Avolusis Journal

Bloomberg reports that Amazon plans to open a retail showroom in Seattle focusing on the Kindle as well as other high end products.  This just the latest potentially paradigm shifting maneuvers by the company.

Late last year, Amazon introduced a price checker app that allowed consumers to compare the price of products they see in retail outlets.  With the introduction of this app, big box retailers were challenged by consumers that used their stores as showroom only to later buy through online outlets like Amazon.  

Gregg Steinhafel, CEO of Target, sent a letter to vendors asking that they create special products for distribution in storefront outlets only as a way to help them differentiate from online retailers and to help them recoup investment made to display vendors products in their showrooms.  And for good reason, Amazon’s retail growth has outpaced that of three very large retailers — Target, Best Buy, and WalMart.

With the move to evaluate the merits of brick-and-mortar stores, Amazon can continue its growth while also marketing products specifically designed for showroom retailers.  

The stores can also help further boosts sales of its popular Kindle readers just like rival Barnes & Noble.  For example, earlier this year Barnes & Noble announced it was investigating a separation of its Nook e-Reader division from its brick and mortars stores.  Analysts however noted that it may be difficult to achieve this since showrooms are used to promote sales of the Nook.

Yet, Amazon’s fourth quarter results were stung by higher costs that analysts attribute to the development and roll-out of the Kindle Fire and analysts anticipate at least two more quarters of negative impact.  The Kindle Fire is a tablet, much like Apple’s iPad, but with fewer features and a more attractive $199 price point.  Sales of Kindle Fire are not released by the company but estimates are that 6 million units were sold.

Analysts point out, however, that Amazon has been willing to invest heavily in customer acquisition.  For example, it’s Prime service that gives customers free shipping, free streaming video, and free access to the eBook library is estimated to lose the company $11 per user.  And sales of Kindle readers are estimated to lose $15 each, and that was before the introduction of the Kindle Fire, which some estimate could lose the company several hundred dollars per unit.  The company hopes that by making it convenient for customers to consume the company’s goods and services, long term growth will more than balance out upfront customer acquisition costs.  Analysts estimate Prime members increase their purchases by 150% once they join.

And CEO Jeff Bezos has been on a tear to remake the market for books much in the way Apple remade the market for music distribution.   The company has started Amazon Publishing to sign authors directly to write eBooks thereby bypassing the major publishing houses, middlemen from whom Amazon buys books.

Finally, Amazon has started to take steps to fortify the competitive position of its social network.  Earlier this year it modified its API making it more difficult for third-party social network Goodread to access data.

Squeezing the margins on its competitors through price discovery, introducing showrooms to feature high margin products, strengthening the social community to keep customers relying on the community for reviews and product advice, and removing reasons for customer not-to-buy Amazon content — like eliminating the cost of shipping and subsidizing the cost of devices (much like the cell phone carriers do) are all paradigm shifting ways in which Amazon is thinking outside the box to continue its outstanding growth.