Update: Amazon Enters Another Low Margin Business

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 |  About: Amazon.com, Inc. (AMZN)
by: Jeffrey Himelson

Summary

Amazon is launching an unlimited e-book subscription service.

It is evident that Amazon's strategy is to undercut competitors in low margin industries.

In my previous article, I explained Amazon's unique strategy and this announcement provides further evidence.

This morning, Amazon (NASDAQ:AMZN) officially announced the launch of its Kindle unlimited e-book subscription service. The service initially was spotted on the site yesterday, but was quickly taken down. The service will provide users with access to over 600,000 e-books and 2,000 audiobooks for $9.99 a month. This new service is an attempt by CEO Jeff Bezos to essentially become the Netflix (NASDAQ:NFLX) of e-books.

Amazon is not the first to launch an unlimited e-book service. Scribd and Oyster are two companies that offer e-book subscriptions. Oyster boasts more than 500,000 titles for $9.95 per month, while Scribd has over 400,000 titles for $8.99 a month.

The service is evidence of Amazon's strategy of entering low margin industries and attempting to undercut competitors. To gain access to the books, Amazon will pay publishers an up-front fee and then will pay each time a user reads a book. With slightly more selections than competitors, Amazon has a marginal advantage; however, this new venture will be categorized by miniscule margins. Amazon clearly has a novel overall strategy and time will tell if this diversification across low margin industries will ever allow it to justify its trading multiple. I am skeptical as Amazon has yet to establish a competitive advantage in any specific industry. To learn more about Amazon's overall strategy please refer to this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.