Dominating the eCom universe isn’t easy… and it ain’t cheap either. That’s a hugely oversimplified explanation for why Amazon posted it’s first quarterly net loss since 2003. Ouch.
When you drill down further into why Amazon dipped into the red, much of it has to do with the business realities of expanding market share. Amazon is investing heavily in infrastructure, like new distribution centers that haven’t begun to operate, as well as into a whole slew of new heavily subsidized Kindle devices.
LivingSocial on Life Support?
Back in 2010, Amazon made what everyone thought was a smart move, by investing $175M in the local deals company LivingSocial. In 2012, however, the daily deals market has become so freaking over saturated that LivingSocial has lost roughly 95% of its value — gulp — resulting in a $169M loss to Amazon in Q3. Yeah, that stings a little.
But hold on? Didn’t Amazon launch it’s own local deals service to compete with Groupon and LivingSocial directly? Yep, they did (see the image above).
Hmmm… that seems like some weird strategery. I’m not seeing why that’s a good move.
Buying Tablet Market Share
I don’t know for sure that Amazon is losing money on each Kindle it sells, but it’s certainly been the topic of much speculation. Like any other subsidized device, these Kindles will take some time ROI… as holiday shoppers load their Kindles full of ebooks, music, etc.
The only thing that raises a red flag in my mind is the fact that there doesn’t seem to be some huge pivot that Amazon’s trying to make, expansion is a planned expense. Is there something else that’s dragging down Amazon’s profitability?
Obviously, Amazon is losing value in its LivingSocial assets… but that alone barely makes a dent