Amazon Profits Soar Thanks to Cloud Business
Last week Amazon announced its first quarter sales for 2016. Sales increased 28% to $29.1 billion. CEO Jeff Bezos credited this jump to the popularity of Amazon devices, including Amazon Fire, Fire TV Stick, and Amazon Echo. Bezos said in a press release that, “Amazon devices are the top selling products on Amazon. . . We’re building premium products at non-premium prices, and we’re thrilled so many customers are responding to our approach.”
Becoming a Technology Provider
Although Bezos emphasized Amazon’s retail success, it’s cloud services business drove a significant portion of Q1 revenue. According to the BBC, Amazon’s higher than expected profits were due to growth in its cloud unit, Amazon Web Services (AWS). The unit rents data storage and software services to companies like Netflix and GE, and it is Amazon’s fastest growing unit. Cloud services revenue rose 64% year-over-year to $2.5 billion, the BBC reports.
Forbes contributor Robert Hof wrote that Amazon’s cloud business will continue to lead Amazon’s revenue growth, and that the company is evolving from a retailer into a technology provider. “AWS is Amazon’s new profit engine. The unit’s $1.9 billion in operating profit in 2015 wasn’t far off the $2.8 billion operating profit of the entire $99 billion retail business, even though AWS constitutes only 7% of Amazon’s overall revenues.”
Time to Diversify
Amazon’s growth reinforces the fact that books are not the retailer’s most important business, which has been true for many years. Publishers can expect even less bargaining power when renegotiating contracts, as the retail giant becomes less reliant on book sales and more invested in technology solutions.
In order to remain competitive -- and less reliant on Amazon -- book publishers must diversify their distribution channels. That means experimenting with D2C ecommerce platforms, third-party subscription services, or on-demand distribution, such as with Espresso Book Machines.
In a January post Joe Wikert called on publishers to develop new forms of distribution in order to combat Amazon’s influence. “It’s time for publishers to diversify their channel strategy and focus more on the one channel they have 100% control over: their D2C channel.”
Here a just a few examples of how book publishers have launched new platforms and products in order to sell directly to readers.