Monday, February 01, 2010

What was Jeff Bezos thinking, or John Sargent is my hero

by Jane

Amazon’s recent move to remove the “buy” buttons for nearly all of Macmillan’s books including bestsellers, top releases, and Kindle editions was in my opinion incredibly short-sighted and could in the end really hurt the retailer. And now it seems it has backfired.

This move occurred during the same week that Steve Jobs and Apple launched the iPad which could compete head to head with the Kindle. Apple has met with at least five of the six major publishing giants with regard to pricing (of the Big Six, only Random House’s logo was missing from the iPad announcement, though they’re said to be in discussion with Apple). In this model, publishers will be able to set their own prices for books and pay a commission to Amazon, as opposed to the Kindle model where Amazon sets the price.

Now, John Sargent’s strategy has succeeded and Amazon has acknowledged that “ultimately, we will have to capitulate and accept Macmillan's terms.” At the time of posting, they have not reinstated the “buy” buttons, but Amazon and Macmillan are in discussion. Certainly, the other publishers will follow suit here, which in my opinion is as it should be.

Hopefully, a lesson has been learned here. Amazon should not be bullying publishers. Rather we should all be working together in this electronic age to keep the publishing industry alive and healthy. There are too many people predicting the death of book publishing these days. We all need to work together to make sure this is far from the truth.

If you subscribe to Publishers Lunch Deluxe, you can see the whole story as it developed here.


  1. This isn't an easy situation with clear good and bad guys. The joke is that it's neither Macmillan or Amazon who are the bullies here.

    You'd be very hard-pressed to find anyone in the record industry with a good word to say about Apple and iTunes. Apple have locked the music industry into a deal that's great for Apple, terrible for the people who make music, and extremely inflexible and tenuous for the consumer. It's not entirely clear exactly what you're buying when you buy something on iTunes, it is clear that Apple can take it away from you at will.

    If the publishing industry goes down the Apple route, it'll go the way of the record companies.

    Amazon are not saints here, but they are people who buy books in bulk, and when they run something as a loss leader, they bear the brunt of that loss. If they agree a wholesale price with the publisher, then the retail price is Amazon's business - literally.

    We're in the early days of ebooks. We don't know how consumers will adopt them, what they'll use them for, we don't know all the advantages and disadvantages, yet. Amazon's model is flexible, can adapt and be revisited. Apple's model is old-fashioned and exploitative, they've basically mesmerized the publishing industry and convinced them to iPad or die.

    Apple lose more if the publishing industry stands up to them than the publishing industry gains if it cedes all rights to them.

    This is a time to keep options open, to have the people who own the intellectual property and copyrights understand that *they* are the ones with the valuable commodity, and to let consumers work out what they want, rather than lock everyone into a model that's based on what some marketing strategist in a computer company would like it to be solely to maximize hardware sales.

  2. I think it's all a matter of perspective, really. Many large corporations like the big profits, without having to spend much to get them. The music industry complained about iTunes because it mean a smaller income for the labels - still ridiculously good to the average joe, but to corporations who are used to billions in profit losing a billion or two they treat it like it's the end of the world. Now I totally think that musicians should be getting paid for their craft and paid reasonably, but I don't think Apple's the culprit in that industry.

    It's the same with Amazon. Amazon wants big profits with little outward cashflow. Macmillan wanted to set their own prices which meant Amazon wouldn't get the ridiculously high profits, so they decided to play hardball. And backlash ensued. Someone on another site said that Amazon needs publishers far more than publishers need Amazon, and I agree. They're not the be-all that they think they are.

  3. I'm a writer and I'm following all this as best I can (and I have a brain for business, so I'm not totally lost or anything), but I have to say, THANK GOD I HAVE MY AGENT TO REALLY UNDERSTAND THIS.

  4. "but to corporations who are used to billions in profit losing a billion or two they treat it like it's the end of the world."

    The problem with that is that the billions are still there - they just go to Apple instead. Not to the musician, not to the record label, not as savings to the consumer - just straight from the consumer to Apple. So, yes, the record company looks at all those billions and goes 'not fair'. And they don't buy as well, they buy instead.

    Because it's computers, publisher see the iPad as some holy grail that will get kids reading and make all their books shiny and all singing, all dancing. They think Apple are doing them a favor.

    Just imagine, for a moment, that it was just another size of paper book. Call it a padback. Now read the terms of the Apple agreement, pretending it's just some new format of book. No agent or publisher would fall for it. But the iPad's got wireless, so WOW, better just hand over the content for practically nothing.

    I think the words in a book are a pretty important component. There are actually plenty of people in publishing who laugh at that idea, but call me old-fashioned.

    People will buy an iPad if the content justifies it. They won't if it doesn't. Apple want to get as much content for as little money as they can, and they're going to succeed, because the publishing industry is like a little old lady who falls for the man who comes round offering to take away all her clutter, and he'll do it for only $20, just hand over the house keys. And it's almost funny, because the iTunes model is right there, the old lady next door who did the same with the same guy and woke up the next day to find her house had been stripped bare.

    Amazon are on the side of the angels, here. Or, at the very least, they're the ones supporting the core business of publishers - selling actual books for actual money.

  5. This about says it all:

    From link - Amazon: "...we will have to capitulate and accept Macmillan's terms because Macmillian has a monopoly over their own titles..." [italics added]

    To a monopolist, everything is a monopoly, or attempt at monopoly, is it not?

    It reminds me of an article I read in some tech magazine I was browsing through, when I was working as a temp, bored out of my mind - software developers were talking politics - one was saying he was a libertarian, because, see, now that we have computers, we don't need government anymore, people should just be free to do whatever they want, unleash their creativity, we'll all be awash in money anyway [I paraphrase and satirize, slightly], so we just don't need that pesky regulation'n'legislation, or extra-pesky concepts like "fairness," or even "justice," all that creaky irrelevant pre-computer socioeconomic "architecture," so to speak.

    It's almost a talismanic faith in small devices - because I carry X, therefore (for instance) socialists and fascists will never be battling it out in the streets of my suburb! I'm protected by my iPod! As if certain social disturbances, brought on by economic imbalance (to put it nicely), are precluded by the mere existence of a Kindle or an iPad. But then how'd that hoary word "monopoly," bewhiskered and with a chest full of medals, get into the discussion in the first place?

  6. Note: My riff on "monopoly" is a response to Carolyn Kellogg's discussion of it, in the Jacket Copy link. Great link!

  7. "Amazon are on the side of the angels, here. Or, at the very least, they're the ones supporting the core business of publishers - selling actual books for actual money."

    Can't say I agree with this. Bookstores still account for the majority of book sales, as I understand it Amazon doesn't account for a huge part of them. I still stand by the statement that Amazon needs publishers more than publishers need Amazon. Bullying them is not the way Amazon should have gone.

  8. Um, Jane? Amazon won.

    Their removal of books was an attempt to show Macmillan that they needed Amazon not based on money, not based on what we involved in the industry think, but by getting a rise out of the fans.

    By capitulating on Sunday night, Amazon made certain that they would get the whole story included in the papers come Monday morning, and appear to be the good guy in the fight to the group that really matters - consumers.

    Amazon was pricing at $9.99 because it's a price point that is supported by market research to maximize profits through volume. To achieve market saturation, Amazon was willing to take a loss on each sale in order to grow the market at what they believe to be a sustainable level. That's a hell of a commitment.

    Under the Macmillan deal, Amazon will make between $4 and $5 per book which is a mathematically infinite improvement over the previous deal.

    Macmillan now does have near-complete control over their own pricing and are capable of adjusting prices at will (or reasonably close to it). This leads to two questions - if publishers won't price books at a level that the market will tolerate, is publishing ready to counter actual eBook piracy? And second, what type of structure does Macmillan have in place to keeping up with royalties owed to authors in an age of dynamic pricing?

  9. "Bookstores still account for the majority of book sales, as I understand it Amazon doesn't account for a huge part of them."


  10. 'The problem with that is that the billions are still there - they just go to Apple instead.'

    And it turns out that publishers didn't notice that Apple had a clause in their contract saying, yeah actually they can heavily-discount, too, but (unlike Amazon, who take the whole hit by cutting their own margins) publishers will have to share the cost of that discount.