Amazon: Friend or Foe?

An article entitled: “Amazon: Friend or Foe? A Simple Question with a Complicated Answer” is in the June 2015 issue of the Independent, the monthly journal of the Independent Book Publishers Association.  It is written by Mike Shatzkin, who is CEO of The Idea Logical Company and a publishing industry consultant.  His blog, the Shatzkin Files (idealog.com/blog) is the source of the article. I think it is worth summarising Mr Shatzkin’s points.

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Mike Shatzkin

Mr Shatzkin begins by saying that Amazon has profoundly changed the publishing industry in three ways.  First, it has consolidated the book-buying audience online and delivers it with extraordinary efficiency.  For most publishers, Amazon is their most profitable account, if volume, returns and cost of servicing are taken into account.  Since this fact is almost never acknowledged, it is “one of the industry’s dirty little secrets”. For this reason, he says that Amazon must feel justified in trying to take more margin, an effort which the publishers resist because they don’t know where the demands will cease.  At the same time and in spite of the profitability of the Amazon account, many publishers feel more comfortable with a whole range of customer accounts.

Secondly, “Amazon just about singlehandedly created the e-book business”.  They made an e-reading device with built-in connectivity for direct downloading; this was done in pre-WiFi days so that Amazon was taking a risk that connection charges could destroy margins.  Amazon had the clout to persuade publishers to make more books available in e-versions, and they had the loyalty of book readers who bought e-books.

Finally, the success of the Kindle made self-publishing attractive.  E-books could be produced cheaply and sold at low prices with high margins.  It facilitated the process by creating an easy-to-use interface and efficient self-service.  Amazon represented a ready market for self-published e-books.

Shatzkin says that the first two of these three changes made Amazon a friend of the traditional publishing industry, while the third puts them more in the category of foe.

He goes on to say that Amazon’s data policies make them a foe: they do not share information.  Amazon does not use the industry standard identifier, the ISBN, for the titles that it publishes: it uses the ASIN and does not report on the volumes or the categories of ASIN’s.  There is a black hole in the data.

Amazon also does not report on its sales of used books.  The used book market may help publishers sell more new books as the used book market offers a means for buyers to get a portion of their investment back.  But at the same time, when used versions are available almost simultaneously with new books, they represent a downward pressure on new book prices.  Over time, as demand for a given title decreases and the volume of used copies for sale increases, the price of used copies will decline.  But only Amazon has the useful data about the used book market.

Traditional publishers have no idea how large Amazon’s proprietary book publishing business is.  What volumes?   What categories?  How will recently published Amazon titles affect the prospects for titles under consideration by traditional publishers?

Shatzkin says that Amazon never saw the book business as a stand alone business.  Rather, it was focused on creating “life-time customer value” across a broad range of products.  While it clearly dominates the English-speaking book world, language differences mean that book markets will remain ‘local’ for a long time and strong local players will be hard to dislodge.

He says that the Kindle and Amazon Prime are powerful tools to retain customer loyalty.  Once one subscribes to Prime, all shipping charges are waived, removing the incentive to buy from others.  And, of course, Amazon has the world’s largest selection of printed and digital books in one place.

Looking ahead, Shatzkin sees the subscription services, such as Scribd, Oyster, 24Symbols and Bookmate (as well as Amazon’s own Kindle Unlimited) as pulling customers away from á la carte book buying.  Most of these sales will come out of Amazon’s hide.

His conclusion: Amazon will remain dominant in most of the world for the foreseeable future.  Although, with the next round of marketplace changes, Amazon will be challenged as it will dominate a small portion of the overall market.

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