Amazon’s e-book position ‘weak’ but customer focus too strong for disruption

Here’s a couple of interesting takes on the Amazon/Hachette affair. It’s kind of refreshing, actually, after all this back and forth he-said/she-said of authors in favor of Amazon or Hachette and Amazon and Hachette themselves to look at what more neutral parties are saying.

For starters, here’s Jake Kerr on Medium.com suggesting that Amazon is fighting so hard for lower prices on e-books because, far from being the monopolistic behemoth others accuse it of, its position in the e-book trade is actually fairly weak. This seems a little counterintuitive at first, but Kerr points out that e-book stores have an “absurdly low” barrier to entry—Microsoft, Apple, and Google are already there—and Apple and Google have more popular tablet devices than Amazon. (Kerr doesn’t mention the Kindle e-ink reader, which is still basically the dominant e-ink reader device—but then again, perhaps he feels the importance of e-ink devices is waning as tablets’ influence rises?)

For Amazon to make any progress at all they would have to either make the ebook space not worth pursuing for those companies or to flat out beat them. But the reality is so much harsher than making progress. The assets that Apple, Google, and Microsoft bring to the table mean that Amazon’s market share is inherently tenuous. The result is that Amazon isn’t thinking offense, it is thinking defense, and this is the thinking behind their “not worth pursuing strategy.”

Keeping e-book margins low, Kerr suggests, is Amazon’s way of playing defensively—make e-books simply not worth the trouble of getting into. (Like the proverbial land war in Asia, I imagine.) This has the side effect of giving publishers and authors a lot of money, so if you’re Hachette, you’d just as soon that status quo not change—anything that results in more margin going to Amazon means less margin to you. So Hachette basically has no incentive to give even an inch.

On the other hand, if Amazon cuts back its discounting to make more profits, suddenly the big tech companies have a lot easier time competing—and they’ve got considerably more money to burn than Amazon, if they really wanted to go that route.

Unlike a lot of people (including me) who have said that Amazon holds all the cards, Kerr thinks Amazon actually doesn’t have a whole lot of leverage. About all it can do is appeal to authors and readers, or stop discounting Hachette’s books. He suspects that the way the dispute will end is that Amazon will end up cutting Hachette’s discounts because that’s about the only thing it can do if Hachette isn’t willing to give ground. This will mean more money for Amazon from what sales it does make, but will also make it easier for other companies to come in and undercut it.

Then, on the other hand, we have Porter Anderson discussing the recent two-day workshop in which publishing-industry insiders got together to try to brainstorm how to compete with Amazon. The problem they ran into is that the perfect bookstore pretty much ends up looking just like Amazon, and you can’t out-Amazon Amazon because Amazon already is Amazon. The problem with trying to pick holes in Amazon’s “walled garden” approach is that their garden is so very lush and hospitable that most people “stuck” in it are actually quite happy there.

Anderson cites an essay by Bowkers’s Laura Dawson noting that the things authors and publishers want out of a bookstore (more money, more control) are essentially at direct odds with what customers want (lower costs, more freedom), and hence Amazon’s focus on customers naturally puts it in an adversarial relationship with its suppliers.

What Dawson is saying is that however angry the publishing establishment may be at Amazon for “taking” its reader/consumers — with low prices, staggering inventory, seriously effective technology, and world-beating customer service — those reader/consumers are happy. Attempts to build a “perfect e-bookstore,” like the whole “discoverability” debate, are about publishing, not about readers. I’ve found myself writing lately that our authors can be caught in this teary gratitude-fest for “you, the reader,” when, in fact, the reader is doing just fine and the authors need to work on their own problems. Readers have more content than they can even fathom is out there, and much of it at bargain-basement prices.

And they’re buying it? From Amazon.

And Dawson notes that for all the industry’s “hand-wringing over the Hachette negotiations,” and no matter how big a company Hachette is, the average Amazon customer experience “is just not that horribly affected” by the squabble. If even a major corporate publisher is unable to have much of an effect, what could anyone else hope to accomplish?

The industry insiders participating in that “perfect bookstore” workshop just kept running into the fact that things they thought should help others compete with Amazon—“concierge” type recommender services, for example—were already out there but weren’t setting the world on fire. It’s hard to disrupt with a “new” idea when the idea is already out there but not doing much for the people who already had it.

In the end, they wondered if Amazon was enough a part of the industry now that the next great disruption would have to come from outside the industry and would end up disrupting all of it, including Amazon.

And so the industry upheaval continues…

2 Comments on Amazon’s e-book position ‘weak’ but customer focus too strong for disruption

  1. Good points all!

    True, the financial barriers to entering the ebook market are extremely low. You don’t need brick-and-mortar store. You don’t even need a server farm. You can rent a digital storefront easily and cheaply. Others can handle the financial transactions for you at first.

    Some of the real barriers are technical.

    * DRM is one. Publishers who want DRM are restricted to retailers who can provide it and that tends to be the larger stores with the more popular ereader apps. But over time I suspect more publishers will realize that DRM accomplishes little. Bestsellers will always be pirated. Lesser known books will protected more by their obscurity.

    * Ebook readers create loyalty at the consumption end. If all you want to do is read, all ebook readers are essentially alike. If you want to do more, saving notes etc, then learning several reader apps can be a pain. That locks in readers more effectively than DRM. Reader lock-in is Amazon chief strength, particularly with readers who have epaper Kindles. Without some technical savvy, they can’t read ebooks from the iBookstore on it. Amazon is also protected by the fact that ebooks from the iBookstore can only be read on Macs and iOS devices, but that could end at any time.

    * Ebook formatting is another. Here retailing is split. Amazon is proprietary with their in-house Mobi and KF9. Almost every other major player is going with epub. That’s rapidly becoming Amazon’s chief weakness. Why? Because of the troubles involved in creating all but the simplest books for Amazon. While the reader side is Amazon’s great strength, the author/publisher side is its greatest weakness.

    A clever writer can import his book from Word (yes, I hate Word, but most writers use it) into Apple’s free iBooks Author app and create marvelous, visually rich ebooks. A typical publisher can take the print version they created with InDesign and, within minutes, have both reflowable and fixed layout epub versions that look great on the iBooks and Nook readers. There are simply no equivalent, easy-creation tools for Amazon. I know. I asked Kindle support that just a few weeks ago.

    That means that, if Amazon’s marketshare begins to slide, publishers may decide the thousand of dollars expense of creating a proprietary Amazon edition is not worth it. Most of their potential customers will be able to get the book from other retailers. The fact that Apple doesn’t have ebooks for anyone else’s hardware won’t matter. Both B&N and Kobo have apps for all the major platforms.

    If Apple really wanted to turn the ebook world upside down, it would act on the fact that its only real ebook competitor is Amazon. That means:

    1. Creating a delightful write-to-epub app. iBooks Author is great for creating ebooks that look like school textbooks. It’s not so great for books that are all or mostly text and it is dreadful for writing with. Apple should create (or encourage a third-party to create) a write-to-epub app that has simple, Scrivener-like organizational tools that make writing easy and that not only exports to epub, but uploads directly to Apple, bypassing any use of iTunes Producer. Heck, they might even call it iBooks Writer. It would make publishing novels and the like to the iBookstore easy and un-geeky. A lot of good writers are poor geeks.

    2. Drop those bans on using ePubs generated by Apple apps for other purposes. Like I said, Apple’s only real competitor is Amazon. Let authors upload the epub that iBooks Author and iBooks Writer create to other retailers (i.e. the Nook). That’ll make them much more likely to write for Apple in the first place and, as an afterthought, send the ebook to B&N and Kobo. All of a sudden, creating ebooks for Amazon will become a hassle, something to stall and delay over.

    Apple needs to concentrate on is making authors more likely to send them ebooks and less likely to send them (or to delay sending them) to Amazon. It needs to realize that trying to grow its marketshare at the expense of Nooks and Kobo is counterproductive. There’s not much marketshare with them anyway, and any growth Apple captures from them benefits Amazon. Besides, Amazon has 70% of the ebook market. Grabbing another 10% market share from Amazon is far easier than finding it anywhere else.

    Note what I am saying. Apple would have a very uphill battle competing with Amazon in the reader space. Amazon’s early entry and huge market share makes it hard to compete directly for readers. There’s a lot of reader loyalty and lock-in.

    But Amazon’s great weakness lies in the author space. Amazon may have many author fanboys, but it treats them poorly. If Apple can appeal to authors and publishers of all sizes with more great writing/publishing tools and more open/flexible policies, it will start out having new ebooks first and in the best-looking format. Over time, if Apple allows those ebooks to also migrate to the other epub retailers, then a critical point may be reached where, for some authors and publishers, the hassles of an Amazon release simply aren’t worth it. Those ebooks will be available everywhere but Amazon, with Apple capturing the lion’s share of those sales.

    There’s a parallel to app sales. Savvy buyers determine what hardware they buy by which platform runs the apps they need. If Apple can make itself attractive to the publishing equivalent of developers–authors and publishers–it’ll attract ebooks that attract readers and customers for Apple hardware.

    True, Apple can’t have any impact on how Amazon treats authors and publishers in the future—badly or well. Amazon could improve in that area. It might even start paying market royalty rates. But Apple can an emphasis on treating authors and publishers well and reap benefits from that.

  2. I think that Amazon’s position is relatively weak however Amazon’s position is probably as strong as it’s going to get so that’s probably why they’re picking the fight now. There’s still a lot of attention from the DoJ on the publishers so they have to be careful how obviously they collude. The amount of Amazon customers on dedicated ereaders has probably peaked, if their customer base changes to tablets the barrier will be even lower.

    The low barrier to entry is exactly why they aren’t trying to build a monopoly so that they can drive up prices. It’s ridiculous when people accuse them of trying to do that.

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