My Take on Amazon Vs Macmillan

Posted on February 1, 2010
Filed Under misc | 2 Comments

I really honestly didn’t want to write one more consecutive Kindle related post but current events conspired against me with the current dispute between Amazon and Macmillan. I am seeing a lot of analysis from my compatriots in the science fiction tribe, such as Tobias Buckell, Jay Lake, this thread at Making Light. I completely understand all these people being pissed off when their livelihood blips off the map. It sucks but this sort of thing happens when corporate giants clash. It’s the dude who runs the diner by the stadium who is the true victim of a sports strike, and the writers and customers are the victims of the Amazon and Macmillan dispute.

Allow me to lay out a thought experiment I’ve seen nowhere else:

Imagine I am the executive of a large publishing concern. Some proportion of my company’s income flows through ebooks and the majority of that is through the Kindle at the moment. However, I as an executive in my heart of hearts don’t like ebooks. It’s not why I got into publishing, it’s weird and has different market dynamics from what I am used to. Even though I am making some money and the amount is growing, I fear that this is eroding and canibalizing the print sales I consider my real business. What I really wish is that ebooks would go away, but I can’t just pull them from retailers or explicitly state that.

Instead, what I want to do is to find a defensible price to raise end consumer prices that will effectively mean that no one much will buy it. Some hardcore fans will, but the fears about cannibalization will go away because the prices are so close to parity with paper that no one wants the ebook version anymore.

Now, imagine that the retailer won’t play ball with that. They are already willing to eat a loss per unit on sales, and even if I were to raise the wholesale price to them they’d be willing to eat that larger unit loss. What I really want is to change the basis of our business relationship that prevents them from setting the customer’s final price The retailer opposes this, even though this means that instead of taking a small loss they are going to make a $4.50 profit on each of the higher priced ebooks. They know that there will be a customer revolt and the backlash will take a market they’ve spent years nurturing and put a big hurt on it.

Now, suppose after negotiations reach an impasse, the retailer wants to signal seriousness to me, the publishing executing. They could choose to delist my firm’s ebooks as retaliation except that would give me exactly what I want. In this particular thought experiment, if the retailer were to try to apply coercive leverage to me, it would require them to also delist electronic and paper copies of books to have any effect on me, because my real end goal is to get ebooks delisted while keeping my hands completely clean.

::End though experiment::

Most of the commentary of my tribe seems to focus on how uncalled for the delisting of print books was. What I’m trying to present – without any knowledge of motivations of any players involved – a scenario in which Amazon could consider themselves justified in delisting the print books. I don’t want to alienate my friends, but they seem to all see Macmillan as the undisputed good guy and Amazon as the obvious bad guy here and I’m not sure I buy that. Between the two, the company looking out for my particular interests as a customer is Amazon. As RichSPK tweeted earlier today “How does increased competition (Apple’s iBooks to Amazon) result in higher prices to consumers?” That, sir, is an excellent question and one worth thinking about.

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2 Responses to “My Take on Amazon Vs Macmillan”

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  1. jcunwired on February 1st, 2010 1:29 pm

    Excellent observation. Amazon, and Bezos, have done an incredible job of providing us with discount prices on books. They don’t necessarily have to lose revenue with e-books, but in keeping with reasonable prices AND the necessity to take a loss while new concepts are being adopted, they have chosen to do so. For that alone, Amazon should be seen as the good guy.

    Last week, suddenly, Apple was at war with Amazon. Now I don’t understand how a 50% increase in e-books benefits me, but somehow the entire Apple community has declined to see it this way. Bottom line, if you’re up against Apple, all logic goes by the wayside. Makes no sense to me, but apparently to them it does.

    So here we are, another new Apple product, and the chasm between the iHaves and the have-nots increases.

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    [...] Len mentioned me by name to reference this post on my thought experiment. [...]

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