The Future with Amazon: Utopia, Dystopia, or Ecotopia?

By Nick Slepko - April 26, 2012 | Tickers: AMZN, AAPL, BKS, COST, SNE | 0 Comments

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In Ecotopia (1975), the first book I ever bought through Amazon (NASDAQ: AMZN), a journalist visits a futuristic breakaway American republic where everyone can be an artist:

Just as Ecotopians blur the difference between professional and amateur in science, there is almost no distinction between amateurs and professionals in the arts. People of all levels of skill and creativity put themselves forward unabashedly. There is hardly a young person in the whole country who doesn’t either play an instrument, dance, act, sing, write, sculpt, paint, make videofilms, or indulge in some original artistic activity. However, few of these gain the recognition—and sales—to sustain themselves entirely through their work.

And competition is harsh in other ways too. Not only do audiences treat bad performances rudely, with whistling, booing, and taunts, but even successful artists cannot turn to foundations for the grants that are so desperately sought by our officially recognized artists [in the remaining United States]. If they cannot make it with their art, young Ecotopian artists have only two alternatives: living on the minimum-guarantee level and continuing to strive for recognition, or taking a job and pursuing their art as a part-time activity.

Oddly enough, the avidity with which almost all Ecotopians pursue some kind of art work actually adds to the difficulty of achieving success as an artist, because it seems to diminish the respect for “name” artists…Apparently, if art is something everybody does, a Picasso or a van Gogh no longer seems quite so special.

In “Part 2: A Hammer on the Publishers – Amazon trying to wring deep discounts from publishers” the Seattle Times takes aim at Amazon for doing what other beloved retailers like Costco (NASDAQ: COST) do all the time: press their vendors for better (ideally exclusive) deals. Typical of most anecdote-driven scare pieces, the Seattle Times likes to focus on the little guy – in this case a publisher of scholarly books (whose backward systems are one contributor to the high-price of education). However, it is often ignored that Amazon and Costco are also quite adept (and sometimes the consumer’s only ally) when taking down the Big 6 publishers or Coca-Cola (and its constant drive to position Coke as a premium brand with a premium price). Both Costco and Amazon have also had recent spats with Apple (NASDAQ: AAPL) over its drive to jack up prices. A win for either Amazon or Costco would also be a win for the consumers.

An even starker example can be made with the regularly (and deservedly) maligned credit card companies. Yet, any consumer that has ever had to resort to Visa’s consumer protections to terminate runaway charges of an irresponsive mobile carrier can appreciate Amazon’s current role at the center of the book pricing wars.

To be sure, Amazon could give more notice and provide better communication to vendors, but its dirty little secret is that its own internal chaos (called creative destruction when it works out) does not allow it to operate as well as it would like. Moreover, philosophy and experience has taught Amazon it is better to take a more wily (some might say empowering) approach, as highlighted in the famous Yegge Maquire moment:

Larry Tesler may have convinced Bezos that he was no Steve Jobs, but Bezos realized that he didn't need to be a Steve Jobs in order to provide everyone with the right products: interfaces and workflows that they liked and felt at ease with. He just needed to enable third-party developers to do it, and it would happen automatically.

In the long-term, recidivist alienation of independent and not-so-independent publishers could form coalitions that seek new champions to replace the Amazon-shaped hole in their hearts (and wallets), or develop a wholly new entity with which to work through. Even Napoleon’s attempt to revolutionize Europe was eventually defeated once his neighbors got their acts together after a series of humiliating and not all that necessary defeats.

The Seattle Times fails to grasp the current world of choice when it quotes an independent publisher saying (reminiscent of an elementary school marm), “…if we made a change for Amazon, we'd have to do it for everyone, and that would jeopardize our business.” So the answer is don’t. If everyone can offer the same reach and level of sales (70% of his sales by the publisher’s own account), then definitely treat everyone the same, if not then maybe its time to evaluate your business model more judiciously.  As Michael Medved, author of The 5 Big Lies About Amercan Business observes,

Most businesses that stay small are awful. If you are any damn good, you’re going to get big. I know that sounds brutal...I don’t think there is any reason other than sentimentality for people to think that the ma-and-pa grocery store down the street is any better than a 7-11.

Eventually all established interests invoke the specter of monopoly that could result from more efficient, more aggressive newcomers. Publishers have been no different, and it is easy to see that the Big 6 – News Corporation (HarperCollins), Lagardere (Hachette), Holtzbrinck (Macmillan), Pearson (Penguin), Bertelsmann (Random House), and CBS Corporation (Simon & Schuster) – that have dominated publishing in recent years want to keep prices high for consumers, royalties low for authors, and at the same time continue to restrict new entrants into all areas of the industry. But then even more “greedy” Amazon had to ruin their new century.

The real test of who can dominate the market will go to the contender that not only balances cost and quality, but offers the most open platform. Already Apple is committed to following the old Compaq model of intense (and increasingly burdensome) proprietary options (which led to Compaq’s decline and fall). Barnes and Noble (NYSE: BKS) seems unable to take any of its advantages or quality products and turn them into anything with wide appeal. B&N (as AMD is to Intel) seems destined to be an anti-trust muppet for Amazon.

Amazon also seems to cling futilely to certain forms of digital rights management (DRM) while experimenting with looser controls like once a month lending. However, poorly handled, abrasive moves like recalling without notification a certain edition of Orwell’s 1984, and restrictions to copying text from purchased ebooks (usually the publishers place a limit on how much can be copied using the note-taking function) have led many a Kindle enthusiast to learn the very simple techniques needed to remove controls on the product. This is why a rival like Sony (NYSE: SNE)which in recent iterations has produced better e-readers (as well as better audio players) and may be able to overcome its dearth of content as well as eventually triumph over Amazon and Apple.  (Although, even if Amazon is tacitly supportive of activities like DRM-cracking as long as its devices and products are the ones purchased, it still suffers from the perception -- like it does even when books go above its $9.99 threshold -- that it allows these consumer injustices.)  Of course, there’s every reason to think that Sony can play all sides like when it and Apple recently honored Whitney Houston’s death with a price hike of 60% on her songs hours after her demise.

In some ways, Sony’s positioning could mirror something like Google Gmail. The illusion and perception of choice and freedom has always been important in human decision-making (even more so in fickle commercial commitments). The more secure that modern consumers feel that they can take all their years of diligently accumulated and cataloged content to a new platform, the more likely they are to stay with their current platform as long as it is nearly as good as the other options. Platforms are tools that enable fads (whereas Facebook is ultimately a fad that enables tools)

Next: Has Amazon Duned Publishing?
Previous: "Who is Jeff Bezos?"

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