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Chapter 554 The Somberness of the Amazon

The media is celebrating, consumers are celebrating, suppliers are celebrating, and Aiktech is celebrating even more.

But behind this revelry, there are also those who suffer.

First, Barnes & Noble and Borders, the two largest offline bookstore chains in North America, have seen a continuous decline in customer traffic and sales due to IP issues and the rise of e-books.

Barnes & Noble is a little better off, although the online Barnes & Noble Bookstore is operated by a joint venture with Bertelsmann, with Bertelsmann being the major shareholder.

Barnes & Noble, however, still benefited to some extent, as the sluggish sales at its physical bookstores were somewhat offset by online sales.

However, Borders was not so lucky. Its stock price has fallen for seven consecutive days, dropping by a full 30%, which can be said to be the biggest crisis since Borders was founded.

Even worse off are Amazon and Walmart, both of which had previously bet heavily on online book sales and video products, with MGM having just acquired the production rights.

But now it's clear that this was premeditated, a trap set by Ernst, just waiting for the two families to fall into it.

The two companies not only delved into it, but they also delved into it in a very real way, the kind that they couldn't get out of.

In Amazon's conference room, two sets of data displayed on the screen caused an uproar among the entire management team, who felt a chill run down their spines.

"Google Video gained over 1100 million users in just one week, with a very high user penetration rate of 82%." Blackburn's hand, holding the laser pointer, trembled slightly. "What's more troublesome is that Google Video launched a monthly subscription service for just $9.9 a month, allowing users to watch all the videos on the platform without limit."

Everyone's face darkened; this was the reason they felt a chill run down their spines—it directly struck at the core weakness of Amazon's imaging products business.

Because Google Video contains MGM's vast film library, which is also the video product that Amazon has been promoting recently.

Discounts, promotions, and gift packages were among the ways Amazon secured the production rights to the MGM film library, causing a rapid decrease in Amazon's costs for MGM discs.

Through its low-price strategy, Amazon sells these discs at prices that work out to less than $1.99 each.

At the time, the media touted Amazon's brilliant decision, saying that through this series of operations, the purchase price of some videos on Amazon was more affordable than the rental price of Blockbuster.

But now, compared to Google Video, there's simply no comparison in terms of price.

They offer unlimited viewing for a month, which is much more cost-effective for consumers than buying individual discs.

"I've heard that Google Video is in talks with other Hollywood film and television companies, looking to purchase online film and television rights."

The atmosphere in the meeting room became even more oppressive. Blackburn knew this couldn't go on, so he continued, "But there's some good news too."

"What is it?" Bezos asked quickly.

Blackburn continued, "That's the difference in clarity between online streaming and DVDs. There's a huge gap." "Google Video's highest quality is only 480p, and even that requires a computer with very high-performance hardware to play smoothly."

"Currently, about 60% of computers on the market can only select 360p resolution to ensure smooth playback on Google Video."

"In comparison, the picture quality of V-Disc is more than twice that of Google Video, and this difference in picture quality is visible to the naked eye."

It's difficult to go from extravagance to frugality, and this principle also applies to the viewing experience of movies and TV shows.

Once consumers are used to the high-definition picture quality of V, when they watch 360p or 480p online videos, they will clearly feel that the picture is blurry and rough. This difference in visual experience can indeed be taken advantage of.

Everyone fell into deep thought. Blackburn paused for a moment, then continued, "The same principle applies to the e-book field."

"Whether you're reading an ebook on an IP or reading on a computer, you can't avoid the eye strain caused by the screen's light."

"Compared to printed books, e-books cause much more visual fatigue."

"Consumers can read paper books all day without feeling tired, but reading e-books for more than two hours will cause obvious eye discomfort."

"This difference in physiological experience is a shortcoming that e-books cannot overcome in the short term, and it is also the core competitiveness of our physical books and video products."

Although Blackburn found an advantage in Amazon, the situation is still not optimistic.

Amazon is all about the internet; everyone here knows that the future belongs to the internet. "Let's talk about ebooks," Bezos said, letting out a long sigh, his voice betraying a hint of exhaustion he was trying to hide.

Blackburn nodded, his expression becoming even more serious. "I think we should focus more on the e-book function than on video products."

"I don't need to elaborate on the relationship between Ernst and the Bertelsmann Group, nor do I need to say more about Bertelsmann's strength in the book industry, do I?"

"Don't be fooled by the fact that there are only a few thousand books available on the Barnes & Noble eBookstore. I understand that Bertelsmann's entire eBook licensing is exclusively available to Google TNES."

"The condition was that Google wouldn't enter the book market, which is why those ebooks were placed in Barnes & Noble."

"In other words, unless users choose to read books on their computers, all Bertelsmann books can only be downloaded via Google TNE to devices that Google TNE allows."

"This means that Google's TNES controls the download channels and also controls Bertelsmann's network, which accounts for one-third of the world's books."

"Books are not like V; Google TNES earns revenue through distribution fees."

"This means that all book companies can cooperate with Google TNES in this way and gain a new source of revenue growth through the huge sales of their IP."

"The production cost of e-books is much lower than that of physical books, eliminating a series of intermediate links such as printing, warehousing, and logistics, giving them an absolute price advantage."

"Once consumers develop digital reading habits, the market space for physical books will be further compressed."

Bezos felt a chill run down his spine because he knew all too well the kind of moat that Google, or rather Ernst, had built on the internet. The three core resources—channels, terminals, and users—were now firmly controlled by iTech.

They are not afraid of imitators starting from scratch and developing new download channels.

Even if you develop it, it won't work; current terminal devices only have IP addresses.

They are not afraid that electronics manufacturers will produce terminal devices, and that there will be more devices with e-book functionality in the future.

Google TNE could easily open up the link, allowing these devices to download books through Google TNE, thus maintaining control of the distribution channel.

Even if some companies try to simultaneously develop channels and terminals, they will face the problem of insufficient user base, since the core consumer group is now in the hands of Google and iTech.

This is the advantage barrier brought by being the first to market.

At that time, this huge consumer group can force upstream booksellers to undercut other competitors in terms of price.

You can learn from me, but you can't catch up with me on price.

"I think we're overreacting," the CFO said, drawing everyone's attention. "Last week, our book order conversion rate was down, but it was only 6.8 percentage points. The repurchase rate for video products was also down considerably, but it didn't even exceed 20%."

"This means that consumers still prefer products that they can see and touch."

"But users are trying it out." Bezos raised his voice considerably. "They're trying it out, without having to go to bookstores, return DVDs, or wait for discs. That's the key issue." "As Blackburn said, the reason users choose us more is not because of anything tangible, but because of the experience."

"But technology is advancing, and innovation is constantly emerging."

"When Google Video's picture quality reaches or even surpasses V-level, LCD display technology is optimized, and e-books no longer harm our eyes, where will we go from here?"

No one could answer, because everyone understood that these problems would eventually be resolved step by step.

Bezos looked at everyone, his tone filled with a sense of crisis: "At that time, we will become the second Blockbuster."

"So for us, there are only two choices now."

"Either quickly follow suit, establish a presence in the digital content field, and directly compete with Google."

"Either we make a strategic adjustment and no longer regard books and video products as our main business."