Amazon customer philosophy is behind earnings miss

Posted by Charles Nicholls on July 26, 2010

0 comments | 989 reads

Normally when companies announce a 40%+ in increase in costs and miss analyst expectations, their stock takes a hit. Last week Amazon was no exception, with their stock dipping by 15% immediately after the news, but has subsequently recovered to the $118-$120 where it has been for the last month.

The earnings miss was probably more sensitive this quarter because of the launch of Apple’s iPad. Ever since the iPad launch Amazon’s stock has been trading stock has been 20% lower than its high this year at around the $150 mark, assuming that Amazon’s Kindle reader would be negatively impacted. Amazon did not disclose their Kindle sales, but is seeing strong growth for Kindle and Kindle based ebook purchases. Kindle is becoming to Amazon what iTunes is to Apple.

Long time watchers of Amazon, will recall that we’ve seen this before. Amazon is not afraid of short term blips in their stock price, accepting them as a necessary evil when it comes to building a stronger more competitive business.

Remember the market reaction when they announced free shipping?

Over the long term, Amazon has not disappointed, by being focused on doing what’s in the best interests for their business long term. By investing heavily in sales and marketing, free shipping and tech infrastructure, Amazon is confidently building an ever bigger business. Oh and don’t forget that Amazon grew by 41% year over year in this last quarter achieving $6.57 billion in revenues.

Amazon also stated that more than $1billion in sales had been achieved via mobile devices over the last 12 months. That includes book downloads by Kindle and iPad users of course, so it doesn’t (yet) signal the arrival of mass mobile commerce.

While Amazon hasn’t disclosed what made up its $1billion of mobile sales, it’s a pretty safe bet that ebooks purchased using Kindle and the free Kindle reader for iPad and PC make up the bulk, and most of these will be repeat purchases.

This also shows in the way that their whole customer philosophy is geared towards repeat purchases. By forcing a full registration before making a first purchase, Amazon is willing to risk marginally fewer sales by not providing a ‘guest Checkout’ facility, in return for a streamlined repeat purchase experience. Once registered, Amazon markets to you extensively using email, and when you return to make your second purchase, it is done with a maximum of only six mouse clicks.

Republished with author's permission from original post by Charles Nicholls.

Charles Nicholls

Charles Nicholls is founder and chief strategy officer of SeeWhy, web analytics visionary and author of Lessons Learned From The Top 1 Converting Websites. As a veteran of the analytics space, he has worked on strategy and projects for some of the world’s leading ecommerce companies, including Amazon, Ebay and many other organizations around the globe. Contact Charles at charles.nicholls@seewhy.com, or follow him on Twitter at @webconversion.

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