E-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) recently expanded its territory in physical and digital book sales by acquiring San Francisco-based book recommendations social site Goodreads, which has 16 million members. Although neither party disclosed the final price, Forbes tech blogger Jeff Bercovici estimates the deal to be worth at least $150 million, based on Goodreads’ prior series A and angel funding. In this article, I’ll discuss the reasoning and the strengths behind this acquisition, and how it can actually help Amazon become the ‘Facebook Inc (NASDAQ:FB) of Books’ over the next few years.
A strong horizontal acquisition
Goodreads’ members have written over 23 million reviews on the 530 million books on their digital shelves, making its dedicated member base a valuable commodity that can be horizontally integrated into Amazon.com, Inc. (NASDAQ:AMZN)’s current business model. Goodreads was launched in 2007, the same year Amazon’s Kindle e-readers took the market by storm, turning the physical publishing business upside down and starting a revolution in e-book publishing.
Goodreads’ social network enables its members to catalog, rate and review their book collections, as well as highlight and share favorite passages. These functions are similar to those offered on Amazon’s Kindle, which allows readers to share reviews and quotations via Facebook Inc (NASDAQ:FB) and Twitter.
Goodreads also has a recommendation tool which recommends new books to readers based on their past preferences and the behavior of similar users. This tool yields more focused results than Amazon’s own system of making suggestions based on past browsing history and purchases. Goodreads members can also see what their friends are reading, or join one of the site’s 30,000 book clubs for further discussions. Although Amazon.com, Inc. (NASDAQ:AMZN) has comprehensive discussion and review forums, it lacks a network of concentrated book clubs that Goodreads brings to the table.
Not everyone’s celebrating
However, some Goodreads members and authors have rallied against the deal, claiming that the site would lose its identity as it is monetized under the Amazon banner. These are their primary concerns:
Goodreads reviews would be cross-posted to the Amazon website, and vice-versa, making their reviews the property of Amazon.
Reviews and discussion boards would be censored in accordance to Amazon’s stricter guidelines.
Goodreads previously stopped using Amazon’s API to catalog its books in 2011, claiming that the system was “too restrictive” in directing traffic to Amazon.
Goodreads currently offers links to other retailers besides Amazon.com, Inc. (NASDAQ:AMZN). Users believe that Amazon will remove these links completely.
Founder Otis Chandler attempted to allay these fears, stating, “Amazon supports us continuing to grow our vision as an independent entity, under the Goodreads brand and with our unique culture.”
Unlike Chandler, I believe that Amazon obviously has long-term plans to completely integrate Goodreads into its ecosystem, and making sure that Goodreads exclusively links back to its parent company will definitely be a priority. However, that change is unlikely to happen immediately, since Amazon is under pressure from an antitrust lawsuit from independent book publishers, which has questioned Amazon.com, Inc. (NASDAQ:AMZN)’s use of DRM (digital rights management) in the e-book market that it dominates. Therefore, it wouldn’t be wise for Amazon to act like a monopoly – just yet.
Yet that’s exactly what Scott Turow, president of the Author’s Guild, calls Amazon. “Amazon’s acquisition of Goodreads is a textbook example of how modern Internet monopolies can be built,” he stated. “By combining Goodreads’ recommendation database with Amazon’s own vast databases of readers’ purchase histories, Amazon’s control of online bookselling approaches the insurmountable.”
Insurmountable is a fairly appropriate characterization of Amazon’s slice of the e-books market. Amazon.com, Inc. (NASDAQ:AMZN) currently controls 65% of the market; Barnes & Noble has 25%, while Apple has 10%.
The Facebook of Books
Yet in my opinion, successful authors have always needed large publishers – the same ones that are derided as monopolies – to spread their books to a worldwide audience. If Amazon decides to integrate Goodreads’ social media features more fully into its own website, then Amazon could actually become the “Facebook of Books,” a social network that could actually help even more independent authors get recognized.
In the end, the quality that gives Amazon an edge over its competitors is how it allows it customers to engage with each other. With online reviews, discussion and sharing over social networks, Amazon.com, Inc. (NASDAQ:AMZN) knows that it is developing into a social network for readers. Here are some immediate benefits for Amazon in the Goodreads deal:
Better reviews from dedicated readers, since Amazon has been struggling with review fraud recently. Reviews from social media sites are harder to manipulate, since they are tied to a single profile and thus easier to identify that typical Amazon reviews.
Succeeding where its 2008 acquisition of Shelfari, another review site, failed. Amazon had previously thought that Shelfari could compete socially against Goodreads.
More collected data to analyze and use for its sales and marketing initiatives, which could pay for itself by reducing the company’s SG&A (sales, general and marketing) expenses.
Considering that many authors already spend so much time building dedicated pages on Facebook Inc (NASDAQ:FB) for their books, a full social media site from Amazon.com, Inc. (NASDAQ:AMZN), complete with friend’s lists, news feeds and chat functions, could be a major game changer for the industry.
Goodreads is merely acting as a launchpad for Amazon to get started in its social networking initiatives. Amazon has the most powerful servers in the world and a robust cloud-based network, which certainly give it the muscle to dramatically upgrade its site. After all, why would publishers still spend time building a fan or business page on Facebook when they can build one on Amazon, the largest online bookstore in the world?
The Bottom Line
In conclusion, Amazon.com, Inc. (NASDAQ:AMZN) still wants to be all things to all people. Even as it is acquiring Goodreads, it is working with automakers to integrate its Amazon Cloud Player into new vehicles, developing original programming for the Internet and adding a wine marketplace to its site.
So what’s stopping Amazon from growing its own social network to rival Facebook Inc (NASDAQ:FB), which is also considered ‘insurmountable’ in its own right, with over a billion users? According to Alexa, Facebook is the second most visited domain in the United States, while Amazon is ranked fifth. Therefore, Amazon could indeed close in on Facebook as a leading social network – except that Amazon users would be sharing book reviews, and not photos, with each other.
The article Will Amazon Become the ‘Facebook of Books’? originally appeared on Fool.com and is written by Leo Sun.
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