Why Amazon Is Going After Publisher Profit Margin

Posted: Jun 16 2014, 1:55pm CDT | by , in News

Why Amazon Is Going After Publisher Profit Margin
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When compared with other kinds of companies, book publishers do just okay in terms of profit margin. According to a recent analysis by industry publication Publishers Lunch, the largest worldwide book publishers have roughly a 10% profit margin.

Compared to other industries, that’s just about middle of the pack. A 2012 report from Business Insider analyzed profit margins across industries in the S&P 500 equities index. A general “media” category was pegged at about 10% net profit. Software, pharmaceuticals, semiconductors, oil and gas led the way with margins between 15% and 20%. The lowest-margin industries were retail, with margins closer to 3% or 4%.

That takes us to Amazon, which had about $74 billion in sales and a profit margin last year of 0.37%. Not only is that much less than book publishers, for which it generates a large percentage of business, but also less than Amazon’s peer companies — or those it would consider peers: Apple, Facebook and Google.

Last year, Apple had a 22% margin on about $171 billion in revenue. Facebook had a 19% margin on nearly $8 billion in revenue. And Google had a 21% margin on about $62 billion in revenue. Along with Amazon, each of these companies have been stock market darlings. (Wal-Mart, which is perhaps a more direct competitor to Amazon, has a profit margin more in line with Amazon’s and the retail industry in general: 3.3% on $476 billion last year.)

What confounded some analysts was investors’ faith in Amazon despite it relatively small profits — both compared with its partners and its competitors. This year, investors may be signalling to Amazon that it’s time to increase profits — and one way for a retailer to do that is to get better terms from its suppliers.

While Hachette’s low double-digit margins and roughly $300 million in income won’t solve Amazon’s profit margin problems, it could help. And if Amazon’s thousands of other suppliers started to cede some margin to the largest e-commerce company in the world, it could add up.

As Amazon founder and CEO Jeff Bezos has famously said, “your margin is my opportunity.” There are a lot of companies out there that Amazon partners or competes with that have “opportunity” to spare.

More on publisher profit margins.

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