A publisher unAmazons: The rights and wrongs

Publishers Weekly just shared an article entitled “Life After Amazon,” by Randall White, chairman, CEO, and president of Educational Development Corp. (EDC), on why he has elected to “to stop selling our Kane Miller and Usborne books on Amazon.” His casus belli was that “I had long felt that the rapid growth of Amazon was bad news for the publishing industry. And I believed that Amazon was trying to gain control of publishing and other industries by making it impossible for other retailers to compete effectively.” White’s stated explanations mix, in my view, some very good and very indefensible points. Read on below.

For starters, EDC has its own online store up and running, and buyers can easily sidestep the whole Amazon system and go directly to source. Admittedly, it doesn’t seem to cover ebooks, but EDC seems to have taken one sensible business decision – that it has no reason to go through the Amazon network if it can retail its own books online.

However, this rather undercuts White’s case that he has backed out of Amazon partly for the sake of business associates like the “longtime customer in Mill Valley, Calif.” who he cites as one forced to shutter by the practice of showrooming. If this is so, EDC is doing no different by maintaining an online sales operation. Yes, it appears that EDC works hard on maintaining ties with booksellers and other industry clients, and supporting its relations with them, but if you’re offering the same option as Amazon does, why take them to task on it? Because Amazon does it on a bigger scale and more pervasively?

“I believe that recommendations from friends, mentions in media, and other sources generate more sales than most people think, and that the personal touch still matters a great deal,” states White. Absolutely no quarrel with that. Amazon’s recommendation engines and community-building may be a great boon for book discovery, but it certainly is not the only one. And whether or not the sock-puppet Amazon review (five-star or one-star) is a plague or a myth, there are certainly a few question marks over some aspects of it.

All the same, White’s call to enforce state sales tax on Amazon seems meaningless. I regard territorial sales taxes on this level as pointless anyway in a connected age, and far more about state fiscal problems than the real world. How is a state going to levy sales taxes that can’t be circumvented simply by going over the state line?

Also, as one commenter on the article remarked immediately, it’s no criticism to say that “Amazon lost money in 2012, and in the most recent quarter it reported a virtually meaningless margin relative to its size.” As that commentator pointed out, Amazon is sticking to break-even levels because it is reinvesting hand over fist for business development purposes. It’s up to Amazon’s investors to call Amazon out on this. So far they appear ready to support it, and given Amazon’s buildup in market share, and rising share price, they seem to have called it right.

Also, not to pick a bone with White about this, but EDC is a NASDAQ-listed company. Therefore, when he takes a stand on principle, he is doing so with his shareholders’ money. Again, if they have an objection to what he’s doing, it’s up to them to make it. But a personal view is one thing – staking other people’s money on that personal view is a different thing entirely.

1 Comment on A publisher unAmazons: The rights and wrongs

  1. Quote: “As that commentator pointed out, Amazon is sticking to break-even levels because it is reinvesting hand over fist for business development purposes. ”

    Amazon’s break-even bookkeeping raises obvious red flags. How does an enormous retailer manage to control its costs and prices so finely? That’s a bit like flying cross-country on a plane, time and time again, and landing just as the engine runs out of gas. Is that really luck?

    The answer is that it isn’t. Amazon’s many retail divisions make significant profits, as a former Amazon executive has said. It’s that all the expansions, buyouts, new schemes, and new facilities that are being accounted for in a way that almost exactly balances out those profits. Make money here, lose money there and account for the losses in a way that almost precisely balances the gains. One result is that customers think Amazon is giving the a great deal and selling at almost cost. Not so.

    It’s also a classic move to take over markets one by one. Profitable branches where the company dominates subsidize unprofitable branches until opponents have be driven from the latter. Prices can then be raised to ensure profits that are then invested in competing in not yet dominated markets.

    That near monopoly status can also be used to force suppliers (for us, authors) to lower their prices so profits go up while retail prices remain the same. The latter is particularly effective when competition is hard to totally eliminate. Amazon and Apple retail at the same price, but because Amazon charges download fees and pay’s only 35% for ebooks outside the $2.99-9.99 range, Amazon makes more money. Sound familiar?

    I saw something similar in the mid-1990s. Boeing was almost the only market for some aerospace companies, so a friend of mind who worked in Boing in part acquisition had the miserable job of calling up those suppliers and telling them, in essence, “We’ve been paying you $100 each for this part. From now on we will pay you only $80.” What could they do?

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