Amazon Plans to Offer 50% Discounts On Hardcover, Paperback Bestsellers
By GEORGE ANDERS
Staff Reporter of THE WALL STREET JOURNAL
Amazon.com Inc. is about to offer 50% discounts on best-selling books --
the online retailer's deepest markdowns yet -- in a move that is almost
certain to touch off a price war in one of the Internet's most fiercely
contested markets.
Amazon officials said the cut-rate prices, to be introduced Monday, will
apply to all hardcover and paperback books appearing on the New York
Times bestseller lists. That amounts to about 70 books a week, including
such current titles as "The Greatest Generation" by Tom Brokaw and "The
Courage to be Rich" by Suze Orman. Seattle-based Amazon traditionally
has offered best-selling books at 20% to 40% below list price.
For more than a year, Amazon and its biggest
online rival, Barnesandnoble.com Inc., have
kept book discounts fairly steady at the 20%
to 30% for most titles and have matched each other's prices quite closely.
The two booksellers have focused their rivalry instead on marketing
campaigns, more detailed reviews, and various attempts to personalize
services to match various shoppers' tastes. Barnesandnoble.com, based in
New York, is 50% owned by Barnes & Noble Inc.
Meanwhile, a few "no frills" merchants such as Buy.com Inc. of Aliso
Viejo, Calif., have discounted books as much as 50% but haven't done
nearly as much to promote their Web sites or create a literary ambiance
online. As recently as last month, Amazon's chief executive officer, Jeff
Bezos, said he didn't regard such merchants as major competition to his
company.
With its price cuts, though, Amazon appears to be signaling rivals that it
wants to expand its already dominant market share in books, and is willing
to stomach further losses to do so. Amazon incurred a $61.7 million loss in
this year's first quarter but can sustain such deficits almost indefinitely. It
has more than $1.4 billion in cash on its balance sheet, as the result of a
giant bond offering in January.
By contrast, some of its rivals are less well capitalized or are trying to raise
money from investors. Barnesandnoble.com has filed plans for an initial
public offering of stock, while Buy.com has been meeting with various
investment bankers to consider an IPO.
In a phone interview, Carl Gish, general manager of Amazon's bookstore,
insisted that the price cuts "have nothing to do with our competition. It's
not a gimmick. It's not about attempting to start a price war. It's all about
passing along savings to our customers and serving them better."
Mr. Gish noted that Amazon over the past year has cut back its reliance
on book distributors and is buying more titles directly from publishers.
While terms of those contracts aren't public, it is believed that Amazon is
able to acquire books more cheaply this way. Mr. Gish acknowledged that
"it will be interesting to see what happens with other people's prices."
Typically, book publishers make titles available to major merchants at
about half of list price. Amazon wouldn't disclose its own terms. But if they
are in line with industry norms, the new pricing would suggest that Amazon
will sell bestsellers essentially at cost, before factoring in its own marketing
and overhead.
To some extent, Amazon may be able to treat best-selling books as loss
leaders that attract customers into its online store, where they can be
tempted by other merchandise that isn't priced so cheaply. Amazon in
recent months has been diversifying rapidly beyond books, offering new
services such as movies, music, online greeting cards and auctions.
Even traditional bookstores practice a similar strategy, getting about 10%
to 25% of their sales from current bestsellers, which are discounted
heavily. Amazon's bestseller share may be slightly lower, given that its
customers often buy computer books or older titles. Still, Mr. Gish said,
New York Times bestsellers are "not an insignificant part of our business." |
