An American Editor

August 10, 2010

There’s No Joy in eBookville Today

Probably the biggest news of the past week in eBookville (and pBookville, or just plain ol’ Bookville to cover the universe of books and readers) is that Barnes & Noble may be put up for sale. The speculation in the blogosphere is that B&N is on a deathwatch. There is no joy in Bookville today!

From a financial perspective, B&N is pretty solid; the primary impetus for the possible sale is that some investors think B&N stock is too undervalued, that is, the company would be worth more to them if it were sold than if it were to continue to make money at a steady level. (Yes, I’m aware that they lost money, attributable to nook development, in the last quarter, but I prefer to look long-term and not focus on a quarter or two.)

This raises a lot of issues, not least of which is the focus of investors on making a quick buck. I’ve always considered the complaints about IBM stock as an example of misdirected investor greed. Consider that IBM is pretty consistently profitable, owns tons of valuable real estate and patents, and returns a regular dividend. Then compare that to, for example, Amazon. No more need be said on that score.

But the real threat if B&N goes under is to consumers of books. One blogger, Mike Cane, has suggested that Amazon should buy B&N and gives 15 reasons why (see Barnes & Noble Is For Sale: Amazon Should Buy It). Some of the reasons on the surface appear attractive for a company like Amazon and for consumers, but giving careful thought to the proposition might lead to a different conclusion for consumers. Of course, whether the Department of Justice would approve of such a purchase is uncertain and I think unlikely for lots of reasons, but those are not the subject of this article. Once again, Mike Cane and I disagree. (We also disagree about whether Amazon has won the ebook war; he says yes and I think the outcome is yet to be written. I agree that Amazon is winning, but until the finish line is crossed, anything can happen. More than one megalomaniac has fallen before crossing the finish line.)

Let’s assume that Amazon currently controls 30% of the retail book market in the United States, which is a figure that has been bandied about in recent times. B&N is credited with a 20% share of that market. Between the two competitors, 50% of the U.S. book market — print and electronic — is controlled. That makes these two competitors an important outlet for authors, publishers, and consumers. For consumers, the value is in the competition between the two, which helps keep prices low. Add in Wal-Mart and Target, both of which are growing booksellers, and other similar box stores, and you have a pretty competitive playing field. (Remember the holiday price war between Wal-Mart, Target, Amazon, and B&N?)

Consumers who are focused solely on price need to look beyond today’s pricing and wonder about tomorrow’s pricing should Amazon own 50% of the book market. There are several reasons for concern. First, is Amazon’s attempt at vertical integration of the market by offering both publishing and retailing services on a grand scale. If an author is given a choice between publishing with an entity that controls 50% of the retail market or with a traditional publisher who controls 0%, with whom is the author likely to sign? Down the road will such integration really benefit the author or will it put Amazon in a position of dictating terms? I haven’t forgotten the problems of just 18 months ago when trying to negotiate contract terms with Amazon to sell books on the Kindle.

Second, we must consider to whom Amazon owes its loyalty. By law, if nothing else, Amazon owes its primary duty to its shareholders, shareholders who want maximum return on their investment (which is the problem B&N is facing with investors believing it is undervalued). I wonder whio is the largest individual shareholder of Amazon? I know it isn’t the consumer me. How do you get maximum return? By maximizing profits, which is often done by increasing the spread between costs and sales price. If Amazon owns 50% of the market and has no significant individual competition, it is in a position to set prices at whatever level it believes maximizes its return on investment. Even the Agency 5 would have to cave to Amazon’s pricing demands — 50% market share is a whole lot of market share. Isn’t this what Steve Jobs does at Apple? Once you get past Apple’s hype, is a Mac really worth that much more than a Windows PC? Why would anyone believe that what Jeff Bezos says today about being the consumers’ friend will still be true when he is in a position to dictate terms without competitive concern?

Third, is the question of open format. Mike Cane believes that Amazon’s buying of B&N would give Amazon the opportunity to drive the final nail through the heart of ePub, and he may well be right. But how does that benefit consumers? Has anyone noticed that Amazon refuses to let anyone else build a Kindle clone or include on their ebook-reading device the Kindle formats? Does this look like (smell like?) Apple yet again? Imagine if the market dominance of Microsoft and Apple were reversed. I wonder how much more people would be paying for a Mac than the premium they are already paying. I fail to see how Amazon’s replication of Apple’s closed system in ebooks would be good for the consumer; I can see how it would be good for Amazon, just not for me. If B&N goes under and the ePub format suffers a major blow, with Amazon’s unwillingness to open its proprietary formats, we would see the decline of other device manufacturers and ebook sellers — neither a pretty nor a desirable picture.

B&N or an outfit like B&N needs to survive to provide Amazon with competition. It is the competition between these two giants that best serves the reading consumer. Perhaps to survive B&N needs new management — I certainly wouldn’t give Leonard Riggio any kudos for how he has brought B&N into the 21st century, whereas I would give Bezos a lot of credit for what he has done for Amazon — but a management change is a lot different from a funeral march. If B&N is to be sold, then I have to hope for a particular buyer, which I hope is Wal-Mart because it could give Amazon a run for its money and even beat Amazon at its own game. Now that would make for an interesting competition!

9 Comments »

  1. […] reposted with permission from An American Editor […]

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    Pingback by There’s No Joy in eBookville Today | The Digital Reader — August 10, 2010 @ 5:37 am | Reply

  2. […] This post was mentioned on Twitter by Mike Cane, sell ebooks. sell ebooks said: There's No Joy in eBookville Today: Probably the biggest news of the past week in eBookville (and pBookville, or j… http://bit.ly/9XB5JG […]

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    Pingback by Tweets that mention There’s No Joy in eBookville Today « An American Editor -- Topsy.com — August 10, 2010 @ 6:07 am | Reply

  3. […] managing to have a large share of the market, it could sound the death knell for open formats. (See An American Editor and the final sentence of this Bookseller […]

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    Pingback by Down the open road « digital transference — August 10, 2010 @ 7:28 am | Reply

  4. Google Books perhaps? They have shown a commitment to EPUB. Heck, I can envision the brick/mortar stores emblazoned with the multi-colored Google Books logo. I certainly think that would give Amazon the competitive sweats.

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    Comment by Rich Dailey — August 10, 2010 @ 10:36 am | Reply

  5. Oh, not to mention the fact that free Google Books titles are already accessible through the B&N Shopping system on the Nook.

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    Comment by Rich Dailey — August 10, 2010 @ 10:40 am | Reply

  6. Like I told Mike C, a Amazon B&N deal will never happen because Amazon does not want to be liable for sales taxes which would happen if they ever established a brick and mortar consumer facing storefront in the sales tax collecting states.

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    Comment by Rick Cartwright — August 10, 2010 @ 1:05 pm | Reply

  7. Barnes and Noble is not really for sale. The management and its conrolling shareholders are exploring taking it it private by “buying” it from the public and institutional stockholders. But once things are in play anything can happen.
    Give credit where it is due to Len Riggio for transforming bookselling in the 1980’s and 90’s with the expansion of the superstore. Jeff Bezos picked up the baton and moved books to the internet with Amazon and now to the Ereader with the Kindle.
    What’s next ?

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    Comment by Bookman — August 10, 2010 @ 3:50 pm | Reply

  8. […] Via Rich Adin’s an American Editor blog. […]

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    Pingback by There's no joy in ebookville today | TeleRead: Bring the E-Books Home | Self Publishing Companies — August 11, 2010 @ 10:20 pm | Reply

  9. […] managing to have a large share of the market, it could sound the death knell for open formats. (See An American Editor and the final sentence of this Bookseller […]

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    Pingback by Down the open road | digital-transference.co.uk — September 6, 2010 @ 4:17 pm | Reply


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