How I Think Amazon / Hachette Will Play Out

To me, it’s this simple…

Back before Amazon, a publishing company like Hachette had a nice, comfortable business relationship with retailers like Barnes and Noble, Borders, etc…

Things hum along, and Hachette had a comfortable time “setting” prices through the retailer.

That should have been Barnes, Borders etc… actually setting the prices, and at times they DID “set” the price… on physical material (printed books).

Then Amazon came along, another retail store, but this time using the Internet to distribute books at first, then merchandise etc…

Amazon. Is. A. Retailer.

Hachette. Is. Not.

Amazon sets prices, Hachette does not set Amazon’s prices.

If Hachette doesn’t want to sell its books through Amazon (again, retailer), it doesn’t have to. And that includes ebooks.

Ebooks are products sold in Amazon’s store. Hachette can suggest price, but if they want to sell through Amazon, Hachette gets to sell at Amazon’s price.

To me, it’s that simple.

Hachette used to be comfortable because the retailers it used to (and still does) deal with were okay selling at prices it had a “say” in.

Now, Hachette is uncomfortable, because Amazon, a retailer who sells more than just books, wants to sell (distribute) Hachette’s merchandise at a price Hachette is not comfortable with.

But in the end, it’s too bad.

Amazon will sell at a price it feels will be best for its business and its profits (or business model, with little profit), period. 

If Hachette doesn’t want to use Amazon, it doesn’t have to. It can sell its finished product through other distribution channels (and retailers).

But Hachette wants it both ways, it wants to “be comfortable” and sell its product at a price that benefits its business, and its profits (or business model).

Amazon’s retail business model isn’t a good fit for Hachette as a manufacturer (and wholesaler?). That’s why I think this whole debate exists.

Amazon is having “patience” that I don’t think it will keep having for long … it hasn’t yet cut ties with Hachette.

(because Hachette does produce a good product, and Hachette does so BECAUSE of good authors and their reader following)

I’m guessing that if Hachette’s “leverage” in this negotiation slips at all (its authors and their reader following like Patterson, Preston etc…) then Amazon will correct.

I think Amazon is “algorithmic” in a way, in the way it conducts business. So if the “computer” says there are “plenty of books in the sea” (which are being created by self-published authors and other traditionally published authors not with Hachette) … I think a major shift will occur.

And the price will, in the end, be determined by market forces in this particular case.

Left as a comment on this post.

Readers United (Statement from the Amazon Books Team)

Perhaps channeling Orwell’s decades old suggestion, Hachette has already been caught illegally colluding with its competitors to raise e-book prices. So far those parties have paid $166 million in penalties and restitution. Colluding with its competitors to raise prices wasn’t only illegal, it was also highly disrespectful to Hachette’s readers.

The fact is many established incumbents in the industry have taken the position that lower e-book prices will “devalue books” and hurt “Arts and Letters.” They’re wrong. Just as paperbacks did not destroy book culture despite being ten times cheaper, neither will e-books. On the contrary, paperbacks ended up rejuvenating the book industry and making it stronger. The same will happen with e-books.

Read the entire statement (and possibly email the CEO of Hachette yourself) at http://www.readersunited.com

It’s quite baffling to me how Hachette can continue their tactics beyond this point.

Below, is a copy of the letter I emailed to Hachette CEO Michael Pietsch…

————-

Mr. Pietsch,

You’re probably receiving an extra volume of email due to a recent letter published online at http://www.readersunited.com, so I’ll make mine brief.

I’m a reader of many books per year.

While do not purchase that many e-books as a regular course of my reading, only having 183 of them on my tablet, I do have an extensive library of printed books.  I purchase most of them via Amazon.com.

I’ll get right to it, in my opinion you and your company are on the “wrong side of history” as it pertains both to the pricing of ebooks, and operating a publishing business within the context of our digital culture in general.

If you want to price your ebooks higher, stop selling them on Amazon.com, and simply sell them using other available distribution channels at the price you wish to sell them.

I think you’re gambling your company’s future profits by doing so, and I will not restate the number of reasons for that line of thinking.  All of those reasons are published both in Amazon’s recent letter, and via a multitude of thoughtful blogs on the Internet.  (via J.A. Konrath, Barry Eisler, and David Gaughran’s in particular).

But if you feel that strongly about the pricing of your titles, end this negotiation with Amazon now (along with your rather silly PR stunts), and simply sell Hachette titles elsewhere.

You will lose at least one reader by ceasing to sell on Amazon.com, but I suppose you will gain the satisfaction of maintaining the ebook pricing structure you would like.

Respectfully,

Joseph Ratliff

———————

You can sign the Change.org petition “Petitioning Hachette for low prices, and fair wages” here on their site.

Why Amazon Is Not A Monopoly (Yet)

This Amazon and Hachette negotiation has people all wound up in a tizzy.

Some, who seem to “side” with Hachette in these negotiations (NOTE:  there are NO sides, this isn’t a “war” except in the media), trot out the following line (or some variation of it):

Amazon is a monopoly, so watch out, they are going to take over the book industry.

The quick version is … no, they aren’t a monopoly, and I don’t think they are going to be one any time soon.

There are plenty of alternatives to Amazon in terms of books (Powells, Barnes and Noble, independent bookstores etc…), but Amazon doesn’t just sell books.

Amazon is a retailer that uses digital technologies better than most companies, and applies them to its business with a model similar to (not exactly like) Wal-Mart.

So if you think Amazon is a monopoly, are you going to call Wal-Mart a monopoly too?

Amazon isn’t a monopoly because they haven’t even come close to “eliminating” all competition so they can completely control (raise, not lower) pricing.

The legal definition of monopoly from here: http://legal-dictionary.thefre…

An economic advantage held by one or more persons or companies deriving from the exclusive power to carry on a particular business or trade or to manufacture and sell a particular item, thereby suppressing competition and allowing such persons or companies to raise the price of a product or service substantially above the price that would be established by a free market.

Amazon doesn’t have any “economic advantage” as it pertains to this legal definition yet, not even close. I don’t see them ever getting this advantage, because, well, Wal-Mart is also a competitor for them as well on retail items.

So can we stop this “Amazon is a monopoly and a great big bully, WAH!” nonsense?

Amazon’s Recent Statement Proves Hachette’s True Motive

Amazon’s recent statement is here.

Barry Eisler’s comments on it are here.

Hugh Howey’s comments on it are here.

Read all of the above (links open in a new window) … then come back.

My comments (on the general nature of this whole Amazon and Hachette thing) are below:

Is Amazon in business to make a profit? Yep. Investors cursed with short-term thinking don’t think so, based on recent losses being reported, but that’s their problem.

Amazon is a corporation, they are in business to make a profit, and they have what is (for most companies) a “missing” ingredient…

… they truly understand where those profits come from. The fact this post by their book team had the words “price elasticity” in it, should tell every single Big 5 publisher to go back to business school.

Amazon might mess with the terms for authors in the future, sure. They won’t make all authors happy, all the time … okay… so what?

What publisher or retailer has?

Amazon has a LONG way to go before they enter the realm of “screwing” authors. And Amazon also knows that if they do that, it would hurt business, because authors would probably go through other distribution channels.

Amazon won’t do that. The “asset” created by treating authors fairly is too valuable to their business for now. Until that changes, I don’t see any future where Amazon will just outright screw authors over. They might “fudge” the numbers, like they have recently … but nothing more.

That’s a LONG way from what Big 5 publishers are doing to their authors (except for the top percentage of their authors).

If anyone from a big 5 publisher can read Amazon’s recent post … and with a straight face tell people (in public) that ebook prices should be kept on the high side (that is, above $9.99 in general) … there is no hope for them.

Because math is math, no matter HOW you look at it.

And The Big 5 Publisher Whining Continues…

Steven Zacharius, a respected CEO for Kensington Publishing, responded to my comment from this post on Hugh Howey’s blog.

Here is what he said:

Readers have not spoken. Amazon has spoken. There job for their shareholders is to build their companies bottom-line. They’re doing this by capturing marketshare by discounting prices and eating the difference when they want to. They can afford to do this because of their size. They can absorb taking a loss to capture readers into their proprietary system because they’re making money from other things like distributing other products and their many service….Amazon Web Services, which hosts websites.

Here was my reply to him on the same blog…

Amazon isn’t saying anything, that influences why I buy from them or not. It’s what they DO that influences why I buy books from them.

They take care of the customer, they provide good shipping options, and they know how to pack a book. Then, there is their selection, I can find any title (just about) that I want from them.

Yes, Steven, the readers “speak” with their dollar.

But let’s address a few of your points, one by one…

1. You said: “There job for their shareholders is to build their companies bottom-line. They’re doing this by capturing marketshare by discounting prices and eating the difference when they want to.”

Okay, and? They are a for-profit business and not a charity, correct?

2. You said: “They can afford to do this because of their size.”

Okay, and? They have built their business to that “size,” which has nothing to do with monopolizing a market (if the market is big enough, and the book market is). Also, I don’t think Hachette is exactly “small,” right Steven?

And, in terms of pricing, which people seem to keep using as a point towards the supposed “Amazon bullying” theme … if pricing is all you can compete on … then Amazon will win the battle, and that’s business plain and simple.

Oh yeah, and low price for a title, all other things being equal in the value equation for a product like a book, is what a customer will pick… IF there is no other value to exchange for their dollar.

3. You said: “They can absorb taking a loss to capture readers into their proprietary system because they’re making money from other things like distributing other products and their many service….Amazon Web Services, which hosts websites.”

Okay, and? So, Amazon built their business by correctly placing business “bets” in various areas, and their results shine. I would have to ask is Hachette competing with Amazon as a whole, or just doing the “book business” better than Amazon (hint: Hachette’s trying to bite the whole elephant)?

Do I want just one company providing me everything in certain categories, like Amazon does? Well, if that’s the best option for my money, the best “value” … then yes.

BUT … the reason Wal-Mart hasn’t killed off every single business in the categories they sell within their stores … and the same theory will apply to Amazon…

… is there are businesses who add unique value where they can differentiate FROM the behemoths like Wal-Mart and Amazon.

I shop them (hint: I don’t go to Wal-Mart, ever, for anything … and it’s because I’ve found the businesses that do it “better” because price isn’t my first consideration).

So let’s get back to this pricing thing…

Hachette wants to sell ebooks at a higher price point, Amazon wants to sell ebooks at a lower price point (remember, this is the digital world).

Do you think that Amazon is trying to keep those prices down “because it can” or perhaps because they’ve recognized that they can sell more units, “turn” more ebooks that way?

Digital provides profit continuously, because of the unlimited shelf space.

Hachette wants to raise prices on ebooks because it wants to maintain the price point (or justify the price point) of their print versions.

There really isn’t another reason to try so hard and keep prices closer to the rest of their product line, when the market (the readers, who speak with their dollars) wants to pay much lower prices for the digital product in the first place.

I’m not saying print will die, or anything like that … but I am saying that print had better find a way to price itself closer to the digital market IF Hachette wants to keep that business running smooth.

Because in the end, you’re right, Amazon is a mighty big company who has a proven track record of successfully placing the right “bets” in business, especially when it comes to online selling.

Does Hachette, even at its size (and profits, they aren’t poor either) want to compete with a giant like Amazon on what has proven to be THEIR battleground (digital business)?

If I were Hachette, I would start by listening to guys like J.A. Konrath, Hugh Howey, and Barry Eisler … and listen to them very closely.

Because time is running out for outdated publishing business practices, and Amazon figured that out a LONG time ago.