Walmart (NYSE:WMT) has been aggressively pushing into e-commerce over the last few years. Its latest move is a partnership with Japanese company Rakuten to launch an e-book and audiobook store with its Kobo brand. Kobo is a small player in the e-book space, taking about 2% of all English-language e-book sales.
Compared with Amazon (NASDAQ:AMZN), everyone is a small player. It takes over 80% of the e-book market.
Even with Walmart's brand and its growing strength in e-commerce, it's still taking on a herculean (perhaps Sisyphean) task to take share from Amazon in e-books and audiobooks. If Walmart can find a foothold in books, though, it could have much broader implications for the rest of its online business.
Digital books aren't a massive market
U.S. consumers spend about $3.2 billion on e-books every year. They spend another $2.1 billion per year on audiobooks.
Kobo's 2% market share of e-book sales equates to about $64 million in sales. Considering Walmart had global sales of over $500 billion in the last 12 months, the revenue it can expect from its partnership with Rakuten isn't even a rounding error.
Amazon, meanwhile, holds a dominant position in e-books with 80% of dollars spent on digital print in the U.S. It also owns the market leader in digital audiobooks, Audible, which takes more than 40% of the market. Amazon is actually pulling in around $3.5 billion in digital book sales per year. Still, that's not a huge portion of the company's $208 billion in sales over the last 12 months.
Amazon's dominance of the market has meant some book publishers prefer to work with other distributors. That's reflected in the fact that Amazon's share of sales of books from the big five publishers is below its share of other books from smaller publishers.
Walmart may present an alternative, but considering its reputation for squeezing suppliers, publishers shouldn't expect terms to be any more favorable than with Amazon. Walmart is undercutting Amazon with its audiobook subscription pricing -- the one area of strong growth for publishers. (It's unclear whether Walmart is eating the loss of selling audiobooks for so cheap or if it's struck an agreement with publishers.)
An alternative to Amazon
E-books might not be hugely lucrative, but establishing a regular touch point with a consumer through media can be extremely valuable. Not only is Walmart building an alternative e-book store, it's also reportedly working on a video streaming service under its Vudu brand.
Walmart is building an ecosystem of services -- e-books, streaming video, grocery delivery and pickup, two-day shipping for online orders -- that provides a real alternative to Amazon. Perhaps one day the company can package all of them into a subscription service to compete with Prime. Past efforts have fallen short because Walmart had only one service to offer consumers.
Creating a brand that consumers interact with on a daily basis is a huge value. Amazon has found that Prime members who use its digital services like streaming video and music or downloading free Kindle books are more likely to renew their subscriptions. Echo owners are some of its most valuable customers, spending, on average, 70% more on Amazon.com than regular customers.
If Walmart can establish itself as part of the daily lives of more consumers -- when they're reading, when they're watching TV, etc. -- it could see benefits well beyond a small share of the $5 billion digital book market. It could help it continue taking share of online commerce, and establish itself as a real alternative to Amazon. E-books may be just the first step in the next round of investments for Walmart.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.