that still cares about the benefits it can provide to local communities.
People like bookstores for a variety of reasons. They imbue a sense of spontaneity and discovery that online shopping will always have a hard time replicating. They’re a great place to wander through on rainy days while grabbing a coffee or pastry and enjoying extended previews of potential purchases. They’re a prime destination for picking up quick but thoughtful gifts. Most importantly, in many cases, they’re a sort of cultural hub for the community, hosting authors and other guest speakers that are open to the public, almost always free of charge.
Imagine how the noxious narrative surrounding Amazon would change if they purchased the largest bookseller and made a campaign of further promoting these public goods that bookstores provide. Not only would Amazon become a cultural touchstone in many communities, it would be seen as the savior of bookstores and a force that understands the communal value of reading.
How Amazon would operate a brick-and-mortar bookstore chain is open to interpretation, but I see the potential to combine the best of a library rental system with the benefits of immediate purchasing. Amazon would still offer books for sale, perhaps at a slight markup from their online counterparts, but customers would likely pay the premium for the immediacy of purchase. More importantly, Amazon could leverage its Prime program to create further purchasing incentives, in which anyone with online membership would receive perks or in-store benefits. Jamie suggested a bevy of avenues this kind of program could take: free coffee, sales discounts, or even participation in a library-esque book loan system.
Unlike Apple and Microsoft, Amazon does not have a dedicated physical space to demonstrate its wares. Its Kindle line is available in a number of retailers but is often displayed amidst a sea of other tablet options. Purchasing Barnes & Noble would give Amazon space for a devoted Kindle display in the most innocuous of atmospheres- surrounded by physical books! This space would also allow Amazon to publicize and promote any major, non-book online deals, letting customers test out key products that they might be reticent to purchase without trying beforehand. This kind of store setup would also facilitate the purchase of online products in-store. Most people go home from Barnes & Noble to buy a discounted or e-reader edition of what they saw in the store. Why not cut out the middleman and let people make those purchases directly from a store terminal?
A purchase of Barnes & Noble would have limited returns, to a degree. The single-floor B&N stores in malls throughout the country would not be conducive to this kind of plan; the main core of the deal would be access to the multi-tiered B&N megastores that dot select communities in major population zones. And, again, on the whole, this would be revenue-neutral for Amazon at best. Its margins are already slim or nonexistent in the online book business and any revenue gained from the stores would not generate net profit (due to the deal’s upfront expenses) in the immediate future.
But, as Jamie noted in our conversation: “Normally, this might be a pie in the sky scenario for a profit-maximizing corporation in Amazon’s shoes, but Amazon hasn’t ever cared about profits, and shareholders apparently don’t care that Amazon doesn’t turn a profit.”
The purpose of this deal is one of crafting a strategic PR narrative rather than strict accounting. Bookstores are not moratoriums for the dying print medium; they’re living, breathing communities where people go for diversion, enlightenment, and solace. Subsidizing this kind of experience is something Amazon can easily afford, while simultaneously eliminating its largest bookseller rival and creating a dedicated space to promote Amazon products. It’s a win-win-win for Amazon’s reputation, readers, and communities across the board. (Indie booksellers, not so much… but that’s why they should band together and create an online distribution network, as described here.)
Thanks to Jamie for the conversation and ideas that informed this post.