Tales of Amazon’s Epic Size Have Been Greatly Exaggerated

One of theamazon frown common memes in digital publishing is that Amazon, one of the largest book retailers in the US, is a monstrously large retailer which threatens all around it.

Today I would like to take a look at the facts which disprove the meme, and show you just how false it is.

This meme is so widely accepted that it has led people to writing things like:

Earlier this year Digital Book World expressed the meme in a slightly different way when they (apocryphally?) quoted an industry expert:

In talking about Amazon’s competition, calling the Yonkers, NY branch of Barnes & Noble a “disgrace.” For those publishers worried that continued poor results at the nation’s largest bricks-and-mortar book retailer might mean its demise, Joseph Esposito speculated a way out.

“I fully expect Wal-Mart to buy Barnes & Noble,” he said.

He reasoned that companies like Wal-Mart, H-P and others that Amazon is increasingly competing with will not forever tolerate the e-tailer’s encroaching on to their territory and will fight back. In this case, Wal-Mart would be fighting back by acquiring a major Amazon competitor and propping it up.

Please note: Esposito has denied the accuracy of this quote, so don't take it as something he said so much as an expression of an idea that is percolating through the ether.

And even the WSJ is beginning to fall sway to the "giant Amazon" meme:

Amazon has proved a fierce competitor for Wal-Mart, more than doubling revenue to $61 billion from 2009. Today Amazon's market capitalization is $180 billion, compared with $241 billion for Wal-Mart.

The question for Wal-Mart is how it can efficiently adapt its existing infrastructure for online orders. With its own extensive network of warehouses and logistics expertise, Amazon has often been able to beat Walmart.com on number of product offerings and speed of delivery.

The plan under way will augment fulfillment from existing stores and distribution centers with online-only facilities, Mr. Ashe said. "This is not a side project," Mr. Ashe said. "This is how we will be serving customers going forward." Mr. Ashe said that the company will be able to match Amazon's range of products and quick shipping times within about two years.

This meme is reflected in all the digital publishing coverage news which even touches on Amazon, but I won't link to more examples here.

Would it surprise you to learn that all of this talk about giant evil Amazon is based on a flawed assumption, that Amazon is a huge retailer?

Amazon is big, yes, and they are growing fast, yes, but they are not the retail giant that the publishing industry makes them out to be.

As you can see in this chart from July 2013, Amazon is in fact one of many runners up to the title of giant retailer.

Walmart, with nearly $500 billion in revenue, is easily the giant retailer, but Amazon, with 61$ billion in revenue in 2012, is actually smaller than McDonalds. Even in 2013, Amazon wasn't terribly larger than Target.

The reality of the situation is that Amazon is facing fierce competition from many similarly sized companies, including Target, Costco, Best Buy, Safeway, Walgreens, CVS, Kroger, and Royal Ahold. And those are only the general retailers with revenues in the same range as Amazon; I haven't even mentioned the niche retailers like Lowes - or the retailers outside the US.

(On a related note, I think I just gave you a practical example of why Amazon is going to do brick and mortar retail eventually - or buy an existing retailer.)

In short, if you want to be afraid of Amazon, point to their growth rate and not their size. Amazon's 2013 revenues were up 50% over 2011 revenues, an impressive feat. And if you extend that trend out a few years it starts to frighten even me.

About Nate Hoffelder (11481 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader: "I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

14 Comments on Tales of Amazon’s Epic Size Have Been Greatly Exaggerated

  1. Back during the early stages of the Apple ebook antitrust case, there were people protesting that Amazon was the real anti-competitor because it had such deep pockets it could undercut everyone. How they could ignore Apple’s size in that context, I’ll never know. Apple’s revenue is more than some small countries’ GDP. If size makes a company evil, Google and Apple would duke it out for the title of Antichrist. I don’t hate Microsoft because it’s big; I hate it accuse they made Windows 8.

  2. This is something we’ve been arguing a long while now – that Amazon is a bubble of hype that has worrying little substance (as shareholders are beginning to realise)..

    You mentioned some of the many US retailers that tower over Amazon. Worth bearing in mind the likes of Britain’s Tesco and Carrefour of France to name but two also leave Amazon (and most retailers except Wal-Mart) trailing in their wake.

    Curious how all these rival retailers not only manage to bring in far more revenue than Amazon can, but also manage to make huge profits simultaneously, something Amazon has proven repeatedly incapable of doing.

    And while the bricks and mortar retailers are making the transition to bricks and clicks with ease, building on their existing customer bases to challenge Amazon’s online supremacy, Amazon faces a far bigger bill if it wants to enter the bricks and mortar arena.

    One of the more delightful ironies of Amazon’s spearheading the digitalisation of books is that Amazon is day by day losing its stranglehold on book and ebook distribution. Market share plummets where Amazon was once king (latest figures suggest just
    40% in Germany) and Amazon is repeatedly failing to gain traction elsewhere.

    Publishers meanwhile are making strides to minimise their reliance on Amazon’s distribution axis, taking full advantage of the ever-growing number of rival ebook vendors and increasingly going direct to consumer. Verso’s numbers are staggering, and will be an eye-opener for the bigger publishers to follow suit.

    It’s just a matter of time before the Big 5 start producing and retailing mobi files which Kindle owners can upload. Publishers can then sell ebooks as cheap or cheaper than Amazon and still make more profit by cutting out the Bezos Grab.

    • ” Worth bearing in mind the likes of Britain’s Tesco and Carrefour of France”

      Yep. I realized that after I published, and it makes my point even more true than before.

      “Curious how all these rival retailers not only manage to bring in far more revenue than Amazon can, but also manage to make huge profits simultaneously”

      They’re not making huge profits on the scale of Apple, but most of the retailers are making profits in the 1.5% to 3% range. Amazon is generating profits of around a third of a percent. So even though the profits aren’t huge there’s still a big difference.

      • As you pointed out, none of those “profitable” retailers are growing at 25% per year and thus aren’t building capacity to grow at those rates. In fact, many B&M retailers achieve their profits by shrinking their operations; smaller stores, less floor space, less vllume-based sales.
        Amazon may be a general retailer but their pricing structure and margins (on the retail side) are those of a supermarket chain. On purpose.
        The other problem with trying to measure Amazon by retail B&M standards is thst Amazon isn’t a pure retail operation; they are a hybrid empire. Everybody looks at their B2C image but ignores their B2B and B2G sides. Where some of the high profile tech companies are one trick ponies, Amazon is by nature diversified and growing in all areas.

        Measuring Amazon by the metrics of old, established companies is to miss the point: how many of those could have created the Kindle ecosystem? Would even have thought of it? What about the FireTV? Prime Video? Would any have bought Kiva? Ivonna? Comixology? Liquavista?

        Amazon is simply a work in progress and how profitable it can be once the ongoing build-up starts delivering is yet to be seen. But looking at the synergies of the diverse units thst make up their empire, their prospects look pretty good.

        • I’m not sure it’s valid to distinguish between supermarkets and other retailers; they might focus on different types of products but there is a lot of overlap between Walmart and, say, my local Giant, which has about a third of the same product categories found in my local Walmart. Also, drug store chains like CVS and Walgreens have grown to be closer grocery store chains or general retailers than drug store chains.

          • There is overlap in products but not in the business and pricing model.
            CVS sells a lot of the same products as Giant but the ratios are different; you go to GIANT to get food and if you have a cold you might pick up some medicine–you go to CVS to fill a prescription and you might pick up something to eat, but it’s not where most people would shop for fresh meat.
            Walmart and the supermarkets have expanded into pharmacy turf precisely because it is a higher margin, albeit lower traffic business–whereas the pharmacies added convenience foods and dry goods to increase traffic and defray overhead.
            Books are the perfect example of how different businesses can carry the same product for different reasons: for some it is their core business, for others it is a traffic draw loss-leader, for others an opportunistic basket sweetner. Best Buy has stocked books from time to time but that hardly puts them in the book store business, does it?

        • A lot of Amazon’s digital expansion is simply treading water.

          Everyone loves to point out how print book sales are declining, for example, but that decline hits Amazon’s online print sales just as much as the b&m stores. The same with DVDs, etc.

          A lot of the revenue being generated from film, TV and ebooks is simply balancing the decline from physical versions of the same products.

    • “It’s just a matter of time before the Big 5 start producing and retailing mobi files which Kindle owners can upload. Publishers can then sell ebooks as cheap or cheaper than Amazon and still make more profit by cutting out the Bezos Grab.”

      Amazon has actually preemptively made that tactic less feasible. The basic issue is twofold:

      1. The terms of service for kindlegen and Kindle Previewer don’t allow commercial use. Amazon may let indie sales slide but is unlikely to ignore big publishers.

      2. Amazon doesn’t have a single standard format for delivering KF8 ebooks like it did with mobi7. Kindle for iOS gets something decidedly different from Amazon’s servers than, for example, Kindle Fires. If you load a bog-standard KF8 file directly into Kindle for iOS you will get a broken ebook, often a severely broken one. The only way to get decent files for Kindle iOS is to use the special Preview files and selling those directly is, again, a violation of that software’s terms of service.

      You can use Calibre to generate mobis (its mobi7 files are a bit rubbish, but its KF8 files are, I’m told fine) to get around the kindlegen/Kindle Previewer terms of service but that still leaves iOS unaddressed and Kindle for iOS has a lot of users.

      So, it could be done but the publishers in question really would have to at the very least reverse-engineer the Kindle for iOS format and would either have to rely on Calibre for Kindle file generation or would have to reimplement similar conversion software from scratch.

      • The bigger issue is that Amazon would likely sabotage any attempt to replicate Pottermore. Look at Smashwords, for example. They had email delivery in beta, then removed it at launch, only to add it again later in the hopes that Amazon wouldn’t block it again.

        In fact, Amazon may have already sabotaged Pottemrore clones. That site adds DRM to the ebooks when the are fed into Kindle, Nook etc; Amazon might have denied that privilege to publishers when they raised the topic.

    • If by “a matter of time”, you mean sometime after the sun burns out, then sure. But don’t hold your breath. Why haven’t they done it before now? Because it is a monumentally stupid idea. Talk about “a land war in Asia” undertaking. One auto-update from Amazon and all those books would unreadable. Sure, Amazon might get in a little trouble with regulators, but the Big 5 would be ruined.

  3. Just one small nitpick: I never said Amazon was evil. What I said was that they are amoral and ruthless and that all large companies are amoral and ruthless.

    Which I stand by. Once a company reaches a certain size its structure and organisation abstracts away the humanising and empathic influences of its staff and its actions as an organisation become amoral and ruthless. That goes for (almost) all of them.

    And, no, being amoral and ruthless isn’t evil, just sociopathic.

    Moral companies are exceedingly rare and they usually only remain so during the reign of the original founders, like the banks and other companies in the UK that were originally founded by Quakers but are now just as bad as the rest.

    And Amazon is, in relative terms, huge in publishing. Now, that’s largely an artefact of the small size of the publishing industry (though that industry’s likely to shrink in the long term), but from the perspective of even the large publishers, Amazon is big.

    • “Just one small nitpick: I never said Amazon was evil.”

      I didn’t actually say that was from you, but I can see how it is implied. I removed the sentence (the post is better without it, actually).

  4. Good information. I’m not too worried about Amazon, but then they pay me, so there’s that.

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