Jeff Bezos Ate My Hamster

Sometimes you’re damned if you do, sometimes you’re damned if you don’t but if you’re Amazon it turns out you’re just damn well damned.

Look at these two headlines from the widely referenced Melville House blog.

 7th July 2013 - ‘Monopoly achieved: An invincible Amazon begins raising prices’

27th July 2013 - ‘BREAKING NEWS: Amazon “declares war” on book industry’

Two headlines, twenty days apart – the first slamming Amazon for raising prices, the second slamming Amazon for lowering prices – each article trumpeting these facts as immutable proof that Amazon is an evil behemoth determined to bring the publishing industry to its’ knees (again).

The truth is that there isn’t a successful company in the history of retail that hasn’t used price as a competitive lever. Businesses routinely lower prices on competitive items and price less competitive lines as highly as they believe the market will bear. That process is at the very heart of all retail - it’s not evidence of an evil master plan it’s evidence of a rudimentary grasp of retail economics.

Over and above the certain knee-jerk paranoia which infects some corners of the publishing industry whenever the word Amazon is mentioned, there appears to be a fundamental misunderstanding about the nature of publishers’ relationships with the retail giant. There’s a growing misconception that Amazon is able to dictate publishers’ pricing strategies or that publishers are somehow forced at gunpoint to supply Amazon with their products at a price of Amazon’s choosing. Let’s just quickly run through the retail process as it applies to publishing.

  • Publishers set the list price of their books.
  • Publishers agree a discount rate with a retailer.
  • The retailer decides at what price to offer that product to their customers.
  • The customer decides which retailer to buy from.

This is the process for every single retailer; Amazon, Barnes & Noble, Waterstones, Apple, Independent book stores - all of them. For sure, some retailers will achieve marginally better discounts with publishers based on the quantities they order, the promotions they promise and their sales records but that discount rate is entirely for the publisher to agree. If they think a certain retailer is asking for a discount rate that is unprofitable or unsustainable in the long term they can simply say no and choose not to supply that particular retailer. No harm, no foul.

If publishers really want to encourage greater retail competition for Amazon they are perfectly within their rights to increase the discount they offer Amazon’s competitors and/or refuse to supply Amazon altogether. (It’s worth pointing out that for all their Google-Baiting headlines and ‘sticking it to the man’ posturing - as of today Melville House’s books are all still available to buy on Amazon).

Here’s a simple truth at the heart of all arguments about Amazon’s ultra-efficient pricing tactics - once a publisher sets a book price and agrees a discount with Amazon – the publisher will receive that price regardless of the profit or loss that Amazon makes on that product.

Let me spell that out, just to be clear.

If a publisher prices a book at £10 and agrees to sell that book to Amazon for £5 (50% discount) the publisher will receive £5 whether Amazon sells that book for £8 or £4 (or indeed £0.20).

Publishers’ pricing and profit margins are entirely in their own hands. They set the price. They set the discount. Amazon’s ultra-efficient pricing tactics are not targeting publishers, they’re targeting other retailers.

The idea that Amazon’s raison d’etre is to destroy the publishing industry has been repeated so often that it’s almost become the accepted wisdom in some quarters and as so often, the accepted wisdom is wrong.

Amazon are interested in selling books as a retail commodity – plain and simple. There’s no philosophical or ideological element to their approach. Books were simply the first commodity Amazon used to establish themselves in the online retail environment - as such they probably still hold a special place in Jeff Bezos’ heart. To believe that books are the main drivers of Amazon’s business strategy is to vastly underestimate Amazon’s ambitions and to vastly overestimate the importance of publishing in the wider scheme of things. Amazon doesn’t even break ‘Books’ out as a separate category in its’ accounts, they are lumped in along with DVDs, CDs and Movie & Music downloads under the catch all title of “Media” 

As an aside, the ‘Media’ category itself is becoming less important in the overall Amazon picture. Despite increasing sales in the ‘Media’ category by $627 million in the first two quarters of 2013 (compared to 2012) the percentage contribution (to Amazon’s over-all revenue) of the ‘Media’ category fell from 33.9% in the first two quarters of 2012 to 29.8% in the first two quarters of 2013.

While these screaming headlines about the evil intentions of Bezos The Bogeyman might do wonders for some commentator’s website stats they really aren’t doing our industry any favours. All they succeed in doing is adding to the self-serving narrative of the plucky and virtuous publishing industry valiantly protecting culture and literacy against the devilish intentions of vulgarian capitalists whose only aim is the pursuit of profit. The longer we allow ourselves to believe this self-serving horseshit the longer it’ll take us to get our act together and face up to the real challenges to our business models.

Let’s stop blaming Amazon for our woes. They are NOT out to get us. The truth is what we had was a holiday romance, they got what they wanted and they’re not that bothered about us any more. They’ve moved on, we should too.

I don't know about you but I’d much rather be part of an industry that was confident enough to play our own game instead of constantly worrying and moaning about the rather brilliant way Jeff Bezos is playing his.

Chris McVeigh is a publishing consultant and business analyst advising media and technology companies on opportunities in the publishing sector. He is the founder of www.FourFiftyOne.co.uk and the author of the No.1 Bestselling book Seven Things Publishers Should Know. You can find him on Twitter @4fifty1  

 

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Comments

You're so right...

... Jeff Bezos isn't the antichrist. He's just another greedy businessman who uses predatory pricing, tax avoidance and low-paid badly-treated agency staff in his warehouses to undercut and destroy his competitors. And if 'marginally better discounts' is the difference between 40% and 70% then you're also right. And of course any publisher can refuse to supply Amazon, or give those huge discounts to everyone, and put themselves out of business, that's their choice.

Jeff Bezos will continue to grow and grow Amazon into the biggest retailer ever created (which it probably already is, but heh, why stop there - his publishing arm is only just starting so he can create the products as well as sell them). But you're right, that's just one industry. Why not have them all? He will eventually disappear to his idyllic tax haven with his $100 billion. He might even give a tax-deductible €10 million to a homeless charity if he's feeling benevolent.

In the meantime, the rest of us can grub around for wages to pay the taxes for the hospitals, and roads, and teachers. We could even get (temporary agency) jobs in one of his warehouses, until we're 'terminated'. But you're right, you can't stop progress, and that's 'playing the game' in the modern economy - stuff communities and grab the money. Bezo's isn't evil, he's just a product of an unethical greedy society. Go Jeff!

marginally better discountsmarginally better discountsmarginally better discounts

Selling books on Amazon

Peter Turner's picture

One correction: Since Amazon sources books from publishers and middlemen distributors, there is actually no way for a publisher to prevent Amazon from selling books without also making it very difficult for other booksellers too, who rely on distributors for reordering. 

Exactly... Maybe if Amazon LOST money on purpose...

Everyone from authors to publishers (and today I saw hints in another publicity grabbing headline that Amazon and President Obama must be in cahoots on this killing indie publisher thing) seems to think that because Amazon is very successful and wins a lot, they should be somehow shunned, or punished.

And yet -it makes no sense.  They are in business to make money.  As you point out above, they do this in exactly the same fashion that businesses have been doing it all along - just better.  As a publisher and as an author, they've been fair to me.  Sure, I'd be happier if I could be the Kindle Pick of the Day or have my books splashed on the front page - but it's a business.  MOST of that costs money, and all of it requires learning, and playing, the game.

People need to quit blaming the success of others on their own lack of it. Is it fair for Amazon to be so successful? How is that even relevant? It's business, and they have earned their success.

-DNW

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