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Amazon's Kindle deal with Waterstones deflates Nook's global balloon

via www.waterstones.com

Amazon's deal to sell Kindle e-readers at UK bookseller Waterstones isn't just a curio particular to the e-book market in England or a point in the long, declining curve of traditional bricks-and-mortar bookstores. It's also a case study of contrasts between short-term and strategic thinking. Let's start with the short play and move on from there.

For Waterstones, partnering with Amazon immediately solves a short-term problem with long-term implications. Its customers are increasingly moving towards digital readers. Amazon's Kindle gives Waterstones a chance to move with them, using what's far and away the most popular e-reading platform in the UK. As James Daunt, Managing Director of Waterstones, told The Bookseller, "ultimately, when we thought about it, we had to give the customers what they wanted. And the best device on the market is the Kindle."

"We had to give the customers what they wanted"

Despite years of work and an early e-reader partnership with Sony, Waterstones has made little progress in developing and popularizing its own e-bookstore. Global e-book retailer Kobo has already allied itself with Waterstones rival WH Smith. And Barnes & Noble's Nook has little name recognition in the UK — Waterstones would effectively have to build the Nook e-reader brand up from scratch. Two years ago, Waterstones could have chosen a different path, either striking out on its own or choosing a different partner. Right now and for the immediate future, Amazon's Kindle is the best viable candidate.

Waterstones says it will continue to work with publishers to build its own e-bookstore, but let's be honest: this will be legacy support for early adopters. It won't be a serious competitor with Amazon. And while its agreement with Amazon is nonexclusive, Waterstones has told its staff that it doesn't anticipate adding any other new partnerships. The big bet is on the Kindle.

Amazon has its own short-term reasons to want to partner up with Waterstones. For most of the past six months, out of its newest models, only the entry-level Kindle has been available in the UK. The Kindle Touch, whether with Wi-Fi only or 3G wireless, has only been available for a month. The Kindle Fire isn't available yet in the UK at all. Waterstones has committed its staff to help sell and train its customers on the new Kindles, and to sell the Kindle Fire when it becomes available. These are still relatively new products, and the more showrooms Amazon has for them, the better.

The more showrooms Amazon has for its new Kindles, the better

It also doesn't hurt Amazon at all to ally itself with one of the best-respected names in books in the UK. Just months ago, Daunt himself had described Amazon as "a ruthless money-making devil." It's also recently been criticized for avoiding UK taxes on billions in revenue earned there. Waterstones now becomes Amazon's friendly British face. That's well worth a small cut of e-books and e-readers sold inside Waterstones' shops.

Waterstones needs the Kindle as a tool to keep its retail chain alive

In the long term, Waterstones needs Amazon not only to help sell e-books, but to help transform its chain of physical stores to make their square footage more profitable. Waterstones owner Alexander Mamut is reportedly spending "tens of millions of pounds" to renovate at least a hundred stores before the end of the year. In short, Waterstones wants to become more like Barnes & Noble in the US, overhauling its stores to add Wi-Fi, coffee shops, and other items (like e-readers and accessories) that earn more money than books. This will probably also include closing redundant stores: "In Norwich," Daunt told The Guardian, "you could see a Waterstones branch from the front door of another Waterstones."

This bookseller needs the Kindle as a tool to keep its retail chain alive. Whether that's a sound bet or, as publishing consultant and commentator Martyn Daniels says, amounts to letting "the fox inside the chicken hut" by handing over its customers to Amazon is debatable. That trend may have been inevitable. By selling e-readers and offering promotions like bundling Waterstones print books with Kindle e-books at a discount, at least Waterstone is earning a percentage.

Amazon's goal with the Kindle is to suck all the oxygen out of the room

For Amazon, the long-term strategy is much clearer. This is about eliminating real and potential e-book competitors by sucking out all the oxygen in the room. Amazon could continue to sell the Kindle at generalist UK retailers like Tesco or John Lewis. But if we assume that the long-rumored partnership with Waterstones and Barnes & Noble was an active possibility (and Daunt's comments suggest that it was), Amazon partnering with Waterstones denies a potential rival a place at the table. (A representative from Barnes & Noble had no comment on the Amazon-Waterstones agreement.)

It's defense as much as offense. Before Microsoft had agreed to feature and invest in Nook e-books, Barnes & Noble's threat to Amazon in the UK was negligble. But a separate, increasingly global Nook business with Microsoft money and a strong partnership with Waterstones? That would be a different story — and one that probably spurred Amazon to reach out to Waterstones with what probably seemed to Daunt like an offer he couldn't refuse.

Now, that scenario is squashed, the Nook needs a different route into the UK, and the Kindle's dominance as an e-reader and platform in that market looks assured.

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