A Thin Veneer Of Lemming

I love decompiling other people's business strategies.

This morning as I picked up my morning coffee and walked past Waterstones, I noticed a prominently positioned board outside the bookshop proclaiming  'CHECK OUT OUR KINDLES!".

This was all the invitation I needed to try understand why a bookshop would be so brazenly sewing the seeds of its own demise. My first conclusion was that it was a hopelessly short term strategy to cash in on demand for Kindles, regardless of the longer term, somewhat suicidally negative impact that the promotion of e-books would have on a traditional bookshop. But I then reckoned that Waterstones management might be daft, but not that daft.

So, it had to be something else, some sliver of logic must be behind what on the surface seemed like a crazy thing for a bookshop to do.

My best guess is this: 

• Amazon is probably able to associate a unique device id to Kindles sold by Watersones which can be used to then calculate a commission payable to Waterstones from subsequent e-book purchases on that Kindle device, or from that user. It makes sense for Amazon to promote Kindles to book buying people rather than have them buy Nooks, Kobos or iBooks for their iPads. And people who buy books go to Waterstones.

• There exists no doubt a demographic of people (probably young digital natives) who would never think of buying a paper book and would only buy e-books and so therefore will never become Waterstones customers, ergo the tiny cut Waterstones might get from associated Amazon Kindle e-book from these people sales therefore is net net incremental revenue for Waterstones.

• Ultimately everyone is moving to e-books (apart from the same kinds of people who still by vinyl records) and so rather than lose those those customers in future to Amazon, Waterstones gets to retain some revenue relationship with them by selling them a Kindle and getting a cut from future e-book purchases.

• But, ultimately, I couldn't see a long term survival strategy for Waterstones, and I doubt the commission from Kindle e-book sales will ever be enough to fund a national chain of retail stores for the minority of paper book buyers in ten or fifteen years.

• So, it's a transitional play, not suicide. In one sense they're acquiescing but in a way that guarantees some form of future revenue, depending on how well Waterstones negotiated and the resulting commission cut and the term over which they'll receive a commission from Amazon for e-book sales on each Kindle they sell.