Daunt dances with the devil

The Waterstones Amazon deal is long on implication but short on detail. The kernel is that Waterstones is to begin stocking and selling Amazon's Kindle devices, and will allow customers within Waterstones to buy e-book content via a Waterstones wi-fi network that will give those customers an amplified buying experience.

Like many I am struggling to see where Waterstones' makes money from this deal: it takes a cut off the e-book sales sold through that enhanced browser, and obviously takes a cut from device sales. But is that enough?

The upside for Amazon is much clearer. As Neill Denny points out it gets access to Waterstones' brand credibility, its real-estate, and its booksellers. Furthermore, if Waterstones really can invest and come up with a a browsing experience better than the current Kindle version, then it gets that too.

My hunch is that Amazon is paying cash up-front in order for Waterstones' to kick-start its IT investment and training programmes. Speaking to Waterstones m.d. James Daunt this morning, he said the deal would "facilitate" its store investment. He said Waterstones did not have the IT infrastructure it needed, and it was not spending enough time training its staff: two things which when bundled together and done well could enable the chain to sell books, physical and digital much better.

Daunt has a long recent history of paying more attention to the physical side of the book business: so much so that he has infuriated some of the digerati. Today's news confirms that this was no feint: Daunt really is predominantly focused on Waterstones as a physical bookshop chain, selling real books to customers who are in its shops. In response to some of the negative comments made about the deal, Daunt said to me that if you remove this physical reinvigoration from the equation then it was possible to put a "negative spin" on the deal. As it stands Daunt says unapologetically: "Our future is in the physical bookshop, selling physical books and doing other things around it." He cites coffee and e-books as these "other" things, further pushing the view that Daunt really does see digital reading as an "adjunct".

There is much to be critical of here. But Daunt, like Waterstones, has to live in the real world. One in which competing head-on with the world's largest bookseller and dominant e-bookseller is no longer possible. And having reached that conclusion: one in which, dealing with a "money-making devil", becomes a necessity.

Those who criticise Daunt should take note of way the message is being handled, even with a video on YouTube. Though much of trade has been obsessively scanning for the detail about what it means for the book biz, Daunt has focused on what it means to his customers. "We asked ourselves, 'what do our customers want?'; the answer was the Kindle. Once we'd done that this was self-evidently the best deal." In short Daunt has applied the same logic to this deal, as he would to the question of which books to put in his stores.

Philip Downer is right in his Bookseller blog the Kindle is popular because it's the Amazon e-reader, not because it's significantly better than any other device. But of course Kindle is much more than just an e-reader, it's a whole platform, and a dedication to e-books far beyond anything Daunt could ever hope to muster.

Of course this is all predicated on the view, that Daunt has, that the digital book market is limited. On the Today programme this morning he reckoned it would grow to about 25% of the overall book market, suggesting that it was still only at 10%. If he is right, then his logic is infallible. Some commentators have likened the deal to Neville Chamberlain's infamous pact with Nazi Germany, but it feels more like Dunkirk. A strategic retreat: allowing the business to refocus its efforts on those fronts where it can continue to fight on.

Without the overhead of having to launch its own device, or partner 50/50 with, say, Barnes & Noble (a deal that both sides would have had to invest in), Waterstones can focus on where Daunt feels it adds value, a "curated experience". Though further details have yet to be unveiled, or perhaps configured, Daunt says Waterstones will only be limited by its imagination. For starters, Daunt has told staff that by using their Kindle in a Waterstones shop, owners will be able to browse the full content of many titles, free of charge, as well have access to exclusive content and offers.

Whatever the logic, make no mistake, this is a huge gamble. Eleven years ago Waterstones announced that it was to put all of its e-commerce business through Amazon, only to ditch the idea five years later. When its deal with Amazon was announced in 2001, Waterstones said: "The truth is we just want to concentrate all our efforts on the high street and campus stores." When it brought the site back in-house, it talked about launching the ultimate "brand experience" and doing "something a little bit different". In a statement Daunt would surely mimic, then e-commerce m.d. Kieron Smith said: "Booksellers are more effective than algorithms."

The concern is that Daunt is simply repeating history. But the lessons from history are subtler than this. The original e-commerce deal with Amazon might have been a mistake, but Amazon has continued to outgun the British bookseller even after it took the platform in-house. Whichever way you spin it, Waterstones can still win at 'bookselling', but it will never be any good at algorithms, certainly not while it remains a smallish company with limited investment and a "legacy" portfolio to manage.

However, if the chain can crack this "curated experience", and make a connection between high street stores and digital reading (and Amazon will clearly give it tools to have a crack at that) then Daunt might really be onto something: a redefinition of what it means to be a print bookseller in a digital age. Replace Amazon with Apple, Kindle with iPad, and the relationship sort of makes sense. Daunt wants to use a platform it cannot emulate to showcase his bookselling prowess. It will be interesting to see what, if any, concessions Daunt has won from Amazon to help facilitate this.

If he is wrong though, or if the digital market grows beyond his estimation, then the deal will make the UK's largest bookshop chain the Rosencrantz and Guildenstern of the publishing play: a minor character with no control over the choices that will actually have an impact on its future, and one subject to the random whims of the other characters.

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