Is Waterstones Mortgaging Its Digital Future With Amazon Deal?

By Jeremy Greenfield, Editorial Director, Digital Book World, @JDGsaid

By partnering with Amazon to sell Kindle devices and e-books in its bricks-and-mortar bookstores, Waterstones, the UK’s largest bookstore chain, could be sacrificing its digital future for a short-term gain, say industry observers.

Waterstones announced today that it would partner with Amazon to sell Kindle devices in its stores as well as provide wi-fi access so readers could buy e-books in-store. The terms of the deal were not disclosed, but it has been reported that Waterstones will get a piece of the revenue from selling the devices as well as from selling e-books within its stores. Waterstones will also offer its readers special in-store e-book deals.

While it is unknown whether money is changing hands between Amazon and Waterstones at any other point in the process, the arrangement as described above could be bad news for Waterstones.

“In the best case scenario, Waterstones will get devices sales, but they won’t get the sales later on,” said Eoin Purcell, editor of Irish Publishing News, who has followed the Waterstones-Amazon deal.

Meaning, once a reader leaves Waterstones with a new Kindle and decides to download books from the privacy of their home – or anywhere else, for that matter – the revenue stream for Waterstones dries up.

According to industry consultant (and DBW partner) Mike Shatzkin, “The difficulty in making deals around a reading device and supporting ecosystem is that the sales of content subsidize the sale of the devices.”

The Kindle Fire, for instance, reportedly costs more to make and distribute than Amazon charges consumers to buy it; it’s the content sales that the company hopes to profit on.

As Waterstones customers transition from bookstore-shoppers to Kindle e-book-buyers, Waterstones will lose future book-sales revenue to Amazon. Barnes & Noble may provide an instructive example.

When Barnes & Noble released its Nook e-reader in late 2009, it made an effort to sell the readers to its existing bricks-and-mortar customer base and converted many of them to e-book readers.

According to industry consultant Thad McIlroy, when this happened, growth in the retailer’s physical bookselling business halted. It could be that many of the heavy readers that once bought print books from Barnes & Noble were now buying e-books on the Nook.

“Barnes & Noble stopped growing overall when it became aggressive selling Nooks,” said McIlroy, who has written for Digital Book World about Barnes & Noble.

If this is true and Waterstones is set to lose many of its bookstore customers to the digital bookstore world, one wonders why the bookseller would enter into such a deal in the first place.

Waterstones general manager James Daunt has said repeatedly that the deal is about giving customers what they want – digital reading experiences – and that Amazon is the best partner for doing so. According to Daunt, a vast majority of customers will still want what Waterstones mostly gives them now – print books – once the dust settles on the e-book revolution.

When asked today on BBC radio what percentage of book-sales revenue will be digital in the end, after giving a disclaimer about such predictions, he said, “The number I would pluck out is about 25%.”

According to the Publishers Association, the UK trade group for book publishers, 8% of all sales were digital in 2011. The raw number, £92 million, reflected a 366% increase from the previous year. According to a recent study by Bowker, the UK is fairly in line with other countries around the world, including the U.S., when it comes to attitudes toward e-books and e-reading.

In the U.S., e-book sales are already approaching 25%, according to multiple reports, and many observers think they will hit 50% in the next few years. By comparison, Daunt’s prediction seems wishful thinking.

Write to Jeremy Greenfield

Digital books concept via Shutterstock

4 thoughts on “Is Waterstones Mortgaging Its Digital Future With Amazon Deal?

  1. Dick Hartzell

    What’s strange is that James Daunt may be more or less right with that 25% number. The part he gets wrong is what 1/4 of Waterstones’ customers will do once they’ve bought a Kindle. He clearly assumes they’ll continue to shop in his stores and buy printed paper books, and the latest Pew Internet Life survey appears to bear out the claim that digital book readers also continue to buy analog books. But if they do, why are B&N’s store sales so flat and the bookseller so interested in carrying higher-margin nonbook items? The dismal reality is that the heaviest book consumers — those who buy and read genre fiction at the rate of a title or two or three a week — are also the heaviest ebook consumers, because their constant jonesing for fresh stories makes the convenience of buy-anywhere ereaders like the Kindle irresistible. And when they go it won’t matter if they’re only 25% of the market. In bookselling they’re the tail that wags the dog.

  2. Mick Rooney

    I’m kind of on track here with Eoin’s comments. Kindle was slow to arrive in Ireland and the Sony eReader was the dominant device for a while. That’s changed now Amazon has opened the device up to consumer electronic sellers in Ireland. I just don’t know what Waterstones are getting out of this in the longtail. Sure, there’s immediate impact and publicity by Waterstones attachment to the Kindle/Amazon brand, but unless there is a digital partnership/benefit for Waterstones online, I’m lost. This deal is like me going into my local supermarket to buy detergent, and expecting a great deal on a washing machine. I would love to know the breakdown on sales of ereader devices and how many sell from bookstores, as opposed to electronic bookstores.

  3. Evelyn Trimborn

    All smart publishers and authors know that even more than the front list, the money is in the backlist. If Waterstone’s is not going to get a share of the revenue from every book sold, they will certainly be cannibalizing their own sales.

  4. Mike Wells

    What makes you so sure that Amazon has not coded the Kindle devices it sells via Waterstone to give Waterstone an Affiliate commission on each ebook bought on those devices?



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