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The failure of the Fire Phone has been widely cited as the reason for Amazon’s disastrous quarter, but a darker cloud has settled over the world’s biggest online retailer. The core of Amazon’s business—its original reason for being: selling books and other media—has grown wobbly. The problem: many people no longer want to buy stuff. They’d rather rent.
Amazon is not alone. This long-predicted shift in consumer priorities–from ownership to access—also seems to be taking a bite out of Apple, another business that depends on convincing people to buy things. For companies built on the practice of purchasing media, it’s time to reexamine basic assumptions.
During the last quarter, Amazon’s North American sales of media—books, music, movies, games—grew five percent compared to the same time a year ago. This may sound respectable. But that figure turns out to be the lowest year-over-year growth in North American media sales in more than five years, says Colin Gillis, an analyst at Wall Street outfit BGC Financial.
“Given the dispute with book publisher Hachette, it is hard to not view that the very public dust up had a negative impact on media sales, both from the decision to stop selling certain book titles and a possible backlash against Amazon from readers,” Gillis says.
The problem: many people no longer want to buy stuff. They’d rather rent.
But according to Amazon, a leading culprit is something that at least sounds much more innocuous: textbooks. “As you look at our North American media growth rates, one thing that we are seeing is certainly a shift from a textbook standpoint from purchase to rental,” Amazon CFO Tom Szkutak told analysts on Thursday. More customers also are renting rather than buying digital media, Szkutak said.
The irony is that in both cases, these are problems Amazon created for itself. Textbook rentals have exploded in part because Amazon makes it so easy. Instead of a would-be renter and lender having to track each other down one-on-one, the owner of a used text book can simply put it up on Amazon. (It’s a model textbook publishers hate, because they only make money on new book sales, which is one reason textbook prices are going through the roof).
Similarly, Amazon has made streaming media so easy that the practical incentive to buy diminishes. Renting or buying digital video from Amazon, for example, never has to involve a download. You never really have to “have” it. It simply streams from Amazon’s cloud to apps, browsers, and over-the-top internet TV boxes. The setup would seem to work to Amazon’s favor because you’re still paying Amazon money—but not as much, perhaps, as you’d pay to own.
A Bite Out of Apple
At the same time as the stock market started hammering Amazon on Friday, a report surfaced that Apple was having its own problems with owning. The Wall Street Journal, citing anonymous sources, reported that digital music sales on iTunes had declined 13 percent to 14 percent since the start of the year. This worries the music industry, the Journal said, because Apple is the world’s biggest seller of music.
If fewer people are buying music from Apple, fewer people are probably buying music, period. The reason is obvious, and much as with Amazon, it’s a problem Apple is largely responsible for creating. The rise of streaming music apps wouldn’t be possible without powerful, portable, connected digital devices that have access to significant bandwidth for transferring data quickly. In other words, the iPhone is very much responsible for streaming becoming a viable, popular way to consume music. As the Journal notes, Apple acknowledged this trend with its purchase of Beats Music, a deal that included both its headphone and streaming music businesses.
In a recent New York Times Magazine piece, writer Dan Brooks lamented the loss of a certain kind of cultural identity deeply tied to the ownership of music: the record collection. The culprit: streaming music services that give everyone everywhere access to nearly every song ever recorded:
The bad news is that we have lost what was once a robust system for identifying kindred spirits. Now that we all share the same record collection, music snobs have no means to recognize one another. We cannot flip through a binder of CDs and see a new friend, a potential date. By making it perfectly easy to find new music, we’ve made it a little more difficult to find new people.
The irony, Brooks notes, is that streaming has brought once obscure music out of hiding: searching for tiny acts is as easy as searching for the biggest Top 40 stars. But it’s not only hipster obscurantism that streaming has upended. The most mainstream tech companies, the ones that have made access versus ownership easier than ever, are now experiencing their own losses because they’ve helped make accessing easier than owning. The only winners here seem to be consumers.
Well, except for one thing: If no one gets paid, nothing gets made.
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