How is Amazon Preparing for the Big Battle?
Jyoti is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Amazon.Com (NASDAQ: AMZN) is gearing up for the big battle to comeforth. This is a battle v/s Apple(NASDAQ: AAPL) and Samsung. The smartphones provided by these companies have completely changed the game in the internet market. Amazon knows that the road ahead will not be so easy and thus is polishing its weapons as the days are passing by.
But the question is how?
Epix, a cable company, also providing video-on-demand services, has agreed to sign a multiyear licensing deal with Amazon.Com They had an exclusive streaming agreement with Netflix Inc. (NASDAQ: NFLX) which ended quite recently. Instead of extending the agreement they decided to switch to Amazon.
This would mean that Amazon would be offering superhero blockbuster movies and thousands of other tittles to its streaming services. These offering will be provided to its Amazon Prime members. The membership which is available at a mere rate $79 a year. This not only includes free instant streaming of movies and TV shows but also includes a two free services on shipping for all eligible purchases. This means if you missed out on the latest blockbusters like “Iron Man2,” Hunger Games,” “Thor” or you want to watch a classic, then this all comes to you at no additional cost (apart from the membership fees, paid annually). Prime customers can access Prime Instant Video on Kindle Fire or any of the compatible Amazon Instant Video devices, including the Xbox 360 and PlayStation 3 gaming console.
On the other hand, Netflix' share price started falling sharply after this announcement. They have not been doing so well in the recent past which has forced Epix to flee from them. With Amazon announcing its direct competition by upgrading its Amazon Prime services, the existence of the on-demand Internet streaming sight is on a dilapidated state. Last year Netflix lost Starz in contract renewal negotiations, this means possibly a huge loss on the content side. This could drive away many of its customers because of the stiff competition received from its competitors.
Basically, Amazon is living up to its promise which it had made in the recent past. They had made commitment to its users that it would add more movies and TV shows to its existing database. In pursuit of keeping up to its promises they have made a considerable amount of investment in the recent past. Before this they had also signed a deal with Warner Bros. to add popular TV shows including “fringe” and “the west wing.” They had a deal with Metro-Goldwyn-Mayer Studios Inc. in June 2012 to add more than 18,000 movies and TV episodes for streaming at no additional cost to its prime users.
How will this help in the War with Apple and Samsung?
Amazon’s kindle fire, the e-book reader, has by far exceeded its expectations. They have captured around 22 percent (roughly) of the existing tablet market. Amazon has been one of the real fighters with the iPad of Apple. This has been primarily because of the content that is available to the Amazon users as compared to an iPad. Apple’s iPad has been targeting people who are more into entertainment. This segment which was earlier left untapped by Amazon has been its prime focus. As stated earlier, the huge investment they have made in this segment has forced their second quarter earnings to fell by 96%. Yet the prospect looks bright and as a result their shares are up around 44 percent in the last one year.
Apple’s strength has been its impeccable design along with its comprehensive ecosystem, providing a safe and satisfying digital playground for its users. They recently announced the launch of the iPad mini which is about 7 and half inches. This iPad has been designed to compete with the market that it has been losing out because of the price factor. This is also in line with the popularity the Kindle has gained because of its affordability factor.
But Jeffrey Bezos, Amazon’s CEO, is slowly and steadily building its “moated castle” in lieu with the fight coming from its competitors. Tablets would possibly be the gateway for music, movies, e-books, and games – which has been the prime source for revenue for Amazon. Amazon better build the castle with all these armories if they want to survive the competition.
The increase in content will surely help them capture more market in the Amazon Prime section and will give better customer satisfaction to the kindle users. But the biggest question in front of Amazon is that with the increasing operating cost, in lieu with the investments made, will they be able to continue their prime offerings at the startling price of $79 in the near future? We will have to wait and see.
jyotiadvisor has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Netflix. Motley Fool newsletter services recommend Amazon.com, Apple, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.