Amazon may put traditional publishers out of business says industry insider

10582891-amazon-logoOn new Silicon Valley news startup Pando Daily, ex-TechCruncher Sarah Lacey posts an email she got from an anonymous publishing industry insider who sees Amazon gunning for the publishing industry with a long-term plan to put big publishers out of business.

By selling books at slim or even negative profit margins, this insider notes, Amazon is targeting publishers own profit margins—if Amazon can convince consumers that books are “supposed to be” cheaper, publishers will have to lower prices sooner or later. And Amazon also has its sights on the books that earn the publishing industry most of its money—celebrity and best-selling fiction writers.

In short, there’s a bidding war among the publishers over the big books. We all know what the good books are–it all comes down to how much of an advance we’re willing to pay for them. The hotly fought-for books are the ones that sell. And while we might not make huge profit % on these, we make big profit $ on these. They keep the lights on by covering overhead. Better to cover our fixed costs by going all in on a few big books than trying to buy dozens of mid-list books.

But over the years, the amount of advances publishers have been able to pay has declined—and Amazon has moved in to scoop some of these books out from under publishers’ noses for its own new publishing arm by paying ridiculous advances that they’ll never be able to earn back. Even though it’s throwing money away, it’s money Amazon can afford to lose in order to build its own publishing business—and it’s taking away the authors who are traditional publishers’ bread and butter.

I find myself in agreement with Lacey’s comments on this email—the publishing industry has made its own bed over the years, and has no one else to blame if it turns out it didn’t make such a comfortable one after all. Perhaps some new, smaller company can figure out innovative ways to eat Amazon’s lunch just as badly as it’s eating the big publishing dinosaurs’.

2 Comments on Amazon may put traditional publishers out of business says industry insider

  1. Amazon just recognized the large opportunity in a dysfunctional industry. The manure in the letter just demonstrates how fertile the opportunity is.

    Amazon has no interest in driving down the price of e-books or educating the public that the price should be lower. They would make more money if they could sell them at a higher price. Amazon does however recognize that you have to understand the customer and the price has to be rational in the market place. The traditional publishers still don’t understand this (as demonstrated in the letter).

    Fear mongering about what Amazon will do when they get a monopoly is ridiculous. Amazon understands how loyal customers are in the web marketplace. It’s very easy to buy from another website and new websites can pop out of nowhere (like Amazon did). You can try to maintain customers by giving good service and keeping them happy but you won’t survive by trying to use your market dominance and drive up prices. You can’t corner the market with digital goods, that’s old school thinking.

  2. Bob W – very well said.

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