I sent the following email to Jeff Bezos, Chief Executive of Amazon.com today.
I have taken an interest in Amazon’s dispute with Hachette and various authors for two reasons. I, myself, am a published author (five novels and two more in the pipeline). I am also a senior management consultant.
First, let me say that as a buyer of books (and many other things, including mosquito-repellent bracelets), I find Amazon to be an excellent supplier: good prices, extraordinarily wide choices, very prompt delivery, and plenty of product information, including other customers’ reviews.
As an author, I am pleased to see my books presented in colour, thoroughly described and reviewed, and available from stock. I am less pleased to see the price levels to which they are discounted for two reasons. First, every dollar of discount Amazon offers to buyer means fifty cents out of my pocket. It is in this sense that authors are not being used as ‘human shields’ by the publishers. We aren’t hostages; we, too, are under attack! And, second, I believe Amazon is ‘leaving money on the table’ with such large discounts. In other words, prices are less elastic than Amazon apparently believes. More on this later.
As I understand it, Amazon has two objectives in pursuing greater discounts from the publishers: one explicit and the other implied. The explicit objective is to recoup the losses Amazon has recently suffered ($126 million net loss in the second quarter of this year). The implicit objective is to have nothing between the author and the reader.
I have no problem with the explicit objective – depending on how it is pursued. The implicit objective is more complicated. I can understand how Amazon would like to be the ‘transformational vehicle’ between the author’s output and the reader’s input. The problem is that there is a huge collection of what Amazon probably regards as time-honoured baggage in that gap between the author and the reader. Why doesn’t the author just sell his output to Amazon (for which s/he would be handsomely rewarded) and Amazon would produce (mostly) ebooks for readers (for which service it would be handsomely rewarded)? A sensible objective, on the face of it. But, there are powerful opposing forces which may be irrational, but will, nonetheless, be difficult for Amazon to overcome.
The first of these forces is that some readers (like me) love the sense of a physical book, and will not buy an ebook. (Although, all of my novels are also available as ebooks.) For me, the physical presence of a book while I’m reading it, and in knowing that it’s on my bookshelf, far outweigh the ‘convenience’ and lower cost of an ebook. Will we – hard-copy addicts, who are currently in the majority – disappear over time? Possibly. But not for at least a generation.
Aside from physical printing, there are other tasks which lie in the gap between author and reader. Amongst these tasks are author and book selection, editorial advice, editing, cover design, administration and a wide variety of sales, marketing and promotional services. Some of these tasks can be carried out by the author at additional cost to the author, but many authors, particularly best-selling authors, would object to being ‘burdened’ with these tasks. Is Amazon prepared to scale up or make acquisitions to ‘fill these gaps’ between author and reader?
Then, there is the whole contentions issue of literary/artistic/professional gatekeeping. Currently, publishers and literary agents largely decide who and what gets published. They may not always make the right choices, but the fact is that their choices are generally supported by professional critics and educated readers. Is Amazon prepared to hire a host of these gurus, or would Amazon’s strategy be: ‘Let the Market decide!’ If Amazon would opt for the latter strategy, I suggest that the outcome would be catastrophic: a market saturated with low-quality, popular books: a situation which would not be tolerated by educators or educated readers. It is wise to recall that literary gatekeeping grew up with the publishing industry out of demands by an educated market.
So, what would I, as a professional management consultant, advise Amazon to do? I would advise Amazon to proceed very cautiously in its efforts to fill the gap between author and reader: a misstep could be punitive (from the market or from government). I would recommend that Amazon raise its prices, across the board, by an average of 2.5% real for each of the next two years. This 5% price increase will not (in my opinion) result in an equivalent reduction in sales. Amazon is well known for its low prices and gradual, selective price increases will not affect that reputation. Pessimistically, there could be a 2% decrease in sales from $80 billion to $78.5 billion. $78.5 billion at 5% higher prices will yield almost $4 billion in additional annual profits.
This course of action would not only makes Amazon look very attractive to its shareholders; it would facilitate amicable agreements with publishers and authors; it would stop the criticism from the media and the marketplace; and would cause government regulators to lose interest.