Why Amazon's Audible Move Is Laudable

Amazon is buying Audible for $300 million in cash. It’s a smart move by the Seattle-based e-tailer that is spending nearly 20 percent of its fourth-quarter end net cash. Why do I like this deal? So far, Amazon has made a living out of distributing physical goods, and leveraging its physical and technology infrastructure to compete with brick-and-mortar rivals.

That business shows strong revenue growth, but gross margins are under extreme duress, and are likely to remain so, according to Amazon’s (AMZN) own 2008 forecast. No surprise Wall Street is unimpressed with their fourth-quarter results, despite record revenues.

But again, Wall Street has no choice but to focus on near-term and quarterly numbers. The Audible purchase seems to be part of a long-term strategy. Amazon now wants to become a major distributor of digital goods. Amazon has made its intentions very clear with music, movies and books (Kindle.)

Audible (ADBL) is another way to bolster that business, since it accounts for nearly 75 percent of the audio download market on the Internet. If you look at their DRM-free music offering, it shows Amazon’s intent to get the tunes to as many uses (around the world) as possible.

I won’t be surprised if Amazon re-tweaks its movie download business as well, in an effort to work with multiple devices on multiple platforms. Audible, on the other hand, already works with different MP3 players and devices. With its technology infrastructure already in place, Amazon can squeeze some of the operational costs associated with the delivery and distribution of digital content (goods.)

Amazon’s web services portfolio also gives us clues as to where Jeff Bezos & the gang are headed. Just as it currently offers “associates” to sell books and CDs from their web sites, Amazon can offer application developers to embed this new digital content — which is an ever-expanding term — into their apps, and use Amazon payment services to sell them.

I am going try and get together with Amazon executives (when I return to active duty) to get a better understanding of where they are going. Meanwhile, you can count on one thing — this Audible purchase is only a piece of their digital jigsaw.