Tesco in third digital buy as it takes aim at Amazon

Philip Clarke, the chief executive of Tesco, has made his third significant digital acquisition in just over a year as Britain's biggest supermarket chain appears to be squaring up for a full-scale confrontation with US online giant Amazon.

Mr Clarke's latest purchase is the e-books platform Mobcast, co-founded by author and former SAS soldier Andy McNab, which creates software for publishers and other clients to deliver digital content.

Tesco bought internet radio service WE7 in June and digital-movie streaming service Blinkbox, a rival to Amazon's LoveFilm, last year. It is paying only £4.5m for Mobcast but analysts said it was highly significant because it is part of a wider trend.

Supermarkets have made huge profits by moving into books, DVDs and CDs in the last decade, and are anxious to maintain that revenue now that sales of physical goods are falling in favour of digital versions. Sainsbury's bought digital books venture aNobii in June, and Morrisons acquired online retailer Kiddicare last year.

Some industry insiders have been alarmed at the continued rise of Amazon, which dominates bookselling with an estimated 25 per cent-plus market share in the UK and is big in music and electronics. There is also talk the US giant could be considering a move into groceries.

Michael Comish, who co-founded Blinkbox but is now Tesco's chief executive for digital entertainment, acknowledged Amazon was a major competitor, telling The Independent: "I think almost every retailer in the world competes with Amazon."

Mr Comish said Tesco did not yet have a big presence in e-books but Mobcast would help to change that. "From a digital point of view, we're not massively involved in books," he said.

"But from a physical point of view, we're one of the largest book retailers in Britain. In the UK, about 10 per cent of the books market is digital; in the US it is about 20 per cent. So by next year, in Britain you'd think it would be 20-25 per cent."

Mr Comish added that entering the digital books, music and movie markets was about more than sales. "It's not just the revenues associated with these categories – these are high passion, high engagement categories. It's not just baked beans – you can build strong relationships off these categories."

Richard Perks, retail director at research firm Mintel, said he expected more digital acquisitions. "No one knows how retailing is going to develop," he said. "But it is essential that retailers are alive to the possibilities and gear themselves up to take advantage of the opportunities that arise."

He said the long-term winners were likely to be retailers that combined physical and digital stores, known as multi-channel, rather than online-only stores, known as digital pure-plays.

"Our data show that it is the multi-channel retailers who are seeing the strongest online growth, not the pure plays, even Amazon," said Mr Perks. "So any retailer must give the best possible service both on and off-line. That's where this Mobcast acquisition comes in."

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