The Twin Threat to Amazon's Retail Crown

by Martin Denholm

The Twin Threat to Amazon's Retail Crown

by Martin Denholm, Senior Editor

Tuesday, December 7, 2010

I just logged onto my Amazon account to check the shipping status of a new pair of headphones that I ordered last week. While there, I was curious to see how much business I've done with the online behemoth in 2010.

A total of seven orders and 23 items bought. You're welcome, guys - Christmas card is in the mail, too, right?

Over the same period, Amazon (Nasdaq: AMZN) shares have shot up by 30%, as the company has solidified its place as the premier online retailer...

(Our Oxford Club members have shared in the wealth, too, cashing out in June for a 49% gain. You can get more details on how to become an Oxford Club member here.)

But Amazon will need to maintain its mojo in the face of a twin threat from its competitors...

Read a Book... Squash a Rival

"The #1 Bestselling, #1 Most Wished-For, #1 Most Gifted Product on Amazon."

If you go to Amazon's homepage, that's what you'll see. It's the description of the company's massively popular Kindle e-book reader, which launched in 2007 and is available for $139.

I must admit, there's something cool about it. I enjoy reading, but I'd probably read more if I had one.

Millions of other people clearly love it, too. It's one of the driving forces behind Amazon's success of over the past few years - and left the company's competitors eating its dust.

And now, those competitors have finally adopted the "If you can't beat 'em, join 'em" philosophy.

Bookstore Bottom-Feeders to Join Forces?

Waffling along behind Amazon, it seems hard to believe that Barnes & Noble (NYSE: BKS) would think its shares are "significantly undervalued." But that's what the firm said when it put the "for sale" sign up in August.

But the stock jumped by 16% on December 6 amid news that William Ackman, founder and frontman of Pershing Square Capital Management, is willing to join forces with Borders Group (NYSE: BGP) to buy Barnes & Noble.

Pershing is already the second-largest Borders shareholder, owning about 15% of the stock. The New York-based hedge fund floated an offer of $16 per share for the struggling retailer. That deal would value Barnes & Noble at around $960 million and combine America's two largest bookstore chains. That's just shy of the entire e-book market, which Forrester Research values at $966 million.

Borders is interested in partnering with Pershing, with negotiations ongoing. And a deal would make some sense for both firms, with Barnes & Noble recently forecasting a greater than expected loss for 2010 and Borders having posted four straight years of losses.

I'm skeptical as to whether the two laggards can steal much market share from Amazon, though - particularly in the e-reading area, where it already boasts two-thirds of the market.

But this company could have a better chance...

Anyone for Some "gReading?"

It was probably only a matter of time before Google (Nasdaq: GOOG) got its paws on one of the hot technology trends.

Often the trendsetter, Google is following the likes of Amazon into the e-reading business with the launch of digital store, Google eBooks. The venture launched on December 6 and has three million books available in electronic form for readers to download.

But although Google is a little late to the e-reading party, the company does hold a major advantage over Amazon's Kindle and Apple's (Nasdaq: AAPL) iBookstore...

  • It can use its superpower position in the search engine industry to target customers' needs.

  • And it will hope to tap into an e-reading market that is expected to double in 2011 and appeal to the many people who aren't part of the e-reading crowd.

  • It can offer access to classic literary works.

But the project isn't without controversy. It would have launched earlier, but Google has spent the past couple of years battling authors and publishers in the U.S. courts over copyrights and fears that it could simply become a massive online library. It's attempted to ease those concerns by setting up a Books Rights Registry, which allows authors to register their work with the company and receive compensation/royalties, but the court hasn't reached a decision yet.

The upshot of all this is a four-way e-book battle, featuring Amazon, Barnes & Noble/Borders, Apple, and Google. It should be an interesting Christmas and an even more intriguing New Year, but until/unless someone definitively steps up and challenges Amazon's leading position, its dominance looks set to continue.

Best regards,

Martin Denholm

comments powered by Disqus