Thursday, February 07, 2013

(BN) Bezos’ Kindle-Less Amazon Mashed in China by Ma’s Alibaba

(Bloomberg ) When Inc. unveiled its Kindle store in China in December, something was missing: the Kindle.

The online shop sells most e-books for less than 10 yuan ($1.61), yet doesn't offer Amazon's best-selling line of e- readers and tablets. Consumers must download reading apps for Apple Inc. iPads and iPhones or Google Inc.'s Android software, or use e-readers from domestic competitors.

The absence of Kindle e-readers from the China site -- amid regulatory roadblocks and the prospect of lackluster demand --is an apt symbol of the troubles Amazon founder Jeff Bezos faces in the world's largest Internet market by users.

After more than eight years of effort and a $74 million acquisition of a local online retailer, Amazon has less than 1 percent of China's $196 billion e-commerce market. The world's largest Internet retailer had the same share four years ago as it struggles to catch Jack Ma's Alibaba Group Holding Ltd.

"Any Internet company coming to China has to play an incredibly long game, a decade or more," said Michael Clendenin, managing director of RedTech Advisors, a consulting firm that sells research to U.S. investors. "Their competitors for the foreseeable future can give up margin for market share."

Amazon is investing "heavily" in China, Chief Financial Officer Thomas Szkutak said on a Jan. 29 conference call to discuss fourth-quarter results. He didn't provide a figure, and the company didn't discuss why it doesn't sell Kindles in China.

Alibaba Competition

Amazon is trying to profit from exploding growth of online transactions in China, where the number of users gained 10 percent last year to 564 million, more than the population of any country except India, the government-run China Internet Network Information Center said last month.

China's online-retail transactions are projected to more than double to 2.57 trillion yuan by 2015 from 1.22 trillion yuan last year, according to Analysys International, a Beijing- based researcher. U.S. e-commerce spending through the first three quarters of last year exceeded $129 billion, according to comScore Inc.

In the third quarter, Amazon accounted for 0.8 percent of China's online retail sales, ranking fifth behind Alibaba's 76 percent, according to Analysys. Amazon Chairman and Chief Executive Officer Bezos is worth $24.4 billion, according to the Bloomberg Billionaires Index, while Alibaba founderMa's wealth is calculated at $3.5 billion.

Amazon doesn't provide country-specific data for sales, breaking revenue down into only two categories: North America, which accounted for 57 percent of 2012 sales, and International.

EBay Shuts

Huang Lei, the Beijing-based spokesman for Amazon, declined to be interviewed and referred questions to external public- relations firm H-Line Ogilvy Communications in Beijing.

"In China we only support Kindle Store and have not supplied other Kindle products at this time," Huang said in an e-mail forwarded by H-Line Ogilvy Communications. "We're doing our best to bring our service to customers around the world as fast as we can."

Amazon isn't the first U.S. e-commerce company to struggle against Alibaba. EBay Inc. entered China in 2002 and couldn't survive against, Alibaba's auction business. The site was shut down in 2006.

Amazon in September 2004 bought, described then as "the largest online retailer of books, music, and videos in China," and made it the company's sixth international site.

Piracy Issue

No company has built a profitable business in China around e-books, Clendenin said. The country's biggest e-commerce companies instead rely on sales of clothing and electronics because pirated e-books limit the prices of legitimate volumes.

"The outlook for Amazon's Kindle store in China is full of challenges," said Julia Zhu, founder of Observer Solutions, a market researcher helping foreign companies invest in e-commerce in China. "The majority of Chinese consumers are unwilling to pay for e-books at this stage."

For the past two years, the Kindle Fire HD tablet was the best-selling product among millions of items on Amazon worldwide, the company said last month. The Kindle Fire HD, Kindle Fire, Kindle Paperwhite and Kindle held the top spots on the worldwide charts at the end of last year, the company said.

Amazon was in third place in the global tablet market, with 12 percent of shipments during the fourth quarter, trailing Apple and Samsung Electronics Co., researcher IDC said this month. Amazon increased shipments of its Kindle Fire tablets to 6 million worldwide in the fourth quarter from 4.7 million a year earlier, IDC said.

Regulatory Approvals

Wireless devices require at least three layers of regulatory approval in China, including from the state Ministry of Industry and Information Technology. Amazon and the ministry declined to comment on why its devices aren't available in China or whether the company is seeking regulatory approval.

"There do seem to be some regulatory hurdles that need to be overcome in China," said Scott Tilghman, an analyst with Los Angeles-based B. Riley & Co. "We expect those to be addressed."

Tilghman is one of 31 analysts rating Amazon shares buy, compared with 12 rating the company hold or sell, according to data compiled by Bloomberg. In the past 12 months, Amazon's shares have gained 42 percent, compared with a 12 percent increase for the Standard & Poor's 500 Index.

Hanvon, Bambook

In Kindle's absence, local brand e-readers dominate the China market. As of the second quarter last year, Beijing-based Hanvon Technology Co. led with 50 percent share, followed by Shanghai-based Shanda Interactive Entertainment Ltd.'s Bambook with 28 percent, according to Analysys.

Amazon's China site features "tens of thousands of Chinese and foreign books," the page says. National tennis star Li Na's autobiography costs about 96 cents. The top-selling foreign title on Feb. 6 was "The Upside of Irrationality," by Dan Ariely, for about $3.61. The U.S. e-book sells for $8.99.

The low prices show why online companies that try to sell e-books, including Hanvon and E-Commerce China Dangdang Inc., have been unable to take some of Alibaba's share.

Alibaba followed the 1999 introduction of its original platform for small businesses with consumer-focused sites, including Taobao Marketplace in 2003 and in 2008. Last year, Taobao Marketplace and together had 1 trillion yuan in gross merchandise volume, according to the company's website.

Harry Potter

"'s primary focus is on user experience and continuously enhancing the online shopping process for our customers," Alibaba spokesman John Spelich said in an e-mail. "As far as comparisons to competitors, you'll have to ask them."


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