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Why the Waterstones/Amazon Deal is “Like Vichy France”

Consumers think ‘I like Waterstones, I like Kindle – why can’t I have both together?’

By Roger Tagholm

Last month, Waterstones’ MD James Daunt shocked the world by penning a deal with Amazon to partner with them to supply e-books to the booksellers customers. But he has not done the surprise Kindle deal through gritted teeth, as some have suggested – he’s done it “through having all his teeth taken out.” That’s the view of one senior British publisher as the UK industry continues to digest the scant detail on the best kept secret since Bertelsmann bought Random House UK in 1998.

Deranged or brilliant?!

The publisher, inevitably speaking off the record as is the norm when it comes to Amazon, continued: “James must be talking to a slightly different bit of Amazon than the one I normally talk to. He knows that the Amazon strategy is an end game for everyone. They are the Death Star, as we know. But James knows that too. This isn’t your Soviet Pact of 1939 [the non-aggression agreement between Germany and the Soviet Union that ended when Germany invaded Russia]; he’s not prepared to go to war with them, but he can use them as long as he can. This deal is one of the most practical I’ve come across.”

The chain announced last month that it would sell Kindles from the autumn and allow customers to download Kindle titles within its stores, taking a cut on each sale made. It also announced widespread refurbishments and wi-fi coffee bars. While Waterstone content and exclusives will be pushed to the front on Kindles used in store, once customers leave the shop, when they switch on their Kindle it will be the Amazon homepage that they see. It is unclear how much customer information will be shared between the two companies on devices bought in Waterstones, whether customers will receive e-mails from both companies or only one.

Many publishers believe customers will simply gravitate to Amazon when they leave the shop, but Daunt points out that since almost everyone already knows about Amazon anyway, “for those who want to use a Kindle, there is now the option to do so through Waterstones.”

The publisher quoted above, who loves Second World War analogies, added: “Consumers think ‘I like Waterstones, I like Kindle – why can’t I have both together?’ Waterstones have an opportunity that they didn’t necessarily have a few weeks ago. It’s Vichy France. The French [ie Waterstones] are allowed to continue living as French people, but they just happen to have a major empire that’s parked up next to them.

“You could argue that James has done something utterly brilliant. He’ll have the best e-bookselling platform in the world and it will be called Waterstones. Getting personality into the Amazon site is impossible because their algorithms don’t allow for it – only bookshops can do that. When Waterstones Online launched in 1996, it used the catchphrase ‘Booksellers make the best search engines’ which I thought was brilliant. The aspiration now is to harness the hardware, which Amazon will bring, with the personality of Waterstones – if they can do that, they’ll be alright.”

Some strange pricing situations may now occur in Waterstones stores in the autumn. Since the company will continue selling other formats, it is conceivable that the same title, if non-agency, will be at two different prices in what appears to be the same “shop.” Waterstones.co.uk will have the epub version at one price but will also allow customers to download the Kindle version at what will surely be a lower price. Or will Waterstones.co.uk decide to match it, since the disparity might seem silly given that it is beneath the same roof?

“The agreement with Amazon is not exclusive,” Daunt says. “We continue to sell non Kindle e-books and these may vary in price to Amazon’s. The Kindle e-book price, of course, is the same. We have lived for a long time with a price variance to Amazon, but also a price differential between our own ecommerce site and our shops. Of course, there is also a difference in the price of individual titles between shops. No different then, to the John Lewis Partnership, and very few customers find this common retail practice to be odd.”

There will also be an Alice in Wonderland situation regarding VAT. A Kindle e-book in Waterstones will be subject to 3% VAT, because it is levied by the seller which is Amazon based in Luxembourg; an e-pub version of the same title bought through waterstone.co.uk will be subject to 20% VAT because the seller is based in the UK. “I continue to believe that this is wrong,” Daunt says. “Both should be the same: it is for our masters in Brussels and Westminster to decide which level is more appropriate.”

Commenting on the deal, another senior publisher said: “If I were Waterstones, I’d rather tie up with a ruthless devil than an also-ran,” a reference to the abortive deal with Nook. “This is definitely not a solution for Waterstones, but it buys him a little time and, I suppose, also a potential rescuer of the chain should Mamut [Alexander Mamut, the billionaire Russian oligarch who bought the company for £53m last year] get bored with losing money.”

But if Amazon were to buy Waterstones, that would surely fall foul of the Office of Fair Trading, putting Amazon in a monopoly position through acquisition. To which the publisher responded: “They allowed Amazon to buy the Book Depository.”

Two of the wilder theories circulating are that Mamut allowed the deal in order to facilitate – and benefit from – Amazon’s eventual move into Russia; or that Daunt is deliberately running Waterstones down to leave Daunts, the six-strong chain he still owns, as the last credible high street bookseller in the UK.  Some staff are known to refer to Daunt privately as ‘Jimmy six shops’.

Another publisher wondered how it would be possible “to keep two businesses separate in the competitive arena,” but added more positively: “The most effective way of selling ebooks is through selling physical books. In other words, if you get your physical right, then the e-books follow. This is a brave attempt, but I’m worried that afterwards, people will simply download from Amazon. It doesn’t feel like it can be good in the end. Having said that, it is good to have a legitimate outlet for physical devices, such as Kobo has with WHSmith.”

UK independents feel it will make life more difficult for them, and that it accentuates the need for them to have a credible digital offer. “I think it’s quite a short term move on Waterstones part, and they’ll lose customers to Amazon in the end,” said Sheila o’Reilly at Dulwich Books in south London. “From the independents point of view, it means the need to develop our own reader is now critical. We do need an e-reader that can be used in the shop – that way we would have the ability to sell e-books and keep customers.”

At The Bookshop in Kibworth, Leicestershire, Debbie James said: “As a business owner, I think it’s crazy to get into bed with a competitor whose scruples you’ve been known to doubt so vigorously. I do understand that bricks and mortar shops need to provide a service when customers want e-books, but to align oneself with such a competitor is absurd. If his motivation is customer service, he would stock all e-readers.”

In fairness to Daunt, he has said he wouldn’t rule out stocking other e-readers – it’s just that, at the moment, he simply recognises the dominance of Kindle.

Eleanor Davies: "It will make things difficult for indies."

For Eleanor Davies at Linghams Bookshop in Heswall, near Liverpool, Daunt’s announcement of wi-fi coffee bars is worrying.  “That’s hard for us to compete with. It will make things difficult for indies. We’re members of Hive [the e-book platform hosted by wholesaler Gardners] but there is such a small mark-up – I think the jury is still out on whether it will work. If someone could come up with a viable alternative, we’d all leap at it.”

Like many indies, Davies suffers the frequent indignity of customers using her shop as a free showroom for Amazon. But it went one stage further in her store recently. “A lady came in who said she’d been given a Kindle for Christmas but wasn’t quite sure how to use it.  I said to her, ‘Well, the first thing you do is put it in a bucket of water…’”

SURVEY: Is Waterstones’ Deal with Amazon Deranged or Brilliant?

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One Comment

  1. Posted June 19, 2012 at 8:59 am | Permalink

    Isn’t that deal rather like the American occupation of Iraq? An empire invading another country and pretending it’s for their own good?

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