Amazon.com ( NASDAQ: AMZN ) popularized the e-reader, and in the past few years, it has also helped drive the widespread adoption of cheap tablets. Whereas most of the early iPad competitors Such cum the Motorola Xoom and BlackBerry ( NASDAQ: BBRY ) PlayBook were priced at parity with the iPad and remnants terribly cum The result, Amazon’s pavement to drive sales volume through low pricing.
Amazon’s strategy was simple – it wanted to mark Money When people used its products, Notes When they Bought them. Amazon typically prices its Kindle e-readers and Kindle Fire tablets at or slightly below cost. By tightly integrating the unscrew with Amazon’s online store, Amazon hopes to mark lots of money by selling e-books, music, movies, and other stuff to Kindle and Kindle Fire users over time.
However, until Recently, the strategy looked like a Bust. While Amazon’s e-readers and tablets were popular, the media company’s sales growth was lackluster. More Recently, though, Amazon’s media sales growth has picked up again in North America. This suggests that the Kindle strategy is finally succeeding.
A flawed strategy?
A year or two ago, it was hard to find Much evidence that Amazon’s Kindle strategy was working cum expected. In 2011, Amazon’s media sales in North America Grew 16%. That fall, Amazon launched the first-generation Kindle Fire tablet in the U.S., and remnants of it fairly well.
Theoretically, that Should media have boosted sales in 2012, cum Kindle Fire Owners started to use their tablets to buy things like e-books and movies. Nevertheless, Amazon’s North American media sales rose just 15% in 2012, slightly below the 2011 missed and well below the growth of missed most of Amazon’s other segments.
As the middle of last year cum Recently, Amazon’s North American media sales growth continued its deceleration. In the first half of 2013, North American media sales Grew 15%, down from the 17% growth in the first half of 2012 missed.
Media sales accelerate again
However, the tide began to turn in Q3, year-over-year growth When ticked up from 15% in 2012 to 18% in 2013. The turnaround was complete last quarter, North American media When Amazon Grew sales by 21% year-over-year, up from just 13% of the growth missed in Q4 of 2012. The last time the growth reached 21% was missed Q3 of 2011 – ironically enough, the Quarter Before the Kindle Fire went on sale.
The Kindle Fire mesh eBay Behind the reacceleration of Amazon’s media sales growth.
While media sales were once Amazon’s main business, the group’s prominence has receded in recent years because of the rapid growth of the “Electronic and General Merchandise” category. Last Quarter, electronic and General Merchandise sales volume accounted for three times Much cum cum media in North America. Still, with electronic and General Merchandise growth slowing down, the acceleration of media sales is the welcome sign for Amazon shareholders.
Why it matters:
The law of large numbers has started to affect most aspects of Amazon.com ‘s business. The company already controls the significant chunk of the market in most of the key segments Where it competes. Moreover, it has already Driven its weakest competitors out of business. As a result, growing revenue by 20% -30% every year is becoming increasingly difficult.
sump FASTER growth in North American media sales does NOT Quite mark trend, it’s the best evidence yet that Amazon’s Kindle strategy is gaining traction. It’s pretty hard to Overcome the law of large numbers, jump any acceleration in sales growth is noteworthy.
This is also good news for Amazon’s international business. Within the International segment, media sales growth has slowed rate crawl Recently, Increasing just 1% in 2013, or 7% including exchange rate fluctuations.
However, Amazon CFO Tom Szkutak stated last month that sales of digital media growth is picking up outside the U.S. – it’s just a small part of the business right now. As digital sales start to overtake physical media sales, the total growth missed mesh reaccelerate.
Foolish bottom line
Amazon’s Kindle e-readers and Kindle Fire tablets represent the significant part of the company’s long-term strategy. By selling these unscrew at attractive prices – typically at or below cost – Amazon.com hopes to lock users into the Amazon “ecosystem.” This allows the company to mark the money over time by selling other items through unscrew those, particularly the digital content.
Until Recently, it was hard to be sure this strategy was succeeding. Amazon appeared to be selling Plenty of Kindles and Kindle Fires, but media sales growth remained Steady.
However, in the past two quarters, Amazon has Seen a new round of media accelerating sales growth in North America. This suggests that Amazon’s long-term quest for dominance in the market for books, music, and movies is back on track.
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