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Amazon – success at last or just another damp squib?

28 January 2002

Amazon this week announced that it has reached its goal of making a profit in the fourth quarter of 2001, with an operating profit of $14.5m on sales of $1.1bn for the quarter. This was achieved with the help of a $16m gain related to the fall in value of the Euro.

The news has sparked off a debate about what this profit figure means. John Cassidy, whose book Dot.Con: The Greatest Story Ever Sold, is published this month by Penguin Press in the UK, says that, by trading only a small proportion of its shares, Amazon kept the valuation of the company high. Writing in the New York Times, Cassidy pointed out that 'It was the media that transformed from an interesting small business story into a multibillion dollar corporate thriller' - with all the unending media speculation that has surrounded it ever since. The Independent provided a negative view on the profit news, pointing out that it is 'going to take an awfully long time to earn back the $3bn in capital the company has gobbled up'.

Some commentators greeted this as good news for the whole Internet sector and in the UK the Daily Telegraph hailed it as a sign of a healthy book market no longer hampered by the Net Book Agreement. It argues that since the end of the NBA 'far more books are published, bought, and perhaps even read than in the old days, while independent shops have burgeoned.' This is not a picture which would be recognised by everyone in the British book trade. Independent bookshops in particular feel themselves to be very much under pressure from the burgeoning power of the chains.

Although now discounting much less ferociously than in the past, Amazon has played a major part in fostering a competitive book retailing market which relies heavily on discounting bestsellers. Some commentators have pointed out that this has put margins under pressure throughout the trade book business. High discount sales usually also mean that the author receives a lower royalty, so authors are also affected by the way in which Amazon has redrawn the bookselling map.