Amazon Echo

Why Amazon Cares…

Amazon.com is making more news lately, this time because it’s reportedly planning to open 400 bookstores across the country. It seems ironic that the same company that’s widely vilified for killing independent bookstores, is now opening its own main street bookshops. However, considering that over 90% of commerce is still conducted in brick and mortar, rather than online (as crazy as that sounds), physical stores are actually the ideal place for Amazon to grow its reach. One might speculate that Amazon is just creating well situated ‘drone airports’ or convenient pick-up centers that enable same day delivery. Either way one might ask why would Amazon yet again lead with books?

90% of commerce is still conducted in brick and mortar

For starters, it’s their heritage and book buyers are still their core customers. Amazon was founded in 1994 on the basis that books are cheap and easy to ship, difficult to break, and most importantly, only a tiny fraction of all the books published would fit in even the largest big-box bookstore. Jeff Bezos perceived that these were perfect conditions, better than any other catalog businesses in fact, for an online retailer. Although, early on, he also saw books as a solid basis for expanding to become the “Everything Store.” And, Amazon has been very successful at moving its customers beyond just buying books online, as now, only an estimated 5% of its total revenue comes from books. Yet, their major investments continue to drive more deeply into keeping and attracting readers as customers.

Amazon distribution center

Amazon invested billions in creating the Kindle ebook platform, putting lower priced and convenient ebooks into the hands of avid readers. By doing so, Amazon succeeded in staking a claim in the mobile app, and importantly, the device market. Amazon’s own Kindle e-reader has sold over 17 million units in the U.S. alone, about half as much as the iPad, but the Kindle app also covers iOS, Android and other phone and tablet platforms. Ebooks read through Kindle bind Amazon even more tightly with avid readers, providing more loyalty and more preference data. Most importantly, it keeps Amazon at front-of-mind for shopping, which is moving largely to apps on tablets and mobile devices.

A prominent New York literary agent is quoted as calling books “Amazon’s gateway drug.”

After revolutionizing the mode of distribution of books with e-commerce and then the Kindle, Amazon again did the counter-intuitive and became a publisher. They expanded the Kindle ecosystem and created Kindle Direct Publishing (KDP), technology that has dramatically increased the number of books available in Amazon’s catalog, and is itself causing shifts in power across the entire publishing industry. Making it easy to publish books drives growth for Amazon by tapping into the benefits of long tail economics. Basically, every additional book published through KDP has a negligible cost to Amazon, but receives passionate promotion from its author, who inevitably drives more readers to Amazon. Those readers are then expertly lured to purchase other items. Authors using KDP have published well over a million books into Amazon’s catalog, providing a million more reasons for a reader to come to the site.

book buyer demographics skew dramatically to women, who make the vast majority of household buying decisions.

Still asking “why readers?”, perhaps it’s that books attract affluent, educated shoppers (86% of people who make $75K or more and 90% of College Grads have read a book in the past year — Pew Research Center) . To put that into perspective, frequent book buyers have 50% higher average household income and roughly 4X higher graduate school education levels, so they’re a great proxy for the top 20% of U.S. consumers (who account for a solid 60% of the total spending in retail). Although, often overlooked, but perhaps the most important demographic is that book buyers skew dramatically towards women between 34 and 50, precisely the people who make the vast majority of household buying decisions, accounting for hundreds of billions of dollars per year spent on consumer products and consumables.

Amazon’s Echo positioned as the intelligent household bot.

When the new Amazon bookstores open, they will stock new releases every week, providing ample reason for avid readers to drop in and see what’s hot. The stores will probably use print-on-demand technology to make book inventory efficient and selection enormous, while setting aside space to show off the benefits of Alexa on the Echo and how it can “add garlic to your shopping list” or tell you “what’s on your calendar for the day”, on it’s way to becoming your home shopping robot. Stores simply offer yet another way to leverage books for an upsell. Who knows, maybe they’ll follow their strategy of creating ‘original content’ in movies and tv by acquiring one of the big 5 U.S. publishers. Whatever transpires, when you wonder why Amazon cares… about books, and why they’re planning to open bookstores, just remember that those ‘book lovers’ have epic buying power that extends well beyond books.

Amazon bookstore in Seattle

When I’m not answering questions about the idiosyncrasies of the book industry, I’m helping people find and read amazing books using Riffle. It doesn’t matter to us if you’re reading ebooks or pbooks. Get Inspired. Read more.