[Editor's note: As part of a major BNET redesign, Lydia is moving to the new Style Inc. blog on the site. As of Thursday, you'll be able to find her here: http://www.bnet.com/blog/publishing-style. You'll be able to find all our business-news blogs at our new home in the Commentary section here: http://www.bnet.com/news. Thanks in advance for your patience.]
The big lesson Wall Street wants to teach Amazon (AMZN) CEO Jeff Bezos is that he can't miss the mark on company earnings. Amazon earned $207 million or 45 cents a share in the second quarter. Though revenue grew 41 percent to $6.57 billion, analysts wanted to see earnings of 53 cents a share. The consequence? Shares fell nearly 13 percent following the report.
Yet Bezos appears unfazed. Here's why:
Still Growing â€" There are worse problems to have during a recession than having cash available to invest in expansion. Indeed, Amazon continues to evolve from dedicated book e-tailer to virtual general store. With additional sales of electronics and general merchandise, CFO Tom Szkutak said the company was growing so fast it needed to open 13 new fulfillment centers this year and added around 2,200 employees to the payroll.
Staying Competitive â€" Amazon spent a pile of dough to keep its position at the head of the e-book pack (those eye-catching Kindle television ads weren't cheap). Hence, marketing costs rose 64 percent to $211 million, also a shrewd investment. After all, Proctor & Gamble (PG) pushed Ivory soap during the Great Depression, "Intel Inside" debuted during the recession of '90-91, and Walmart's (WMT) got an edge by spending thousands on its "Every Day Low Prices" campaign during 2000-01.
Shining the Spotlight on E-Books â€" Bezos knows the Kindle can't play in the same league as Apple's (AAPL) iPad. Even with a new, lower price, Kindle is what it is -- a dedicated e-reader -- with lots of competitors. But perhaps he was humming the tune, "Accentuate the positive," when Amazon announced that it had not only tripled Kindle sales but that e-books were finally selling more than new hardcovers.
Changing the Pricing Game â€" Perhaps the fanciest feather in Bezos cap right now is the fact that he's managing to shift publishing's pricing paradigm. And that's a hard won battle (think the feud between Macmillan and the other legacy publishers over e-book sticker prices).
He knows the Kindle is just a vehicle, but by pushing the Kindle editions, he's capturing a major portion of the book-buying pie no matter what their device of choice.
And for the time being, he's got a slight edge on i-Bookstore's pricing. The U.S. Kindle Store has more than 630,000 books, over 510,000 of which are $9.99 or less and over 1.8 million are free, out-of-copyright, pre-1923 books. At $9.99, the Kindle edition download is priced well below that of a new hardcover â€" and the two are often available simultaneously.
Publishing blogger Mike Cane argues, "Amazon has defined a new pricing category right between mass-market paperback and trade paper," and cites stats from the Association of American Publishers which indicate that adult mass market is a dying category as sales continue to slide decreasing 14.6 percent for May and down 7.3 percent year-to-date.
Adding Readers â€" Cane believes Amazon's biggest win thus far is the meaning behind the tripling of Kindle reader sales.
That's a statement showing an increase in the base of readers. Can print publishing claim that? Not with Borders laying off people, chain and independent bookstores being closed, and public libraries under siege from coast to coast Publishing could be experiencing dollar growth entirely without readership growth.
That may be true, or it may simply be that bookworms dedicated to the smell of new volumes and addicted to turning paper pages have just jumped to the other side. Either way, Bezos can celebrate his achievements, as long as he continues to keep one eye on the competition.