Amazon revealed a trend that could have an impact on some third-party sellers both on and off its marketplace - as well as certain types of retail stores. Amazon Chief Financial Officer Brian Olsavsky was asked about the drop in unit growth in the second-quarter (Q2), a period in which Amazon grew sales by 39%.
The Wall Street analyst was asking about the following metric reported in Q2 earnings on Thursday
: in the second quarter of 2017, paid unit growth had grown by 27%. In the second quarter of 2018, it grew by only 17%.
Olsavsky outlined some factors influencing that change in growth rate, the first being that Amazon had very strong unit growth last year in Q2, so it was tougher comparison. (Amazon lowered its Super Saver Shipping threshold from $49 to $35 to $25, resulting in growth in lower priced items).
But he said another factor was "digital content that moves to subscription," thanks to Amazon Music and Kindle Unlimited.
For $7.99/month, Prime members get access to Amazon Music Unlimited - "Any song, anywhere - Tens of millions of songs with new releases from today's most popular artists. Listen ad-free with unlimited skips. Download for offline listening."
And for $9.99/month, Prime members get access to Amazon Kindle Unlimited - "Unlimited Reading. Unlimited Listening. Any Device - Enjoy the freedom to explore over 1 million titles and thousands of audiobooks on any device for just $9.99 a month."
The revelation highlights the popularity of digital content, and it means sellers who sell physical media such as books and CDs could see a negative impact as buyers forgo purchasing in favor of "renting," if you will, through subscription plans.
That may come as a blow to such sellers, as they helped boost Amazon's reputation and selection in its early years when many thought of Amazon as a marketplace for books and movies. Unfortunately the CFO didn't get specific about how much digital content has impacted the sale of physical goods, whether it's digital downloads or digital subscriptions.
Later on in today's earnings call, Dave Fildes (head of Investor Relations) said tens of millions of paid customers were "enjoying Amazon Music," with Amazon Music Unlimited subscriptions continuing to grow very quickly and available in over 30 countries
One of the most popular features for using Alexa-powered devices is the ability to listen to music, he said. Later, Olsavsky revealed Amazon is increasing its reach of Alexa with 13,000 smart-home devices from 2,500 unique brands, and it is expanding into hotels "to allow you to experience Alexa while you're traveling." It's also working with car makers.
When asked about the monetization of Alexa, he said the biggest thing Amazon could do right now is to make Alexa as useful as possible. It's easy to see why Amazon wants its own Alexa technology to be the standard for smart-speaker and smart-home devices rather than another company's such as Google Assistant or Apple Siri.
Reinforcing the fact that Alexa is a focus for the company, Amazon CEO Jeff Bezos was quoted in the company's earnings release about its importance.
Another point worth calling out regarding Amazon's second quarter: 53% of paid unit growth came from third-party sellers, up from 52% in Q1 and up from 51% in Q2-2017. "We're really pleased with the retail growth," Olsavsky said, "We think it's driven by the Prime program and the engagement of Prime customers as well as increased selection, particularly third-party selection."
And a stat that everyone talking: Amazon showed a profit (net income) of $2.5 billion in the second quarter compared with $197 million in second quarter of 2017. Olsavsky mentioned "efficiencies" numerous times during the call.