Amazon: ever-growing behemoth, or topped out?

An Amazon warehouse. Photo by hnnbz on Flickr

It’s the London Book Fair this week, and I was kindly invited to speak at its Digital Minds session on Monday. These are the slides that I created for the talk. (Plus the CC-licensed photo, as above.)

Obviously, for book publishers the terror over the past few years is that Amazon is going to eat up everything, laying waste to the old book-buying system and forcing down the prices they can ask while at the same time everyone dumps paper books in favour of Kindles.

For publishers, that looks like the worst kind of lock-in.

But I prefer a data-driven approach: look at the numbers, and the numbers in a broader context. Amazon provides pretty clear financial results (with useful breakdowns by geography and segment), and there are also useful datasets from book publishers about the size of the UK market. (I focussed on the UK market because that’s what was available, but if anyone wants to pay me to do a bigger study relating to other countries, get in touch :-))

Here’s the presentation:

A few words to add extra context (since I did actually talk too – this wasn’t just a mime show). The numbers relate to the slide number.

5) and 6) yeah, Amazon does sell beer, but my more general point is that these declines in numbers (of petrol filling stations and pubs open in the UK) are due to structural changes in society, not something Amazon has done. If you ascribe changes to the wrong cause, you’ll come up with the wrong solution to it.

7) Clearly, the decline in independent bookshops (overlaid onto the right-hand chart, showing the growth in book sales and ebook sales) predates ebooks – though not Amazon itself. This doesn’t look at concentration of the industry; I didn’t look at the simple number of books published. I think that has gone up, even excluding ebooks.

9) figures taken from Amazon’s results, and using a four-quarter moving average. The international media sales (red line) actually went negative in the most recent quarter, while US media sales (blue line) went to just 1%. “Media” covers everything from books to DVDs.

10) data from the Pew Research Center in the US, which does very robust studies. They haven’t found any growth in ereader ownership since January 2014. There’s a natural ceiling on ereader desire-to-buy.

11) Ereaders are popular with people who read a lot of books. The difference between the median and mean numbers here tell us this is a skewed population – those who read a lot really read a lot. They’re likely to have an ereader. But not everyone will get an ereader. The eager buyers have bought one.

13) See? New sales of Kindles have pretty much halted. Other more recent stories confirm this.

14) 30m Kindles sold in total is a lot – but compare that to total population in the US+Europe of about 500m. It’s not taking over the world.

15) 16) Amazon turns out not to be so great at making hardware that people want to buy.

17) Even in tablets, the rest of the market is growing, but the Kindle Fire HD isn’t doing much. Total about 30m sold (my calculation), also throughout US and Europe – but doubt there’s a lot of book reading going on with them; they’re for other media.

20) You may be able to think of another ebook that a “standard” publisher was able to turn into a bestselling book that was then made into a big film. (The Martian is being made into a film with Matt Damon. Looking forward to that.)

22) Amazon’s FCF (free cash flow) is a hot topic, at least in some quarters. The company shows very little profit, but its FCF is great. Isn’t it?

23) Well, the use of capital leases means that – rather as with the Labour government and PFI – the spending is all being pushed off the balance sheet and into a sort of future reckoning. Great as long as nobody worries about it; bad if Wall Street does worry about it.

24) you can just skip to this one if you want the conclusions.

Thanks for reading. I’m happy to come and give speeches at all sorts of events on topics like this.

7 thoughts on “Amazon: ever-growing behemoth, or topped out?

  1. Fascinating. You’re right on one part, nearly every innovation Amazon has done recently was not connected to books, and I’ve never understood Wall Street’s grasp of Amazon’s balance sheet.

  2. You have made a pretty serious error in your analysis. You use evidence that sales of dedicated ereaders has slowed to indicate that the growth of ebook unit sales is slowing. This is incorrect (at least in the U.S. where I’ve analyzed the market). In the most important market segments (i.e. genres amenable to ebooks), the market share of ebooks continues to grow and is rapidly outpacing the growth in the sales of ereaders. Just go ask any major publisher whether the ratio of ebooks to pbooks on their bestselling titles went up in 2014. Better yet, compare that ratio for those writers whose fame preceded ebooks (Stephen King, James Patterson, etc.) and those who reached the bestseller list after the advent of ebooks (e.g. Veronica Roth, Gillian Flynn).

    Specialized ebook reading devices may not grow beyond the avid reader segment, but ebooks are read by a much broader audience. “Books”, as a category, blinds publishers, bookstores, and industry analysts to what’s really happening. Narrative (fiction and nonfiction) purchased for personal consumption continues to make a rapid transition to ebooks. Non-narrative works are being challenged more by “non-publishing” forces (web sites, apps, video learning, etc.). The only part of the industry that is reliably sticking with print is the “books as gifts” market (which is huge, btw). Take a look at the print bestseller lists over the last few years and that’s pretty easy to see.

    • My analysis looked at the UK, not the US; I couldn’t find any data for ebook sales in the US, and my talk was for a UK audience. I showed data for ebook sales in the UK compared to physical books. I also showed the data from Amazon itself for media sales, where growth has almost stopped both in the US and internationally.

      I’d be interested to see your data on the US.

      • The data in your slides you used to discuss ereader adoption was from the U.S. (Pew research), which is why I commented on it. The accepted industry statistics here also show that ebook dollar sales have leveled off. Those stats are just wrong. has done some interesting work gathering sales data. If you look at the raw data, you can see the shift in spending away from Big 5 frontlist print to self-pub and Big 5 backlist ebooks. You can correlate that against the AAP monthly StatShot and the Publishers Weekly end of the year data on bestsellers. This shift represents a serious and on-going threat to the traditional publishing business model.

        I don’t think the rest of the Amazon stats you cite are really relevant to the publishing audience. Amazon has had bigger flops than the Fire Phone in the past. Those failures get offset by huge successes like AWS (their cloud computing offerings). The issue I have is that every year the publishing industry conferences have a speaker who tells them that the Amazon/ebook threat has passed and everything is back to normal. The script is the same every year. An absurdly overinflated description of the threat from Amazon is ‘debunked’, Amazon’s imperfections (of which there are many) are emphasized, and the false choice is resolved in favor of Amazon having been tamed.

      • Thanks – I’ll take a look at My first point would be to respond to your last: I was asked to give an objective view of Amazon, and I came at it without any expectation of what result I’d find; just what the data said. (Obviously I knew about Kindle sales and Fire Phone sales.) I didn’t know if ebook sales were rocketing or print sales were plummeting. The UK data seems to show that the traditional publishing business isn’t dying. Self-publishing doesn’t seem to affect that; it looks additive rather than subtractive. That was partly my point about “The Martian” (and of course 50 Shades, which was implied): those ebooks led to huge boosts to traditional publishing, so the two groups aren’t at war. Traditional publishing has greater reach than self-publishing and can produce giant hits.

        AWS isn’t relevant to the publishing industry. We don’t know if it’s profitable. It doesn’t matter if it is. The key point is what’s happening to Amazon’s media sales. If those have stopped growing and your point about self-publishing being really big is correct, then given that those self-publishing revenues must be part of media sales, that suggests that traditional ebook sales are even less important to Amazon revenues – which in turn suggests that print isn’t under the same threat.

        The point of my first two graphs was that there is structural change going on generally in society. Self-publishing is certainly part of that, and its monetisation surely great for those doing it. But it can exist in parallel with the traditional business.

  3. Bit late to this one (sat in my Pocket list for a while).

    Turning to the AWS side touched on above, this may well turn out to be the saviour of Amazon, if it can maintain its early lead (big if).

    It is seen as a massive threat to companies who supply data centre hardware and services. Why pay to have your own data centre when you can use what you need when you need it?

    At the moment most of this movement has been in the startup arena where the big boys aren’t too worried, but there is a move to hybrid cloud, using services like AWS as an overflow for peak demand periods.

    The main area of pain I can see for Amazon is being able to have a reliable service as the size of their estate grows.

    It is all a bit of a grey area profit wise as you say, I’d be interested to see if Amazon start to pull out more details in their accounts on this in the future.

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