An American Editor

April 11, 2012

The Amazon Conundrum: Competition in eBooks

On several forums that I visit, there has been ongoing discussion about Amazon and monopolies and how no one need worry because if Amazon were a monopoly and did raise prices, a new competitor would instantly appear. The discussions often also evolved to criticising anti-Amazon posters for not having a solution to the problem, just whining about the problem.

I think those who do not see a potential problem with an Amazon ebook monopoly for authors, publishers, and consumers are simply fooling themselves. The ebook market is not like the TV market. Unlike TVs which all meet certain standards so that a Sony can be substituted for a Samsung, which can be substituted for a Panasonic, ebooks do not meet a set of standards and a Kindle-compliant ebook cannot be substituted for an ePub-compliant ebook without some finagling and without removing any DRM.

Consequently, should Amazon drive out of the ebook business its primary national competitors, the likelihood of someone coming along and overnight becoming a major competitor is nearly nil. Consider the cost of duplicating Amazon’s already-in-place infrastructure. Plus, how would a new competitor break the Amazon eco system? The only way competition might have a chance at surviving would be with Department of Justice intervention.

Picture the ebook marketplace with Sony, Apple, Kobo, and Barnes & Noble gone, leaving just Amazon. If Amazon raised its pricing to insure profitability (or, alternatively, followed the Walmart practice and instead kept pricing stable but squeezed authors and publishers), what could be done about it? Not much. To say that a new competitor would see an opportunity and exploit it is naive.

The new competitor would have to build a business from the ground up. How likely is it that Amazon would sit back for a few years to give such a company a chance to gain a foothold? How likely is it that venture capitalists would be willing to fund the necessary billions for such a venture? And if the new competitor was ebook focused, for how long do you think they could underprice Amazon? Remember that Amazon has other, well-established divisions that could support a money-losing book division, something that a new competitor wouldn’t have.

To think that with the fall of the current crop of competitors new competitors would rise that could compete with Amazon nationally is simply wishful thinking with no basis in reality. The response is that Walmart didn’t raise prices, but ignores that Walmart has strong national competition in companies like Costco, Kmart, and Target — once you eliminate Sony, Kobo, and B&N, Amazon doesn’t. Apple is currently a weak ebook competitor and no one thinks much of the Google ebookstore’s competitive status.

This problem with Amazon was brought about originally by publishers who didn’t look beyond their noses when giving Amazon significant product discounts in the early years. The problem is being compounded by the same publishers’ inaction and by authors scrambling to join the Amazon exclusivity club. If publishers and authors do not take steps to halt the rise of Amazon, there soon will be no outlet but Amazon for national exposure.

The question is what can publishers and authors do? For authors, the only option is not to give Amazon exclusivity and to actively promote other ebookstores where their books can be found. If you promote Amazon primarily, you are feeding the problem, not starving it.

Publishers really are in the stronger position to halt Amazon’s dominance; they just lack the willpower to do more than whine. Agency pricing (which is legal; the Department of Justice is investigating whether there was collusion to impose agency pricing, not whether agency pricing itself is legal) was a first step but as done by publishers, insufficient.

What really needs to be done is for publishers to decide that their ebooks can only be sold in the ePub format and only with Adobe adept DRM (i.e., essentially social DRM like B&N uses). Once you break the Amazon closed eco system, everyone can compete on the same terms. Combine this with correct agency pricing, and the playing field becomes perfectly level. Now ebooksellers will have to compete on other factors, such as customer service.

If Sony’s ebookstore went under, it would go under because of other factors, factors that were within its control, rather than because of format wars.

The forcing of ePub and one type of DRM doesn’t directly address the exclusivity problem, but it could do so obliquely. If competitors to Amazon began to increase market share, the incentive to be Amazon exclusive would diminish.

One other thing to consider: I see no reason why, now that Amazon is a direct competitor of traditional publishers — it has established its own publishing houses to sign on authors for Amazon exclusives — traditional publishers can’t simply refuse to sell their books — both p and e — to Amazon. It seems to me to be illogical to require them to provide the means to fund their own funerals.

The longer the publishers dawdle in taking action against Amazon, the more power they devolve to Amazon. The point will soon arrive when publishers will be able to take no effective action against Amazon and we will be writing their obituaries.

The same is true of authors who sign up for Amazon exclusivity and who promote Amazon. There will soon come a time when the only game in town will be Amazon and you will be at Amazon’s mercy. You will find that no one will stand beside you should you decide to fight at that late point in time — publishers won’t because they will be powerless; consumers won’t because all they are interested in is lowest available price; other ebooksellers won’t because they will be nonexistent.

The time to fight to prevent monopolization of the ebook marketplace is now. The way to do it is to encourage publishers to only permit the sale of their ebooks in ePub format with a standard DRM and for authors to not give Amazon exclusivity. In the absence of such action, we can wear the lemming label.

8 Comments »

  1. Excellent piece and I agree that we need to prevent monopolization of the ebook marketplace and that pushing an open standard is a way to do so. I’m not entirely sold on the need for DRM (as a consumer (and author), I actually like O’Reilly’s model of making their ebooks available DRM-free) but I agree that if there is a need for DRM having a “standard” way to do so is good.

    However, there is a far larger issue here that you don’t touch on, namely:

    – user experience.

    I think a great amount of the appeal of the Kindle comes down to how drop-dead *simple* it is for a user to obtain ebooks. Getting an ebook “just works” across a network. No need to connect to a computer or sync with any other apps. Just get an ebook and start reading.

    Recently I looked at our local library and the process is *trivial* with a Kindle. Find the book in the online catalog using your laptop/desktop, check it out, authenticate with Amazon and… ta da… the book is downloaded to your Kindle. For all the other devices, you have to add in the steps of downloading the ebook to your computer, opening it in Adobe Digital Editions, connecting your ebook reader to the computer and then syncing the device to transfer the ebook to the device.

    Not as great an experience.

    So while I agree that the steps you suggest can and should be taken on the publisher/author side, I think the reality is that consumers probably won’t even remotely care unless other ereader ecosystems can make the user experience as seamless as it is for the Kindle. At the end of the day, readers want to simply read – and not fuss around with the *process* of actually getting the ebooks.

    Like

    Comment by Dan York (@danyork) — April 11, 2012 @ 9:57 am | Reply

  2. […] An American Editor doubles down. […]

    Like

    Pingback by But wait, there’s more.. | Contraterrene – Tony Hursh — April 11, 2012 @ 1:13 pm | Reply

  3. As always, a thoughtful piece. Monopoly in the eBook business would, as you point out, hurt authors, publishers and readers. Yet publishers really do have few options. Take my example–as a publisher, I do have the ability to withhold my books from certain distributors. I could refuse to deal with Amazon on the basis that they do not use the industry standard ePub (although it should be noted that there is no official standard for ePub encryption, just an informal standard to use the Adobe proprietary solution). This would cut my revenues roughly in half, which would mean that authors would see me as a weaker company than is the case. In the meantime, Amazon wouldn’t notice the loss in revenue and certainly wouldn’t feel compelled to do anything. Now, I’m a very small player but suppose I were one of the big six? Certainly if I could get together with the other big six publishers, we could put pressure on Amazon. Certainly each, alone, is powerful enough to get some concessions but I doubt that any, acting alone, could persuade Amazon to abandon their current model, obsolete their installed base of Kindles, and open their lock-in business model to competition. As for acting together, do we really want collusion among the big six? As far as monopolies go, Amazon doesn’t seem worse than the big six acting as one.

    I don’t know the answer. Certainly I am happy that the government is aware of the eBook market and enforcing the law. I hope that they’ll continue to do so, and will, to the extent necessary, act to prevent Amazon from claiming a monopoly position.

    Rob Preece
    Publisher, http://www.BooksForABuck.com

    Like

    Comment by Rob Preece — April 12, 2012 @ 11:17 am | Reply

  4. “For authors, the only option is not to give Amazon exclusivity and to actively promote other ebookstores where their books can be found. If you promote Amazon primarily, you are feeding the problem, not starving it.”

    I agree. However, that is easier said than done. Those authors who have signed up with Select appear on the whole to be doing much better than those who haven’t.

    I haven’t but would consider it for my next release. Why? Because starving Amazon means starving myself.

    Like

    Comment by Vicki — April 13, 2012 @ 6:00 am | Reply

    • I understand why authors would sign up for Amazon’s Select. The short-term gain almost demands it. But while the short-term gain feels good, all that may well change when the only choice is Amazon. Amazon, as evidenced by its recent “negotiations” with publishers and distributors, won’t be shy about putting the squeeze to indie authors when it believes that it can.

      Like

      Comment by americaneditor — April 13, 2012 @ 7:26 am | Reply

      • No argument with you there at all. I agree Amazon will not hesitate to change their terms as and when they see fit.

        Like

        Comment by Vicki — April 14, 2012 @ 7:05 pm | Reply

  5. > the playing field becomes perfectly level.
    > Now ebooksellers will have to compete on
    > other factors, such as customer service.

    amazon got its lead in the first place on
    “a level playing field”… now you want to
    penalize amazon to make it “level” again?

    well, guess what? amazon will win _again_.

    everything it does, specifically including its
    “customer service” wallops its competitors.

    and coddling those competitors will _not_
    help them to compete any better, sadly…

    -bowerbird

    Like

    Comment by bowerbird — April 20, 2012 @ 12:41 am | Reply

  6. I have written some books with a colleague, but do not consider myself an author. My main background is in business. Our books are listed under Amazon – and we are just finding way to market them. We signed up with Amazon Associates program – so any traffic we bring to Amazon, we will at least receive some benefit from it. So, as we are starting, and figuring out the best way to proceed, Amazon sends us a notice that we have not produced a sale from our links, so we have an ultimatum of increasing our marketing, place bigger banners for Amazon on our website, or be deleted from their associates program. Let me say that we have had plenty of sales of our books, yet we have not been selling any of amazon’s e-readers. So, the squeeze on publishers, authors and the like extends even beyond what you describe. So, I am looking for other ways of distributing our e-books. I hear many talk about national exposure, our concern is international. We have had sales in India, UK, Belgium and other locations.

    Partnering with the large 6 publishers is not the answer. The only answer I see, is for the individuals, the authors, editors, self publishers to band together and create our own outlet. We can find the way to do it, we can make it profitable for us, and with cutting out the middle man, we can save and be even more affordable to patrons. It’s more than possible, but who is willing to take the effort. I am. I hope there are others who are willing to invest in themselves.

    Thanks for the article.

    Like

    Comment by Susan Barbaro — June 25, 2016 @ 10:52 am | Reply


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