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.