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Amazon Hears the Future, Buys Audible.com
Amazon.com sees where the future of media is heading, and is slowly amassing the properties and contracts it needs to make sure its retail empire is at the forefront. Today’s $300 million agreement to buy digital audio book reseller Audible.com is just another milestone in a string of deals that Amazon believes will take it from books to bytes.
In May of 2000, Amazon named Audible its exclusive audio download partner and began offering Audible downloads, which are also available on iTunes and through the Audible web site. Audible had 446,000 users as of the end of September, which means Amazon is paying about $673 per customer to snag people who are comfortable using MP3 players and other devices to download DRM-protected music. Getting a lock on those users and Audible’s content could be a boon to Amazon as it moves forward with its Unbox and other digital strategies. I have called Audible to find out what happens to its iTunes relationship, which is where it sells many of its downloads. Check back for updates. Update: Amazon PR got back to me to say that Audible will continue to sell content via Apple and hopes to grow the relationship.
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Why Amazon’s Audible Move Is Laudable
Amazon is buying Audible for $300 million in cash. It’s a smart move by the Seattle-based e-tailer that is spending nearly 20 percent of its fourth-quarter end net cash. Why do I like this deal? So far, Amazon has made a living out of distributing physical goods, and leveraging its physical and technology infrastructure to compete with brick-and-mortar rivals.
That business shows strong revenue growth, but gross margins are under extreme duress, and are likely to remain so, according to Amazon’s (AMZN) own 2008 forecast. No surprise Wall Street is unimpressed with their fourth-quarter results, despite record revenues.
But again, Wall Street has no choice but to focus on near-term and quarterly numbers. The Audible purchase seems to be part of a long-term strategy. Amazon now wants to become a major distributor of digital goods. Amazon has made its intentions very clear with music, movies and books (Kindle.)
Audible (ADBL) is another way to bolster that business, since it accounts for nearly 75 percent of the audio download market on the Internet. If you look at their DRM-free music offering, it shows Amazon’s intent to get the tunes to as many uses (around the world) as possible.
I won’t be surprised if Amazon re-tweaks its movie download business as well, in an effort to work with multiple devices on multiple platforms. Audible, on the other hand, already works with different MP3 players and devices. With its technology infrastructure already in place, Amazon can squeeze some of the operational costs associated with the delivery and distribution of digital content (goods.)
Amazon’s web services portfolio also gives us clues as to where Jeff Bezos & the gang are headed. Just as it currently offers “associates” to sell books and CDs from their web sites, Amazon can offer application developers to embed this new digital content — which is an ever-expanding term — into their apps, and use Amazon payment services to sell them.
I am going try and get together with Amazon executives (when I return to active duty) to get a better understanding of where they are going. Meanwhile, you can count on one thing — this Audible purchase is only a piece of their digital jigsaw.
