Amazon has shown time and again it is willing to lose money in the short term when shouldering its way into a new industry. Its most recent target has been the school textbook industry, and college bookstores just couldn't believe the deals they were seeing, so they filed a complaint. Then it got ugly.
Last year Amazon got into the textbook business with a bang, offering deep discounts on new textbooks. The National Association of College Stores (NACS) saw advertisements touting 60 percent savings on new textbooks and 90 percent savings on used textbooks. Believing the ads were misleading and deceptive, the NACS filed a private complaint about Amazon to the Better Business Bureau.
Amazon countered the complaint with a full-on lawsuit saying its ads were legit. In the end, Amazon gave an NACS lawyer a peek behind the scenes where the marketing magic happens and both companies withdrew their attacks, agreeing not to mess with each other again for at least a year.
"We believe in fairness in advertising and we want people to have a healthy skepticism of advertising," NACS Spokesman Charles Schmidt told the Weekly today. Amazon confirmed in an email that the NACS no longer disputes the accuracy of its textbook advertising.
The reason Amazon's ads are true, to the consternation of college bookstores everywhere, is because it can afford to take a hit in revenue for the short term if the company can make in-roads into new markets. Amazon takes a loss on every Kindle Fire sold, about $5, so it can take on Apple for a larger chunk of the tablet market. Amazon isn't worried because it plans to make the losses back through increased use in its services and online products. That scares publishers because the tablet takeoff is re-setting their entire business model.
More significantly for the NACS, Amazon started ramping up its publishing department last fall. That has traditional publishers panicking. Then Amazon started offering Kindle Textbook rentals to broke college students, and just two weeks ago Amazon pulled all the digital titles of one publisher that refused to change the terms of their contract. Amazon didn't blink like it had on previous occasions and the publisher caved.
These aggressive moves against textbook publishers and college bookstores are only the beginning. The textbook industry is a very tempting target and both Amazon and Apple have made it their new playing field. The late Steve Jobs once referred to the $8.7 Billion textbook industry as "ripe for digital destruction."