2012 Taught Amazon It Can't Have It All Its Way

Amazon tackled 2012 with its usual expansion into new businesses and market domination. But it also learned it isn't unbeatable.

Amazon, like its namesake river, does just keep on going and going, and 2012 was no different than recent years for Jeff Bezos' company. As ever it's flooding the market with its cheap book products, it's bursting its business banks and overflowing into new areas--such as its TV comedy plans--and it's trying to swamp its rivals in the tablet market with tricks like free unlimited content for kids on its Kindle tablets.

But in 2012, Amazon learned it can't have everything its own way.

A recent exposé on Jeff Bezos' motivation for expanding Amazon's efforts (he realized Google's e-book scanning plans could completely dominate the market, and change publishing) also points out that Amazon and Google's rivalry is set to expand in 2013. That's because even as Amazon expands its cloud services effort, tablet tech (with rumors of an Amazon smartphone too), and commissioned web TV content--Google is not taking the challenge lying down.

Amazon rival Apple, king of the tablet game, has its own very strict business agenda, and it disliked the way Amazon controls the e-book publishing market with its profit ahead of the sustainability of the industry. So Apple formed an agreement with publishers around the world to sell books through Apple's system and refuse to sell them elsewhere at lower prices...thus denying Amazon access, and neutering its power to slash prices and sell books cheaply at will. Yet this was a problem for regulators who've now deemed that Apple was effectively operating a cartel, and have now forced the company to adjust its deal, allowing Amazon to sell books cheaply again. Amazon won that round, although the publishers made it clear that they dislike Amazon's thinking. And, anyway, Apple's tablet market lead isn't going slip anytime soon.

And yet, Amazon's expansion into the tablet market seems to be foundering. Its own Android app store has recently run into controversy because though it's a little like the Apple App Store and contains curated, approved apps only (versus the open market of Google's Play store) it turns out there are many malware apps on offer. That's not a good thing for Amazon's image. And analysts have recently downgraded their expectations of sales of the Android tablets themselves. Amazon's Kindle Fires aren't, ironically, setting the market aflame.

Which is in contrast to Amazon's own PR push, which said that on the eve of the new Fire's launch in the Autumn, the original Fire had "sold out." Keen observers with a logical frame of mind will spot the hole in this: Amazon could have "sold out" if it had made just a hundred fires, and stopped making the hardware just before they released a new edition. This is the point you remember that Bezos himself revealed Amazon sells the Fires at zero profit, hoping to make income from the long tail of content sales to buyers ... and the cracks in Amazon's model become clearer.

Amazon's core bookselling model has even been questioned of late. A story in the Daily Mail (the most visited online newspaper) notes that British officials are furious at Amazon for starting its Christmas sale on Christmas day itself. Separately the Guardian has published a piece pointing out that while Amazon does sell the top 20 books more cheaply than anyone else, for folks looking for a book that's less popular, Amazon actually prices its items higher than its competitors. The Guardian's also called Amazon out for its "no show" on sustainability matters--even as its rivals, like Apple, begin to put the human and environmental side of their business in the limelight.

The last tricky thing happening for Amazon this year is its profitability. With a trademark "nothing to see here" PR spin, the company noted its third-quarter finances saw a big leap in sales of 27% up to $13 billion dollars. But at the same time the company, which usually manages very, very thin profitability margins, actually operated at a loss of $274 million.

Amazon will definitely keep on keeping on. But that profitability question mark is not exactly the mark of an enterprise that's rocketing into 2013 on the flames of success.

[Image: Flickr user formatc1]

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