Amazon launches yet another loss-leader, but what is its plan?

The Kindle Owners Lending Library will sell a lot of Kindles – but Kindles don't make money.

Amazon's Kindle Owners' Lending Library (KOLL) is expanding to the UK later this month, according to paidContent. The program allows Kindle-owning Amazon Prime members to borrow one ebook for free each month, and has been relatively popular in the US.

Although it started with a focus on traditional titles, in recent months it has become a key vehicle for promoting self-published authors through a program called KDP Select. The payment model earns authors who opt in comparatively large sums – Amazon says that "in September, authors earned $2.29 per borrow" – and asks for a 90 day period of exclusivity in exchange.

The program is yet another example of Amazon, depending upon your viewpoint, either being a devious long-term-thinker or displaying a foolhardy disregard for profit. Self-published authors who opt-in are paid from a pool of $700,000, and for a while Amazon even put books in the program without the publishers' permission, paying the full wholesale price whenever a customer took it out. Anyone who owns a Kindle and has an Amazon Prime subscription can gain access to it – but both of those are commonly perceived to be loss-leaders.

Amazon revealed yesterday that it makes no profit on Kindle Fires or the new Kindle Paperwhite, with Jeff Bezos confirming that "we sell the hardware at our cost, so it is break-even on the hardware".

Amazon Prime, meanwhile, costs $79 (£49 in the UK), and gives subscribers access, not only to the KOLL, but also to a library of free videos (including AAA, albeit older, titles like the Iron Man 2, True Grit, Sherlock and Downton Abbey) and free two-day delivery on most things the site sells. This last aspect alone is probably enough to make Prime a loss-leader; Amazon is notoriously cagey about these sort of things, but most analysts estimate that the average Prime user buys enough that the shipping costs outweigh the cost of Prime.

Independently, these two loss-leaders make sense. Prime serves to boost customer loyalty, and allows a feeling of instant gratification of the sort which mail-order companies had previously struggled to deliver. Kindles, meanwhile, lock customers in to buying all their ebooks from Amazon, basically forever.

But the KOLL is a loss-leader which serves to boost take-up of two other loss-leaders. It's turtles all the way down, at this point.

The larger battle which KOLL is fighting is against the publishers. By offering up KDP select authors for free, it serves to break the ice between the typical reader and the typical self-published author, enabling Amazon to consolidate its control over the publishing industry.

It's a battlefront which has also seen Amazon move from enabling self-publishers to becoming a traditional one itself. The company secured the exclusive North American rights to Ian Fleming's James Bond novels in April this year for its Thomas & Mercer imprint, which prints traditional paperbacks as well as an extensive Kindle library.

All of these loss-leading strategies mean that the company's finances are not particularly similar to those of more traditional corporations. Amazon's second quarter 2012 sales were $12.8bn; its second quarter profit was just $7m. Although the profit was especially low, because it included the $65m Amazon spent buying robotics firm Kiva Systems, the distinction stands.

And it's not just the revenue:profit ratio which is out-of-kilter. Amazon's price:earnings ratio (the cost of a share versus the earnings per share) stands at over 300:1; a normal value is around 10:1. (Incidentally, one of the noteworthy things about Apple is that despite having an astronomical market cap and share price, its P/E ratio 15:1. The company isn't overvalued, it's just overprofitable.)

The high P/E ratio implies that investors expect Amazon's profit to increase at some point in the future. But there's only two ways that could happen: either Amazon vastly increases its revenue, or it vastly increases its profit margin.

It sounds almost conspiratorial, but the only way the company can really do this – and its actions indicate that it knows it – is by becoming the only player in town. Amazon's success to date has been built around winning every price war going, but once it gains control of a field, then it wins that price war by default.

The problem the company has is that its competitors aren't taking its success lying down. Wal-Mart is the latest giant of Old Retail to attack Amazon on its own turf, testing same-day delivery (£) for a flat $10 fee in a few US locations.

As the New York Times writes:

If Wal-Mart expanded its same-day shipping across the country, it could essentially transform the more than 4,000 Walmarts, along with Sam’s Club and other divisions, into distribution centers. Amazon, by contrast, had fewer than 40 distribution centers in the United States at the end of last year and has plans to add about 20 worldwide this year. . .

Wal-Mart, meanwhile, has been building up its e-commerce site as it tries to do things that Amazon cannot, such as allowing customers to pay for online purchases with cash.

Amazon is in a good place to earn a lot of money. The Kindle dominates ebooks, a growing industry; the Kindle Fire is one of only two serious competitors to the iPad; and for a lot of people, "Amazon" has become to buying media what "Google" is to searching the web. But it's not the only company with a lot of advantages, and it's not guaranteed to own the future just because it was started in the 1990s.

Amazon's opaque network of loss leaders, plans for the future, and smart investments may still be leading somewhere. But it's unlikely that that place is as profitable as the company's investors hope.

A Kindle. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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France to bulldoze Calais Jungle days after child refugees arrive in the UK

The camp houses thousands. 

Refugees and migrants in Calais began queuing up for buses this morning as the French authorities plan to demolish the "Jungle" camp.

But activists fear that, unless France significantly speeds up its asylum process, the displaced people will simply move to other camps along the northern French coast.

Meanwhile, the first children of Calais brought to the UK under the Dubs Amendment arrived at the weekend.

The camp known as the Jungle, in a wasteland by the port of Calais, is actually the latest manifestation in a series of camps established since 1999, when a French reception centre became too crowded.

However, it has swelled as a result of the refugee crisis, and attempts by residents to sneak onto lorries entering the Channel Tunnel have become daily occurences. The French authorities bulldozed part of it earlier this year.

Ahead of the latest demolishment, which is expected to happen on Tuesday, Clare Moseley, founder of Care4Calais, said: “In February this year over 50 per cent of the camp was demolished and yet six months later the camp is bigger than it has ever been before. 

"This is clear evidence that demolitions do not act as a deterrent.  The refugees come because they have no choice."

Future refugees will go to other camps with even less facilities, she warned.

The camp houses thousands of residents, but because of the authorities' unwillingness to legitimise it, there is no official presence. Instead, the residents must rely on volunteer aid services and have little means to stop intruders entering. 

Although conditions in the camp can be dire, residents have created a high street with basic tent shops and restaurants catering to the needs of its displaced population. Many of those in the camp say they are there because they hope to be reunited with family in Britain, or they have given up on ever being processed by the French authorities. 

After the UK government was pressurised into passing the Dubs Amendment, which provides sanctuary to unaccompanied child refugees, some children from the camp have arrived in the UK. The first group is reportedly mostly girls from Eritrea, who will be processed at a UK immigration centre.

One of the MPs crucial to ensuring the Dubs Amendment delivered, Stella Creasy, said many more still needed help. 

Children reunited with their families under the Dublin Convention arrived in the UK last week, although their arrival was overshadowed by a debate over age checks.  

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.