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Barnes & Noble and Amazon in a Chess Match

10 February 2012

From publishing expert Mike Shatzkin:

Readers who have been following publishing’s digital transition for two years or more will recall the situation in 2010 when five of publishing’s Big Six switched over from selling their ebooks on wholesale terms, by which the retailer sets the price to the consumer, to agency terms, by which the publisher sets a price that prevails across all retailers. Random House stayed out.

That decision seemed to puzzle many observers despite the realities for the publishers. Making the change required actually reducing per-unit revenues to the publisher (and author) while at the same time making each unit more expensive to the consumer, so it was done by what was then called the “Agency Five” at some sacrifice (in their view) for the greater good (in their view) of the industry. Agency protected weaker ebook retailers — Barnes & Noble, Kobo, and Google as well as independents — from having to compete with the deep-pocketed Amazon’s loss-leader pricing strategies. The immediate payoff was the opportunity to sell through Apple’s fledgling iBookstore.

As we explained at the time, Random House’s choice was transparently in their short-term self-interest. It was understandable that their competitive cohort, who saw themselves making a sacrifice on behalf of the industry’s long-term future, were unhappy that the biggest player among them was staying out. But it was a bit hard for me to understand what was so hard for everybody else to understand about why Random House did what they did. (Random House switched over to selling on the agency model in March, 2011.)

Those times are recalled for me by the recent round of indignation and analysis over the jockeying among the retailing competitors over the titles published by Amazon. Everybody is just acting in their own best interest. There really isn’t much mysterious about anybody’s behavior.

. . . .

More heat was generated when the Kindle Fire debuted with some graphic novel content delivered exclusively to it. When Barnes & Noble pulled the paper versions of those books off their store shelves, they explained that their policy would be to refuse to stock the print version of something not offered to them for sale “in all formats”.

The message at the time seemed clear. If Amazon wanted to sign up books directly and sell them broadly, they couldn’t maintain a Kindle monopoly on those titles. Undoubtedly, it was becoming clearer and clearer to Amazon that getting broader distribution for printed books was an important element if they wanted to sign up important books. Let’s remember that Larry Kirshbaum had been brought on board in June to sign up big titles. He was the first person to work at Amazon who had the relationships and the experience to tell them what it would take to succeed in those efforts.

But things were dynamic at B&N as well. With Borders gone, they have become the only player at scale able to offer print book merchandising. There is an increasing awareness of how important print display still is to “making” a book. It is very likely that inside B&N there has been increasing appreciation of the power of their position.

There is complementarity here. Amazon had a dominant position with Kindle before the Nook arrived that has been eroding since then due to increased competition. They’re still more than half the ebook sales in the US, but they want to shore up their position. Using their strength to get Kindle exclusives is a sensible way to do that.

. . . .

It took Barnes & Noble less than a week to respond. Ignoring Amazon’s willingness to make the new imprint books available as ebooks, they instead focused on the continuing programs Amazon had that kept other titles as Kindle exclusives. B&N announced that they wouldn’t carry any Amazon-originated titles in their stores, although they would make them available online and as ebooks. Of course, that “offer” gave Amazon precisely what they didn’t care about (BN.com online sales) or didn’t really want (Nook availability) and denied them what they were really after (bookstore shelf and display space).

Pretty quickly, both Daily Finance and Time Business found fault with Barnes & Noble’s move. It was seen as boneheaded for a retailer in the declining brick-and-mortar space to decline to stock some books that might sell. It was even suggested by some that this was an “opening” for Barnes & Noble’s terrestrial competitors to carry attractive Amazon titles, with the implication that this could help them steal customers from B&N.

But Barnes & Noble’s competitors actually saw things the same way that B&N did. The independent store and publisher, Melville House, was quickly supportive. A few days later, the Canadian chain Indigo (which occupies the same dominant position there that B&N does in the US) and the second-ranked US chain, Books-A-Million, announced that their policies would mirror B&N’s.

. . . .

The bottom line here is that as Amazon’s power to sign up books away from the major publishers grows, the retailers who depend on publishers for a flow of commercial product suffer along with the publishers. B&N saw — and Indigo and Melville House and Books-a-Million saw — that Amazon wanted bookstore distribution to enable them to sign up more titles directly. Even though those titles would be made available to them, they see themselves as strengthening their enemy when they stock those books.

B&N’s decision seems to me like the right move for them. Most very regular bookstore customers aren’t really surprised if any particular store doesn’t have any particular book. Indeed, the impossibility of stocking everything anybody might ask for in a store is part of the reason that online bookselling is such a useful service. In this day and age, most people who want a particular book don’t go to a bookstore to buy it; they just order it online. They go to bookstores to browse and shop and choose from what is within the store. So, yes, there may be some disappointed customers if B&N doesn’t have a high-profile Amazon title, but I don’t think that disappointment will be widespread.

On the other hand, authors and agents who might have considered an Amazon publishing deal will have to think twice if they know very few bookstores will carry it. Amazon can do some remarkable things to sell books to their mammoth online customer base and that won’t change. But there is both a practical and a vanity aspect to getting store display that will still be seen as indispensible by many authors and agents who otherwise might have taken the leap to sign with the newest big checkbook in town.

Link to the rest at The Shatzkin Files

As usual, Mike makes some very good points and shares a publishing insider’s view of the moves and counter-moves being made in this battle.

Mike’s description of the agency pricing moves certainly makes the price-fixing class-action suits and the various antitrust investigations look threatening for Big Publishing. When large players in an industry take explicitly or implicitly unified actions to raise prices for consumers, they’re doing exactly the sort of thing various antitrust laws were passed to prevent.

The biggest impression Passive Guy takes away from Mike’s summary is that Amazon is playing a much more strategic game than either the booksellers or publishers are.

What would PG do if someone forced him to be president of Barnes & Noble (other than negotiate a ginormous non-refundable signing bonus in cash, not stock)? He would spend a lot of time an effort to improve the Nook store, which is miles behind Amazon for book discoverability. Nook has tried to copy a lot of what Amazon does, but it doesn’t pick up the right vibe and doesn’t seem to be really connected with its online customers. Barnes & Noble is spending gobs of money to compete with Amazon on e-readers, but Amazon integrates the store and e-reader experience at a much higher level.

While they’re at it, Barnes & Noble needs to treat indie authors much better. Why lag a little behind Amazon in ebook royalties? Why not make indie ebook royalties richer than Amazon’s?

Why not promote indie authors much more aggressively so the next Amanda Hocking starts out in the Nook Store instead of on Amazon?

Why not offer $100,000 to the best-selling indie author each month with a $20,000 prize for the best-seller in a few romance genres? (Nothing against other genres, but if Nook could own romance, it would make a lot of money.) Each month’s winners would have to go exclusive in the Nook Store for the following month to receive the prize.

BN is a $7 billion company and $2-3 million in indie prizes out of the annual marketing budget is peanuts. Each month’s prize announcement would generate lots of free publicity and indie authors would spend a lot more time trying to maximize Nook sales than they do now.

But promoting indie authors would upset Big Publishing and Barnes & Noble is convinced it has to make common cause with Big Publishing to beat Amazon. BN fails to understand the first rule of survival when you’re worried about drowning – Don’t hold on to someone else who may also be drowning.

By getting into little catfights with Amazon and playing the publishers’ games, Barnes & Noble is focused on day-to-day skirmishes and not paying attention to what the war is really all about – who’s going to be the big dog in the ebook world.

It’s not easy moving bricks and mortar to a subsidiary role after so many people in the company fought so hard to become #1, but if you don’t do it, you’re heading down the Borders path.

BN is making the classic mistake of a disrupted company – trying to preserve yesterday’s business profitability instead of fighting hard for a dominant position in the new world and reshaping itself to play in that world.

Amazon, Big Publishing, Bookstores, Ebook/Ereader Growth, Pricing

16 Comments to “Barnes & Noble and Amazon in a Chess Match”

  1. “The biggest impression Passive Guy takes away from Mike’s summary is that Amazon is playing a much more strategic game than either the booksellers or publishers are.”

    P.G.

    Something they’ve done from the start, knowing they are in a different business. The old, “breaking the mould,” gush.

    As a customer, Amazon are easy to deal with/get things fixed. Stuff does go wrong in life and they work with ya to get it fixed, has been overwhelmingly my experience.

    My only fear is that they get monopoly disease. They’re already doing a bit of that with instant video pricing, which costs ‘em my dollars in that field, but overall, they are fair.

    If I were the competition, Amazon would scare me witless.

    brendan

  2. This doesn’t remind me much of a chess match, but rather something more like the Black Knight in Monty Python and the Holy Grail. B & N is obviously the Black Knight and Amazon is Arthur. I suppose that makes Borders the Green Knight.

    Right now is the point at which the Black Knight says, “Tis but a scratch.”

  3. As usual, PG, you hit the nail on the head. B&N is scrambling to preserve its dead-tree business when it should be scrambling to carve out a bigger piece of the digital pie. The specialized genre bestseller lists at Amazon have boosted my sales tremendously. Why doesn’t B&N do the same? Is it really that hard? Really? Spend a couple of bucks and hire some decent programmers.

    By treating indie authors as an afterthought, B&N is leaving stacks of cash on the table. As a romance author, I’d love it if they put your suggestions into action — but I’m not holding my breath.

    • I agree about the programmers– things get broken and no one does anything but send out form letters. Problems that get fixed immediately on Amazon just linger and linger at B&N– frustrating for the writers and readers alike.

  4. Shelly Thacker, you are so smart, I am proud to call you my friend.
    Virginia

  5. Shatzkin says that people go to a bookstore to browse and shop and choose from what’s within the store. That may be true, but it seems to me to gloss over two important things. One is that that there are fewer of those people than there used to be, and many of the people who no longer come to your store were heavy buyers.

    The second is that even if I don’t come there looking for a specific book, you need to have a really compelling book for me to want to spend more money on it at your store than I have to online. (For me, sales tax isn’t even an issue, since I have to pay sales tax through Amazon as well.) Now that I read ebooks, that’s got to be some special book to get me to buy it in paper from your store. Which also increases the likelihood that it’s cheaper at Amazon, or not available at your store, and why did I come here anyway?

    • For the lovely cafe?

    • Sherri – You combine bookstore browsing with the report that the majority of smartphone owners use their phones to check prices while they’re in stores and browsing may not be quite the money-maker it used to be.

      • *raises hand* That’s me. I do browse with my phone in hand. I’d browse with my Nook in hand, but most of the B&Ns in my area have TERRIBLE Wifi. There’s supposed to be all these great benefits to having my Nook with me, but mostly I can’t even get connected.

        So if they really want to keep my business, they need to make it seamless and easy for me to browse their own store with their own product in my hand and then buy. I do buy Nook books, but if they don’t make it easy for me, I’ll price-check Amazon and buy from there if it’s cheaper. I’ve got the Kindle app on my Nook, if I want to dual-boot to the Android side.

  6. Quote – BN fails to understand the first rule of survival when you’re worried about drowning – Don’t hold on to someone else who may also be drowning.

    You are so right, PG!!!

    Like Shelly said, Everyone is concentrating so hard on saving the dead-tree business, they’re missing the huge opportunities that are in the digital area.

    All I can say is: “Go, Amazon! GO!” I, too, have benefited from Amazon’s specialized genre bestseller list. They have their eyes on the future instead of the past.

  7. I’m still struggling a bit with B&N’s inherent contradiction of not really giving a damn about indie authors while simultaneously demonizing Amazon for locking them in to exclusivity deals. I personally feel like the recent bookstore and publisher attacks on Amazon are also thinly veiled attacks on the burgeoning indie trade. Another reason to stay away from yesterday’s monopoly.

    • Dan, I was thinking the same thing. B&N is not really author-friendly. Amazon has gone out of their way to keep me in the loop about every step of the publishing process, which I value a great deal. And for what it’s worth, I was an Amazon customer their first year in business. At the end of that year, they send me an insulated coffee mug to thank me for buying from them. Okay, a trinket, but I’ve never forgotten the gesture. I think they have both customers and authors in mind when they make decisions.

      When it comes to the two websites, B&N cannot begin to compete given their current layout. It’s simplistic and uninspired. Amazon’s site is vibrant and always fresh.

  8. There are a million things I could suggest to you, PG, if you were forced to become prez of B&N, and I may yet write that blog post, but, for now, I’ll just keep it simple:

    Fix your (online) store. Your discovery tools are so awful that many of your customers are searching for books on your biggest competitor (Amazon) and then coming back to your store to purchase. Some of the stuff Amazon is doing is technologically challenging. But some of it is the basics which you are getting wrong (and don’t seem to be doing anything about for several years now): categories, search, tags. A 12-year old hacker in Manila could teach your fourth-rate code-jockeys the basics in a weekend. And if you can’t get the simple stuff right, you have no hope.

    I don’t want Barnes & Noble to do me any favors. I just want them to stop putting roadblocks in the way of people who are trying to find my books (or any other books that aren’t in the two or three categories available, or aren’t in the (cooked) Top 100).

    The big secret is that Amazon aren’t *helping* us. They’re just not actively harming us – like all the other retailers – and that’s enough to inspire our loyalty.

  9. In my opinion B&N is missing the point and is playing the big six publisher’s game, instead of playing to their advantage as the biggest brick and mortar book store, and perhaps the largest distribution channel. B&N is the only one that has real store books and e-books. Amazon and the other e-reader suppliers don’t have that. B&N should welcome all. Size matters.

  10. Improve the store – and most importantly: sell the Nook in other places than the US. /Just/ adding the more interesting parts of the Commonwealth would increase the amount of potential customers dramatically.

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