Has Amazon Duned Publishing?
Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In Dune (1965), the best-selling science fiction work of all time, the late Seattle-area author Frank Herbert described a corporation that controlled commerce across the Known Universe – though it still relied on UPS to make deliveries and is almost destroyed by a religious cult:
[Combine Honnete Ober Advancer Mercantiles] is business and business follows profits…Few products escape the CHOAM touch…Logs, donkeys, horses, cows, lumber, dung, sharks, whale fur — the most prosaic and the most exotic…a regional cartel in Star Jewels…even our poor pundi rice from Caladan. Anything the [Spacing] Guild will transport, the art forms of Ecaz, the machines of Richese and Ix… inkvines, shigawire, Ixian artifacts and entertainers, trade in people and places…swordmasters, twisted mentats from Tleilax, conditioned medics from the Suk school, and fincap accountants…But the important thing is to consider all the Houses that depend on CHOAM profits…[CHOAM is] a constant ferment, intrigue within intrigue, a play of powers where the shift of one duodecimal point in interest payments could change the ownership of an entire planet.
The specter of an Amazon (NASDAQ: AMZN) monopoly is continually trotted out by the Seattle Times in part two of its series. The paper quotes a digital-media consultant saying, “Publishers are doing what they can to ensure that Amazon doesn't become to e-books what Apple became to music downloads. Otherwise, Amazon can call the shots.” This conjecture rests on the phantasmagorical idea that Apple (NASDAQ: AAPL) calls the shots in music or has anything approaching a consumer unfriendly monopoly. In actuality, the increasing unreliability and restrictions of Apple digital products (as well as its lackluster attempts to expand into digital media) indicate that Apple is unable to control the destiny of sound, let alone light. Apple’s attempts to tighten a proprietary grip around digital products has only resulted in better and cheaper ways to crack their encoding to allow consumers to fully own the products they have purchased.
With the passing of the Steve Jobs, the spell he cast over the media has begun to ebb, and Apple’s move to collude with publishers to raise the price on digital media (the “agency model”) is proving to be their undoing, and inadvertently causes increasing numbers of observers to declare Jeff Bezos the new Steve Jobs. However, while both titans have no compunctions about eating their own children, they are as different as Hyperion and Phoebe in other arenas. While many of Amazon’s detractors have their heads up Uranus and believe they see a monopoly on the setting horizon, the modern titans believe that it is dawn on the horizon -- and Bezos famously declares it “Day One” every chance he gets. The common fear born of recent experience among technology and retail companies is of being overthrown by one of their progeny. The paranoid drive to survive is less a sign of the End of Days for the industry as the Seattle Times asserts, and is something more like a realization that Amazon is experiencing Bill Murray’s Groundhog Day.
Finally, the Seattle Times rounds out its take on Amazon publishing by asserting that Jeff Bezos is simply a wily financier with a list of widgets who became a retail lothario that never loved books, he only used them to dupe customers with low prices and great service. In what the reporters believe is an investigative coup, they quote Bezos describing in cold, calculated terms the great business opportunity books presented in the Nineties. However, any passing observer of Amazon knows this has always been true and is the theme of his first annual letter to shareholders in 1997 (and which has been cut and pasted into every annual report since).
People do not shop at Amazon because its part of some constructed fantasy that makes them feel good about themselves (which is Apple’s main business proposition right now). People shop at Amazon because it has Wal-Mart prices, Costco (NASDAQ: COST) quality, and Amazon service.
One skill that all major companies eventually have to develop is to either supply products themselves (as Costco does increasingly under its Kirkland Signature brand and as Amazon has done with its Strathwood, Pinzon, and AmazonBasics brands), or learn how to bring their suppliers up to a speed that can play at the global level. Amazon’s disaster with the hapless Toys R Us underscored the need for the company to properly vet and prepare its partners for the intensity of serving the global demand.
However, the Seattle Times quotes some analysts who believe Amazon missed a more glaring lesson after a judge ordered the company to compensate Toys R Us $51 million for violating the exclusive terms of the contract, “They alienated their partner – in this case, Toys R Us – in the hope that they could get away with it. The same thing is happening now with publishers.” Yet, what Amazon seemed to take away was to not sign exclusive deals with untested partners, and to take on anyone that agrees to meet the terms necessary to shoot the rapids of the world’s electronic super river – whether that’s a big children’s manufacturer or a downtown toy store.
Another titan that rode rivers to fortune, Cornelius Vanderbilt spent much of his career undermining monopolies by offering customers lower and lower prices coupled with better and better quality until finally people started taking for granted the services he offered because they had become such a regular part of their lives. By making Amazon not only an indispensible tool, but a helpful service in the process, Bezos is positioning himself to be the next Vanderbilt for a global society where everyone is an artist and no one wants to learn how to construct a canvas.
Some publishers just do not want to admit that “their fair share” is what stands in the way of progress, “When you have a book that your gut tells you is going to sell 400 or 500 copies, you don't have any room to move on pricing. You're already cut to the bone,” says one small firm owner that sells mostly to libraries. Perhaps thirty years of working with government and quasi-government entities has dulled his ability to improve on his business. Moreover, by eliminating the publisher’s take all together (as Amazon has done), it is amazing how much more fat there is on the bone. More exciting is what people are going to do with that fat.
Still, Amazon’s spiritual patriarch Frank Herbert ends with a cautionary note:
The failure of CHOAM? Quite simple: They ignore the fact that larger commercial powers wait at the edges of their activities, powers that could swallow them the way a slig swallows garbage. This is the true threat of the Scattering—to them and to us all.
Nick Slepko has no position in any company mentioned here at the time of publication. Motley Fool newsletter services recommend Amazon.com, and Apple. The Motley Fool owns shares of Apple, and Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.