Amazon wages war against everybody, not just publishing

Dennis Johnson of Melville House has discovered a smoking gun that leads him to declare that Amazon has declared war on the publishing industry.

To his credit, he does put ‘declares war’ in scary quotes in the title but loses that credit subsequently when the word war loses the scare quotes in the post itself.

The tl;dr version of my response is very very simple: Dennis’s blog post is stupid, pay it no head.

But since that is way too short to qualify as a blog post I’ll offer the following:

  • If Amazon has declared war against the publishing industry, then it has declared war against the film and music industry as well. Just browse through Amazon’s list of most popular TV series DVD collections and you’ll find discounts in the range of 30–69%. Amazon discounts popular goods aggressively. That’s what it does.

  • Amazon doesn’t lose money overall on ebooks (or any other category for that matter). It has razor thin margins, sure, but it isn’t losing money on those sales despite the discounts. If people actually looked at its financials they’d see that warehousing and shipping are its biggest money losers (specifically shipping electronics) along with capital expenditure. Neither shipping or capital expenditure apply to ebooks directly, but do apply to the Kindle devices, services, and software. Print book shipping is actually fairly simple and cheap compared to electronics shipping and software/service research and development.

  • Which is a point that bears repeating: Amazon’s ‘subsidy’, i.e. big cost centre, is in devices and software, not in ebooks or print. Which is also the reason why Amazon is in an awkward position, long term. It’s locked in at zero margins because it can’t stop investing in services or software (digital is a moving target and requires constant investment), it can’t stop shipping electronics (the Kindle devices are key to it maintaining its market share), and it’s culturally incapable of not pricing aggressively (it’s a big retailer and behaves like one). And even if it could price ebooks less aggressively, it’s doubtful that the increased margin would make up for the other cost centres.

  • The Robinson–Patman Act that Dennis refers to doesn’t apply to Amazon. The act forbids a powerful distributor or retailer from forcing providers (i.e. publishers) to giving it better deals than others. Since it’s unlikely that publishers are giving Amazon bigger discounts than other retailers, the act does not apply.

  • Aggressive pricing (i.e. discounting away your own margins) is not only legal, it’s standard practice for big retailers of all stripes (Amazon, Walmart, Tesco, etc.).

  • Amazon is both discounting more heavily and discounting less. Both at the same time. As publisher settlements unfold and agency agreements fade away, Amazon is slowly applying its standard pricing tactics, the ones it uses in every other product category, to ebooks.

  • It discounts popular items heavily and less popular items only marginally. Unlike blockbuster DVDs or bestseller books, less popular items aren’t stacked up high and discounted heavily in your local Walmart (or ASDA here in the UK), they probably aren’t even available in your local stores, so you pretty much have to order online, which takes print competition out of the equation for ebook pricing.

So, to summarise:

  • Is Amazon incredibly ruthless? Yes. As is every other giant retailer on the planet. Amazon is a beast of the same species as Walmart or Tesco and the horror stories around it from providers and employees are pretty much identical to the horror stories that surround the others of the same ilk.

  • Is Amazon specifically targeting the publishing industry? Not really. It’s waging a price war, sure, but it wages that price war on all fronts, in all industries, and in every product category. What people are demanding is for Amazon to treat publishing as a special snowflake unlike every other industry in retail.

  • Does it treat its employees like crap? Yeah. And so does every other big retailer on the planet (except maybe John Lewis/Waitrose and other similar UK-based coops). Just google for some of the crazy stunts Walmart has pulled. Changing that means reforming our deteriorating capitalist society which is a much bigger problem than the one that the publishing industry is facing.

  • It is in a bit of a bind, financially, but that’s because of ongoing costs, not aggressive pricing.

  • It’s a category error to think of Amazon as a book retailer. It’s an online superstore with more cultural, strategic, and behavioural characteristics in common with Walmart or Tesco than with Barnes & Noble or Waterstones. Books and ebooks are just one of its many categories.

  • Does Amazon have a master plan? Yes: price low; sell lots. It really isn’t more complicated than that.

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Comments

Re the Robinson Patman Act

Philip Jones's picture

I'm adding a further correction to this piece.

Baldur says that the Robinson Patman Act "doesn’t apply to Amazon", but clearly it does, as it applies to all American businesses. That was the point Dennis Johnson was making in his original blog. The act is meant to curb excessive price discounting, or loss-leading, by suppliers to retailers, or by retailers to consumers, which it refers to as "predatory pricing".

Johnson also did not state that Amazon made losses on e-book sales, as Baldur implies above, but that the company itself made losses (across its business), which has been widely reported.

 

The long term outlook for Amazon is dim

In Wired, Issue 3.07, July 1995, Esther Dyson said that with the rise of the Internet the price of information will tend to zero. Profit is to be drawn from events and products. 

http://groups.csail.mit.edu/mac/classes/6.805/articles/int-prop/dyson-wired-7-95.html

Increasingly, books will be distributed without charge through file sharing (or by Jersey City Free Books ;>). This means that the long term outlook for Amazon is dim -- as an e-retailer, at any rate. The money will be in author appearances -- book signings, talks, seminars and performances. Amazon can't direct you to a seat or hand you a cup of coffee.

Loss leaders

At these discounts, the sales via Amazon and Overstock loose them money. Typically, retailers get no more than 52% discount--maybe %55 if they buy non-returnable. This is about marketshare.

"declares war"

Philip Jones's picture

The phrase is in quotation marks because Dennis Johnson is quoting from Shelf Awareness, a well respected weekly electronic publication written by former PW journalist editor John Mutter that goes out to booksellers. Mutter himself was quoting from a US bookseller who called it an "open declaration of war against the industry".

I read the special issue of Shelf Awareness with alarm. Bombast is not their style. But it may be that Mutter is playing to the gallery, and Dennis is gladly picking up on that in the original blog and his follow-up, here http://www.mhpbooks.com/relax-book-industry-youre-just-collateral-damage...

I don't think we should dismiss any of this as "stupid", so thank you for the lengthier analysis.

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