Passive Guy tried hard to stay away from this post.
But he couldn’t.
The Authors Guild, the organization whose goal is watching out for the welfare of authors everywhere, wants to tell you the truth about Amazon. You may think you know the truth, but you don’t and they do.
The Authors Guild blog entry includes no information about the author or authors, but PG was able to discern their qualifications:
3. Hopelessly in love with agents and publishers everywhere
Useful innovation should of course be rewarded, but we’ve long had laws in place (limits on the duration and scope of patent protections, antitrust laws, stricter regulation of industries considered natural monopolies) that aim to prevent innovators and others from capturing a market or an industry. There’s good reason for this: those who capture a market tend to be a bit rough on other participants in the market. They also tend to stop innovating.
Wikipedia’s antitrust article is so useful, but long, so long you never can get all the way through it.
And thank goodness publishers are never even one bit rough. Wouldn’t even think of it.
Amazon’s first Kindle, released in November 2007, was certainly innovative, but its key breakthrough wasn’t any particular piece of technology. Sony had already commercialized e-ink display screens for handheld e-books in September 2006. (E Ink, a Cambridge company co-founded by MIT Media Lab professor Joseph Jacobson developed the displays used by both companies.) Amazon’s leap was to marry e-ink displays to another existing technology, wireless connectivity, to bring e-book shopping and downloading right to the handheld device.
Amazon’s innovation, in other words, was to untether the Sony device and put a virtual store inside it. This is no small achievement.
Isn’t it nice to have someone explain what Wikipedia says about e-readers and point out what Amazon should be rewarded for?
It’s the store, nitwits, not the ereader!
Sony was and is much bigger than Amazon and Sony knows more than Amazon about building electronic hardware and it had a big head start with ereaders. But Sony didn’t understand about selling online and neither did Barnes & Noble when it was much, much bigger than Amazon.
Amazon was selling gobs and gobs of books and CD’s (remember those?) and lots of other things long before it had a Kindle. Amazon has worked very hard to build the most sophisticated and effective retailing website on the planet. The Kindle is just a way to sell more books and the Fire is just a way to sell more books and video.
You would think that even English majors at the Authors Guild would have heard the ancient marketing story about razors and razor blades. Amazon does everything but give Kindles away so it can sell more books.
But getting people to buy more books – that could be bad. Right?
In Amazon’s perfect world, Sony and Samsung would build all the ereaders and connect them to Amazon. Only because it’s not a perfect world does Amazon spend so much money building Kindles.
Amazon’s reward for developing the wireless e-reader should have been that it would become a significant vendor of e-books and earn a profit commensurate with the value it added to the publishing ecosystem. Whether it would then continue to be a significant e-book vendor should have depended on whether it continued to innovate and provide good service to its customers. Amazon’s reward should not have included being able to combine its wireless e-reader, deep pockets, and an existing dominant position in a related, but separate, market — the online market for physical books — to prevent other vendors from entering the e-book market. Amazon’s reward as an innovator, in other words, shouldn’t be getting to wall itself off from competition.
What helpful people they have at the Authors Guild, telling us what each of our rewards should and should not be! How have we managed to survive without their guidance?
“Wall itself off from competition.”
What are we to make of this? Do the web browsers of Authors Guild bloggers not work right? When they type in Newegg, do they end up at Amazon? When they try to go to the Nook store, does the Kindle Store pop up on their screen? When they search for Wal-Mart . . . oh wait, they would never type that because Wal-Mart is an evil company, that’s why they don’t have any in Manhattan.
Having spent time with some companies doing e-commerce, PG will assure you that Jeff Bezos and a lot of other people at Amazon wake up in a cold sweat worrying about competition. With a physical store located in Ohio, you can be confident your customers won’t be lured away to Nevada. On the web, Nevada is a mouse click away.
Amazon lives in the most intensely competitive environment to be found anywhere in the universe. It grew up in that environment and the moment Amazon gets careless or sloppy, somebody will spring up somewhere on the web to eat Amazon’s lunch.
By all appearances, this is precisely what Amazon was trying to pull off two years ago, when it removed the buy buttons from nearly every Macmillan book. Amazon removed the buy buttons for both e-books and, stunningly, print books, even though its disagreement with Macmillan was confined to the sales terms for e-books. Amazon had about 90% of the market for e-books at the time, but that market was then quite small: Macmillan could handle Amazon’s e-book blackout indefinitely. Amazon’s 75% of the online print book market, on the other hand, provided real leverage on Macmillan, and Amazon chose to use that leverage. By using its print book dominance to dictate terms in the nascent e-book market, Amazon crossed a clear, anticompetitive line.
But it was even worse than that. Amazon had deployed its buy-button removal weapon before, but never so publicly, never on such a massive scale, and never (to our knowledge) as a means of shielding its ability to use a separate anticompetitive tactic: its practice of routinely selling e-books at a loss. Such practices, commonly known as predatory pricing, are a means of using superior capital resources not to innovate nor to provide better service, but to weaken or eliminate competition.
In Amazon’s hands, predatory pricing can be a particularly potent weapon. Surely no retailer in American history has had anything approaching Amazon’s database of deep, detailed, real-time market knowledge. This database eliminates the guesswork from marketing, as Amazon can run countless pricing experiments and immediately analyze the results. With this information, predatory prices can become smart bombs that are precisely targeted to maximize the sales of the latest Kindle to the most desirable categories of consumers, for example, or to maximize the losses of an incipient competitor.
How does Amazon non-publicly remove a buy button? Doesn’t anyone who goes to the product page notice that the buy button is not there? Maybe this is more evidence of special Authors Guild web browsers.
There’s just the slightest little omission in the narrative here. Amazon stopped selling Macmillan’s books because Macmillan, along with four of the five other members of the Big Six were colluding with Apple to fix prices for books.
Unlike “predatory pricing,” price-fixing is a sure ’nuff real regularly-enforced antitrust violation. That would be why US and EU antitrust authorities are conducting investigations of the Macmillan et al pricing collusion and Macmillan is a defendant in a bunch of class-action price-fixing lawsuits.
How many “predatory pricing” antitrust investigations involve Amazon? About the same number as the number of predatory pricing class action suits that are pending. You can be certain if Big Publishing thought predatory pricing suits against Amazon had a prayer, they would file them instead of illegally engaging in price-fixing with Apple.
It is difficult to win a predatory pricing antitrust claim because one of the principal purposes of antitrust laws is to protect consumers (“readers” for you folks at The Authors Guild) from improperly high prices yet the underlying purpose of predatory pricing complaints is to increase prices. Predatory pricing claims, even if unlikely to succeed, are often made by inefficient competitors who are trying to protect their higher prices.
So, the breathless folks at The Author’s Guild are formally proposing that readers pay more for books. Why? Well because everybody knows that, particularly during a severe recession, readers should not be allowed to save any money by purchasing books for lower prices.
The interesting counterpoint to this “predatory pricing” meme is that when individual authors (as opposed to big media conglomerates) set prices for their own books on Amazon and the Nook Store and Smashwords, those prices tend to be much lower than Big Publishing charges.
But, of course, Big Publishing knows the proper price for a book because . . . well, because it’s Big Publishing.
Though sales of the Nook were reportedly brisk, Barnes & Noble could never hope to win a war of financial attrition with Amazon. If Amazon could compel publishers to fall in line with its predatory pricing of e-books, it could eliminate a thinly capitalized but potent (because of its physical, brick-and-mortar presence) competitor from the e-book market. It could smother Barnes & Noble’s Nook before it could pose a genuine challenge.
Ah, the ultimate irony. When Leonard Riggio, the chairman and largest shareholder of Barnes & Noble, sat down with Jeff Bezos on two occasions in the early 90’s in an attempt to buy Amazon, that’s the threat Riggio used – Amazon could never survive a war of attrition with Barnes & Noble.
We aren’t Barnes & Noble’s champions, or at least we aren’t their champions by choice. We’d favor a far more diverse and robust retail landscape for books, and we encourage all readers to patronize their local bookstores as they would their farmers’ markets or any other businesses that enrich the quality of life in their towns and neighborhoods. But here’s where we are: Barnes & Noble is book publishing’s sole remaining substantial firewall. Without it, browsing in a bookstore would become a thing of the past for much of the country, and we would largely lose the most important means for new literary voices to be discovered.
Why didn’t you think of farmers markets? That’s why you’re not an Authors Guild blogger. If the whole world would just patronize farmers markets and buy plug-in hybrids and quit paying attention to Amazon, wouldn’t all authors be better off? Maybe we could collect our royalties as bushels of organic spinach.
But the last part is the best – without Big Publishing and Barnes & Noble, “we would largely lose the most important means for new literary voices to be discovered.”
I guess we know how The Authors Guild feels about new literary voices who want to stay in control of their books by self-publishing. And we also know how The Authors Guild feels about new literary voices who write books in genres that don’t have an associated Barnes & Noble buyer. New literary voices will, of course, always write in the same genres and for the same audiences as the old literary voices do.
Where would authors be without The Authors Guild?
Link to the rest at The Authors Guild