TIME Companies

Amazon’s Dispute With Hachette Might Finally Be Hurting Its Sales

The book industry nurtured Amazon's growth. Now the online retailer's war against publishers is a thorn in its side

The book business launched Amazon to success, and now it’s hurting the online retailer’s growth.

Amazon announced its worst quarterly loss in 14 years Thursday, losing $437 million in three months. One of its worst-performing segments? Amazon’s old core business: North American book, movie and music sales. The segment’s sales increased a mere 4.8% from 2013, the slowest growth for the category in more than five years. That compares with a 17.8% growth in that segment a year ago.

Amazon chalked up the slow media segment growth to fewer students buying textbooks, but that doesn’t seem to be the whole story. In fact, the company’s woes may in part be related to its damaging publicity spat with the publisher Hachette.

Here’s a quick recap of what happened: earlier this year, Amazon demanded Hachette give up a larger cut of its book sales; Hachette demurred. Amazon then increased shipping times on Hachette books, raised Hachette book prices, and redirected customers to other publishers on its website. Hachette, determined to hold its ground, rallied authors to its side. In August, 900 authors, including Stephen King, Malcolm Gladwell, Barbara Kingsolver, Jane Smiley, John Grisham and James Patterson, signed a letter to Amazon defending Hachette, accusing Hachette of “selective retaliation” against writers.

There isn’t much visibility into what’s going behind closed doors and in sealed accounting documents at Amazon, but by targeting Hachette, Amazon is making it harder to buy the retailer’s own books. A customer deterred by an artificially long shipping time on a Hachette book is a sale lost. For a huge company like Amazon, that may be little more than a self-inflicted scratch, but it’s likely making difference.

And more importantly for the online retailer over the long term, the dispute may be hurting Amazon’s image and turning customers away. For book readers who love particular authors, it’s hard to forget when a bookstore is accused of having “directly targeted” a favorite writer. A literary-inclined crowd, already more likely to side with the letters people than the money people, may see the Hachette dispute as a turning point. “It’s logical that readers identify more with authors than with Amazon,” says Colin Gillis of BGC Financial. “Amazon is a service. You may like the service but you build a relationship with authors.” If book lovers ultimately decide that Amazon is bad for authors, Amazon could lose its hold on the very business that nurtured its growth.

 

 

TIME Smartphones

4 Reasons Amazon’s Fire Phone Was a Flop

German Launch For Amazon's Fire Smartphone
A man holds the new Fire smartphone by Amazon.com Inc. during demonstration at a a news conference in Berlin, Germany, on Monday, Sept. 8, 2014. Bloomberg—Bloomberg via Getty Images

Amazon still has $83 million worth of unsold units

Amazon’s ongoing expansion into more and more product categories has finally hit a big speed bump. The Fire Phone, Amazon’s recently launched smartphone, was supposed to compete with high-end devices like Apple’s iPhone and the Samsung Galaxy. But consumers apparently didn’t bite—Amazon was forced to take a $170 million writedown charge on costs related to the device, it was revealed Thursday. Meanwhile, the company reportedly has $83 million worth of unsold Fire Phones still in its inventory.

While CEO Jeff Bezos is likely surprised that the Fire Phone hasn’t flown off Amazon’s virtual shelves, the device’s lack of appeal was obvious to many outside observers. Here are four reasons Amazon’s Fire Phone was doomed from the start:

Too Expensive

Amazon has a history of undercutting competitors on everything from tablets to balsamic vinegar. So it came as somewhat of a surprise when the Fire Phone launched at $199 with a two-year wireless contract, essentially the same price as the iPhone and Samsung Galaxy. The high price didn’t help incentivize iPhone and Galaxy owners to abandon their devices, which is what Amazon needed to happen for the Fire Phone to gain quick traction. The company saw the error of its ways relatively quickly and dropped the phone’s price to 99 cents in September, but that hasn’t been enough to turn things around.

Small App Store

Though Amazon’s devices run on Android, they use a proprietary app store tailor-made for the company’s phones and tablets. That means developers have to make different versions of their apps specifically for the Fire Phone and Kindle Fire, and many haven’t bothered. Amazon’s app store has about 240,000 apps, compared to more than 1 million in the Google Play store. Most notably, Amazon’s store lacks Google’s flagship apps, so Fire Phone owners have no easy access to Gmail, YouTube or Google Maps. Other popular services, like Dropbox, are also absent. Users can sideload Android apps onto the Fire Phone, but it’s a more cumbersome process that might be beyond the technical prowess of some Amazon fans who are used to the simplicity of devices like the Kindle e-reader.

Late to Market

The Fire Phone was a classic case of “too little, too late.” Apple is on its eighth generation of iPhones, and Android devices have been around nearly as long. Smartphones now account for 72 percent of the overall mobile market in the U.S., according to Comscore. Amazon would probably have the most luck convincing first-time smartphone buyers who have yet to develop a device preference to pick up a Fire Phone, but there simply aren’t many of those people left.

Features of Limited Interest

Many of the Fire Phone’s most innovative features, like the ability to scan 100 million real-world objects with the press of a button, are really aimed at getting customers to buy more things on Amazon. Making such features the main selling point of the device immediately means its appeal will be limited to only heavy Amazon users. Other new features, like the 3D display, were generally met with a collective yawn. The iPhone 6’s most prominent new feature, meanwhile — its big screen — is a more obvious upgrade, and its own commerce-focused perk, Apple Pay, works at plenty of places outside Apple’s ecosystem.

Overall, Amazon’s ambitious device simply doesn’t have a defining quality that would compel the average consumer to run out and buy it. We’ve all made it this far in life with perfectly suitable smartphones, and there already myriad ways to buy stuff on Amazon. The Fire Phone is solving problems that nobody had in the first place.

TIME Companies

Get an Inside Look at Amazon’s Massive Fulfillment Centers

Ordering holiday gifts on Amazon seems so simple. Ever wonder what happens between when you click "Checkout" and the items arrive at your door?

TIME Earnings

Heavy Growth Puts Drag on Amazon’s Bottom Line

Amazon logo
Lionel Bonaventure—AFP/Getty Images

Big spending and lower-than-expected forecast for the holiday season put a cloud over the e-commerce giant’s shares

Amazon reported a disappointing third quarter on Thursday in the period leading up to holiday season. Investors responded by pummeling the stock in after-hours trading, driving it down 10% to $280 a share. Here are the key points from the earnings report.

What you need to know: Amazon traditionally funnels much of its profits into expanding its already gargantuan business, resulting in razor-thin margins — and this quarter proved no different. The e-commerce giant reported a loss of $437 million on revenues of $20.58 billion, a 20% revenue increase year-over-year, but well below Wall Street’s estimate of $20.84 billion.

A significant chunk of that money went into content and technology — a spending area that jumped 40%. That’s unsurprising given Amazon’s announcement last quarter that it would spend over $100 million on original video content, including the well-received original TV show, “Transparent” with “Arrested Development” actor Jeffrey Tambor.

The big numbers: $27.3 billion and $30.3 billion. That’s the sales range Amazon expects for this holiday season, the company’s busiest time of the year. That represents growth of between 7% and 18% versus last year, but again, less than what analysts forecast.

What you might have missed: Amazon had an extremely busy summer. It acquired Twitch, the video-game streaming site, for $1.1 billion, unveiled a credit card reader for the smartphone called Amazon Local Register and brought its same-day grocery delivery service, Amazon Prime Fresh, to New York. Amazon also launched the Fire phone, which is widely believed to be a dud. On Thursday’s earnings call, CFO Tom Szutak suggested it was too early to call the Fire phone a failure given its launch just 90 days ago. Said Szutak: “When ever you launch something new, there’s a wide range of outcomes, but it’s also early.”

This article originally appeared on Fortune.com

TIME Companies

Amazon and Simon & Schuster Reach Deal Over E-Book Prices

The deal follows an impasse between Amazon and Hachette

Amazon and Simon & Schuster have reached a multi-year agreement over the sale and pricing of print and digital books following the online retail giant’s falling out with the Hachette Book Group.

The publisher will set its own prices for e-books, while Amazon will promote Simon & Schuster titles on the site and be able to set discounts in certain situations as well, the Wall Street Journal reports.

“The agreement specifically creates a financial incentive for Simon & Schuster to deliver lower prices for readers,” Amazon said in a statement. The deal arrived two months before its contact with Simon & Schuster was set to expire.

Carolyn Reidy, the head of Simon & Schuster, wrote in a letter to authors and agents that the deal was “economically advantageous” for both the publisher and the retailer and that it “maintains the author’s share of income generated from e-book sales.”

Earlier this year, Amazon and Hachette had a much-publicized dispute over the price of e-books. Customers as a result can no longer pre-order Hachette titles on Amazon. Amazon will at some point renegotiate contracts withe other publishers Macmillan, Penguin Random House and HarperCollins.

[WSJ]

TIME Ask TIME Tech

Amazon’s Kindles Compared: Voyage vs Paperwhite vs Standard

Kindles
Amazon's new Kindle Voyage e-book reader sits atop last year's Kindle Paperwhite Doug Aamoth / TIME

Amazon’s Kindle e-book readers are generally hot holiday items, so let’s explore the various differences between the three available models.

There’s the new $199+ Kindle Voyage, the $119+ Kindle Paperwhite and the $79+ standard Kindle to choose from. Here’s a closer look at what you’re getting.

Screen

Size

Choosing by screen size is easy since they’re all six inches diagonally. Things change once we dig into resolutions and lighting technology.

Resolution

The Kindle Voyage has the best screen, with a 300 pixels-per-inch resolution. The more pixels smooshed into an inch of screen, the better everything looks. The Kindle Paperwhite smooshes 212 pixels into an inch; the standard Kindle smooshes 167 pixels into an inch.

The big question is whether your eyes can discern the differences. I can tell you that when looking at the Paperwhite and the Voyage side by side, the difference is noticeable when looking at graphics and slightly less noticeable when looking at text. The standard Kindle looks… I wouldn’t say “the worst” because it doesn’t look bad. It just looks least good; let’s say that. I’d say the $40 jump from the standard Kindle to the Kindle Paperwhite is a much better value than the $80 jump from the Paperwhite to the Voyage, though.

Reading Light

The standard Kindle has no light; the Paperwhite and Voyage both have built-in lights. They both max out at nearly the same brightness, although the Voyage looks a little cleaner and whiter, and can automatically adjust its screen brightness to match your environment.

Touchscreen

All three devices feature touchscreens, though the Kindle Voyage features squeeze-able side bezels that allow you to turn pages back and forth as well. There’s a nice little vibration feedback with each press when using the Voyage.

Video: Kindle Paperwhite vs Kindle Voyage

Here’s a closer look at the $119 Paperwhite up against the $199 Voyage, with some analysis of all three models at the end:

Storage

Wondering which Kindle can hold the most books? The answer is yes. Yes to any of them: They all have four gigabytes of storage, good for over a thousand books.

Size

The Kindle Voyage is the smallest, measuring 6.4″ long by 4.5″ wide by 0.3″ thick and starting at 6.3 ounces (the 3G version weighs 6.6 ounces).

The Kindle Paperwhite measures 6.7″ long by 4.5″ wide by 0.36″ thick and starts at 7.3 ounces (the 3G version weighs 7.6 ounces). The standard Kindle measures 6.7″ long by 4.7″ wide by 0.4″ thick and weighs 6.7 ounces (there’s no 3G version).

They’re all incredibly portable. I’m not sure buying one over the other based on a tenth of an inch here or an ounce there makes a whole lot of sense, but those are the measurements.

Battery Life

The standard Kindle lasts up to four weeks on a single charge, assuming a half hour of reading each day with the wireless connection turned off. It fully charges within four hours.

The Kindle Voyage lasts up to six weeks on a single charge, assuming a half hour of reading each day with the wireless connection turned off and the light set at 10 (the max is 24). It fully charges within three hours.

The Kindle Paperwhite lasts up to eight weeks on a single charge, assuming a half hour of reading each day with the wireless connection turned off and the light set at 10 (the max is 24). It fully charges within four hours.

So as we see here, the Paperwhite actually has the best battery life. That’s probably a factor of its screen not having to push as many pixels around as the Voyage’s screen. The Paperwhite being ever so slightly thicker than the Voyage might make for a slightly higher-capacity battery as well.

3G or Not 3G?

That is the question. Adding a 3G cellular connection to your Kindle Paperwhite or Kindle Voyage adds $70 to the price tag, but results in being able to download books anywhere you have an AT&T signal — over 100 countries and territories are covered (see this map). There are no monthly service charges for downloading books, though you might incur added charges for downloading magazines and other periodicals.

If you read a lot of books and want to be able to download new ones frequently — especially while you’re on the move — the 3G version of whichever Kindle you’re considering is a no-brainer. If you’re going to be using the Kindle at home a lot or you’ll be around accessible Wi-Fi networks, save the $70.

Best Bet

To be clear, the new Kindle Voyage is an amazing e-book reader. It’s super portable, its screen is gorgeous and the added haptic-feedback page turns are a nice touch. However, the $119 Kindle Paperwhite is still a dynamite e-book reader and is a very worthy upgrade for $40 over the standard Kindle because of its higher-resolution screen and its built-in light. Making the $80 jump from the $119 Paperwhite to the $199 Voyage is simply a much tougher sell.

MONEY stocks

3 Things to Know About IBM’s Sinking Stock

141020_INV_IBM
Niall Carson—PA Wire/Press Association Images

IBM's shares plunged 7% Monday after a disappointing earnings report. Can tech's ultimate survivor transform itself one more time?

International Business Machines INTERNATIONAL BUSINESS MACHINES CORP. IBM -0.0617% has long enjoyed a unique status on Wall Street — a tech growth powerhouse that investors also see as a reliable blue chip, with steady profit growth and a hefty dividend. But with the rise of new technologies like cloud computing, Big Blue has struggled to maintain that balancing act.

Now investor confidence has suffered a big blow.

On Monday the company announced the results of a pretty lousy quarter. IBM’s third-quarter operating profit was down by nearly one fifth, and the company failed to generate year-over-year revenue growth for the 10th consecutive quarter.

Big Blue also revealed plans to sell-off its struggling semiconductor business, a move that involves taking $4.7 pre-tax billion charge against IBM’s bottom line. Actually, it is paying another company to take this unit off its hand.

While CEO Virginia Rometty acknowledged she was “disappointed” with IBM’s recent performance, she’s also pledged to turn the company around, led in part by IBM’s own foray into the cloud.

Now, you don’t get to be a 103-year-old tech company without learning to adapt. That’s what IBM famously did in the ’90s, when the computer giant started to shift away from profitable PC hardware in favor of consulting and service contracts for businesses.

But Monday’s dismal earnings show just how hard repeating that trick could turn out to be.

Here’s what else you need to know about the stock:

1) You can’t really call IBM a growth company anymore since its sales aren’t rising.

When it comes to revenues, IBM ranks behind only Apple APPLE INC. AAPL 0.372% and Hewlett-Packard HEWLETT-PACKARD CO. HPQ -0.0286% among U.S. tech companies. On a quarterly basis, though, sales have actually shrunk for 10 periods in a row, including a 4% slide in the third quarter. The big culprit is cloud computing, in which businesses can access computing services remotely via the Internet.

Since the 1990s, IBM’s model has been premised on selling powerful, expensive computers to large businesses, then earning added profits on contracts to help firms run those machines. But the cloud lets companies rent, not buy, this computing power. “You only pay for what you use,” says Janney Montgomery Scott analyst Joseph Foresi. The result: IBM’s hardware revenues sank 15% last quarter.

2) IBM is racing to be a leader in cloud computing, but with mixed results.

The company has identified four alternative areas of growth. One is the cloud, the very technology eating into IBM’s hardware sales. Big Blue has spent more than $7 billion on cloud-related acquisitions. It’s also going after mobile, IT security, and big data, the analysis of information sets that are too large for traditional computers. An example of that is Watson. IBM’s artificial-intelligence project, which won Jeopardy! in 2011, is being marketed to businesses in finance and health care.

These initiatives have promise, but IBM’s size is a curse. For instance, the company’s cloud revenues jumped 69% to $4.4 billion last year, but with nearly $100 billion in overall sales, “it’s hard to move the needle,” says S&P Capital IQ analyst Scott Kessler.

3) The stock is now much cheaper than its tech peers, but it may deserve to be.

Investors willing to wait and see if these moves will transform IBM may take comfort in the fact that the stock looks cheap. What’s more, the shares yield 2.4%, vs. 2% for the broad market. This could make the company look like a good value.

But investors should tread carefully, says Ivan Feinseth, chief investment officer at Tigress Financial Partners. He notes IBM has spent $90 billion on stock buybacks in the past decade, which has kept the P/E low by increasing earnings per share. Yet none of that money was invested for growth, as evidenced by IBM’s sluggish annual growth rate. It is hard to imagine IBM outmuscling Amazon AMAZON.COM INC. AMZN -8.3403% , Cisco CISCO SYSTEMS INC. CSCO 0.9124% , Microsoft MICROSOFT CORP. MSFT 2.4656% , HP HEWLETT-PACKARD CO. HPQ -0.0286% , and Google GOOGLE INC. GOOG -0.7721% in the cloud — and there are better values in tech.

MONEY online shopping

Believe it or Not, Amazon Is Not the King of Cheap Online Prices

Amazon logo
Lionel Bonaventure—AFP/Getty Images

A new report suggests that Amazon’s edge is not as strong as people think.

As far as conventional wisdom goes, Amazon.com AMAZON.COM INC. AMZN -8.3403% is the king of low-cost goods bought online; the Wal-Mart WAL-MART STORES INC. WMT 0.1705% of the Internet, so to speak.

And that’s largely true.

In its rise from a humble online peddler of books into the most feared, and dominant, name in online commerce, Amazon has used its willingness to undercut the competition to send more companies than I can fit in this space the way of the dodo (RIP Borders, et al). However, a recently released report suggests that Amazon’s supposed edge when it comes to low prices might not be as strong as some believe.

Inside the battle for e-commerce

Earlier this month, Wells Fargo and online sales tracking firm 360pi unveiled their findings from a full-year analysis of the various online pricing habits of the world’s largest e-commerce companies across over 100 commonly offered stock-keeping units. And as you’ve hopefully gleaned by now, the findings came with their fair share of surprises.

Perhaps the biggest single bombshell was that Amazon.com has lost a sales edge in four important categories to the likes of Wal-Mart and Target TARGET CORP. TGT -0.7416% . According to the report, both big-box retailers generally offered lower prices online than Amazon in the clothing and shoes, electronics, housewares, and health and cosmetics categories. However, the report also notes that Amazon typically offered the lowest prices when it came to “like-to-like” specifics goods.

This comes as a surprise for longtime followers of Amazon and implies that online pricing software used by Wal-Mart and Target, which scans competitors’ prices and adjusts accordingly, has grown sophisticated enough to compete against Amazon’s own pricing bots. Specifically, the reports says Wal-Mart’s pricing in the four categories sat an astounding 10% lower than Amazon’s as of August and that Target enjoyed a 5% pricing advantage as well. The report acknowledges that the pricing survey didn’t account for the cost of shipping and taxes, areas where Amazon enjoys advantages with its Prime shipping service and its notorious state tax policies.

Either way, this new report certainly calls into question the conventional wisdom that it’s simply Amazon and then everyone else in the online retail space these days.

The bigger e-commerce picture

Still, I think this report misses the point to a large extent by painting Amazon in a negative light on pricing without discussing the overall profit opportunity online.

As Amazon.com and its online peers have been around for a generation now, it’s easy to fall into the trap of categorizing e-commerce as a whole as a somewhat mature business. In fact, the opposite is true. When viewed in the broader context of the entire U.S. economy, online retail sales represent a veritable drop in the bucket. See for yourself.

Source: U.S. Census Bureau.

With online sales in the U.S. consistently setting fresh all-time highs, it’s also important to understand just how paltry a percentage of total retail transactions they really represent: just 6.2% in the first quarter of the year. And this only reflects the new record figure in a technologically advanced market. Viewed globally, this figure is almost assuredly smaller and it represents a large opportunity for all e-commerce retailers.

There’s no question that the stakes are extremely high in online retail. As I’ve mentioned before, the only free lunch you get in broad-based retail sales are economies of scale. As the global e-commerce boom progresses over the next generation, the companies that control the greatest share of the proverbial pie will have the strongest hand. And both Amazon and Wal-Mart excel in online retail.

Foolish thoughts

Historically, Amazon has always outflanked other online retail outlets. However, owing to the stakes and its well-documented tenacity, it was probably never realistic for the media or investing community to expect a company like Wal-Mart to go quietly into that good night. So while this storyline gives Amazon’s dominance in the growing battle for online sales supremacy, it’s by no means the end of the story, and that is certainly worth noting.

Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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MONEY online shopping

Why Amazon Is Hiring 80,000 New Workers

To prepare for the holiday shopping surge, the online retailer is adding a record number of seasonal employees. Other big names are gearing up for the crush too.

TIME Companies

Amazon to Add 80,000 Seasonal Jobs During the Holidays

That's a 14% increase over last year

Amazon has announced plans to add 80,000 seasonal jobs across the U.S. to help meet the growing customer demand for orders during the holidays.

That’s a 14% increase over the 70,000 seasonal jobs the company created last year, CNET reports, which was already a 40% increase over the previous year. The e-commerce giant currently has 50 fulfillment centers and plans to have more than 15 sortation centers by the end of the year.

Mike Roth, vice president of Amazon’s North America operations, said the company expects many of the new hires to transition into full-time regular employees, as has been the case this year with 10,000 seasonal jobs.

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