Why Amazon Will Win

The founder of the old Soviet Union, Vladimir Ilyich Lenin, is purported to have claimed, "The capitalists will sell us the rope with which we will hang them," intimating that our drive to make a profit will be our undoing. Amazon.com (NASDAQ: AMZN  ) is similarly counting on its brick-and-mortar rivals to hang themselves in search of profit as it pays out more rope for them to use.

Under a program launched last week, the e-commerce giant is offering independent booksellers the opportunity to sell Kindle devices and e-books, earning a share of the proceeds from their sale. Alternatively, they can forgo e-book commissions but get a larger discount on the e-reader itself and thereby pad their profits that way.

While the American Booksellers Association sees the ploy for what it is, a chance to steal customers from bookshops, surprisingly, at least two stores have signed on to the program, according to the Amazon site's testimonial page.

On the surface it seems like a plausible relationship, as many booksellers already sell e-readers and e-books from other manufacturers. However, because eligibility for the program (called Amazon Source) seems to be based upon which states Amazon collects sales taxes in, the ABA points out that independent bookstores in more than half the states would be ineligible to generate e-book commissions anyway.

Amazon has been running into resistance from a number of retailers that have been burned by the e-commerce leader's entrance into their markets. Both Wal-Mart and Target refuse to sell the Kindle, as do a number of other retailers, creating pressure on Amazon as its Kindle Fire HDX competes against Apple's iPad Mini with Retina display.

The program to rope in independent booksellers is similar to the launch of its Amazon Lockers that were installed in grocery stores, drugstores, C-stores, and retail establishments across the country. Two major partners were office supplies leader Staples and electronics gadget seller RadioShack, both of which thought they could increase foot traffic in their stores, perhaps gain some incremental sales, and earn a small fee for renting out the space.

As they quickly discovered, however, the retailers were only helping Amazon to steal their customers. The added sales never materialized and their customers became more enamored of Amazon. Needless to say, both retailers quickly ended the relationship.

It's clear that certain market trends are inevitable. Like Netflix was forced to embrace streaming video as the DVD movie rental market dies a slow death, the growth and proliferation of e-books demands that booksellers come to grips with the new technology. Barnes & Noble has done so by developing the Nook, but not even that advance has staunched its decline. 

Although I'm not convinced the e-reader will ever fully replace a book -- I much prefer holding a physical book in my hand when reading, though I will supplement it at times with an e-book -- independents may see a Faustian bargain with Amazon as the lesser of two evils.

Physical booksellers ultimately need to buy the rope the Internet king is selling, since that's where their customers are going. They are putting the noose around their necks; Amazon is merely cinching the knot. In the process, the e-commerce king is adding more notches on its belt of retail domination.

Which retailer will join Amazon in dominating retail?
Amazon is one of two retailers featured in The Motley Fool's special free report: "The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two companies are able to consistently outperform and how they’re planning to ride the waves of retail's changing tide. Which other stock makes the cut? Find out by clicking here.


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