Is Amazon Evil?

When companies achieve a certain level of market dominance, similarly-themed complaints tend to emerge. The headline in the tech industry goes: Is Company X Evil? The evil charge usually has three components: 1) the complaints are about corporate strategy more than tactics, 2) the company is only able to execute said strategy thanks to its near-monopoly in a niche, 3) the strategy feels good to consumers in the short-term but is harmful long-term.

Apple and Google have faced the "evil" charge for a few years now. With Apple, people have raised philosophical objections about everything from its policy of approving each iPhone app to its iTunes DRM to its general closed-OS mentality that has been with the company since the beginning. With Google — and now Facebook — the rankle is over how it manages private information.

The one company that has so far been immune to the evil charge is Amazon. Probably because their customer experience is so damn flawless. But the time has come: Is Evil?

Last week, Amazon stopped selling all Macmillan books. Macmillan is one of the big publishers and it was impossible to buy any Macmillan book in print or electronic form from Amazon directly. Amazon did this in response to Macmillan's intent to price e-books above the $9.99 ceiling that Amazon maintains. Over the weekend Amazon reversed its position but the episode provides key insight into how Amazon is trying to consolidate its dominance in the industry.

Here are two outstanding posts which are long but provide essential background. Start with Charlie Stross's introductory overview of the economics of the publishing industry and how Amazon's dominance has changed things. Then read Tobias Buckell's long dispatch on the Macmillan case. Both posts were written before Amazon reversed its decision, but they are worth reading nonetheless.

This update on Amazon changing its mind contains rhetoric from Amazon that is quite misleading. Amazon is positioning itself as fighting for the customer in trying to maintain low prices for e-books, but the truth is that Amazon is loss-leading e-books for the next five years to solidify its supply chain dominance allowing it continued ability to set prices however it wishes, which screws authors and publishers and ultimately readers as well.

For all you iPad haters, see the goodness Steve Jobs has brought? Apple represents a threat to Amazon both in the device / e-reader space and in its potential to launch an iTunes-like e-books store. Competitive dynamics in a market force companies to capitulate to a more enlightened position than monopoly self-interest would advise alone.

And that is reason enough to support the iPad launch. Even if the iPad itself is not that much better than Stone 40,000 BC.

9 comments on “Is Amazon Evil?
  • Jobs strong-armed the recording industry into $.99 songs at the beginning. That’s no different than what Amazon is doing. Rational pricing for electronic goods. Not to mention, Amazon is hardly “evil” from a consumer perspective — they were trying to get *lower* price points.

    I do welcome competition, but I hope it’s not more DRM’d crap, but of a different flavor (Apple’s this time).

    I also believe that Apple represents less of a threat to Amazon than you think. Anyone serious about eBook readers will take e-Ink over backlit awfulness any day. I think the instant gratification crowd who loves their iPhone and stuff will care more about games than eBooks…

  • “For all you iPad haters, see the goodness Steve Jobs has brought? Apple represents a threat to Amazon both in the device / e-reader space and in its potential to launch an iTunes-like e-books store. Competitive dynamics in a market force companies to capitulate to a more enlightened position than monopoly self-interest would advise alone.”

    Wait, what? I mean, I do agree that competitive dynamics can help consumers by bringing price down, etc, but it seems like here they…brought prices up. How is that helping us consumers?

  • It helps us long-term. Amazon keeps prices low short term (while losing lots
    of money on each unit) so they can establish a near-monopoly on the market
    and then they have total pricing power.

    • I have noticed that a few times Amazon has mysteriously failed to deliver a book with left-wing or queer content and then reported it as “lost in transit”. Most recently I ordered “Shame of the Nation” by Jonathan Kozol. Never got it. Amazon failed to deliver it and then sent me an email right away without even bothering to contact the shipper and confirm tracking – “sorry it was lost in transit” lol.

  • Actually, Amazon got the ‘evil’ label very early on for the one-click shopping patent. With the geek set, this was a big deal. Back in the early days of Wikipedia, several major contributors were dead-set against using the Amazon referral program due to that little bit of evil.

  • To correct a very common misapprehension, actually, the agency deal allows a lower price floor ($5.99) than Amazon currently uses. Right now Amazon pays the price of the cheapest current physical book, minus a negotiated 50% or so off, per ebook. Then they charge whatever they want. For backlist books, Amazon charges a modest profit. For brand new books, Amazon chooses to take a loss on each book sold.

    Thus, on a $7.99 paperback, Amazon pays the publisher $3.98 for the rights to sell it, and in my case, charges the customer $6.99 for the Kindle version of my 2006 released fiction novel. Amazon profit: $3.01. Price to customer $6.99.

    On my recent 2008 novel, it’s only out in hardcover. $25.95 from the publisher. Amazon pays my publisher $12.49 for it. Since I’m not a big name, or brand new book, they sell it on the Kindle for $12.49. Amazon profit: $0. Price to customer $12.49.

    On a new bestseller that’s only out in hardcover for $25, say, Amazon pays the publisher $12.50, and sells it for $9.99. Profit for Amazon -$2.51. Price to customer $9.99.

    So Amazon has variable customer pricing already under the existing sales model, and it chooses the retail prices.

    It’s a smart way to own your market.

    Wal-mart does the same thing to books on the stands. Amazon is also doing this to print books. I know one author who said Amazon is buying his books at retail price, and selling them for $3 or so, taking a $10 loss on each one to own the market in print sales of that book.

    So with an ‘agency deal’ what changes is that Amazon doesn’t set the price (which is what this fight is about), which Amazon does.

    Publishers want to do the following, which is what Apple has offered:

    On an older book like my 2006 book, the priced would be as low as $5.99-$7.99. Amazon would get 30%. Amazon profit: $1.79-$2.39. Consumer would pay, about the same, if not a dollar or two lower than many books currently are.

    My newer 2008 book could be priced anywhere from $9.99 to $14.99. Amazon would make $2.99 to $4.49 per book.

    New releases by bread and butter authors like Dan Brown would be $14.99 for sure, for a period of time (most likely when the paperback comes out 6 months later).

    So if you buy Dan Brown, or Tom Clancy, or a mega bestseller, publishers want the right to debut the book at $14.99 while its out in hardcover for $24.99.

    Most other prices are dropping.

    And the publishers have a clear system that they can use to test sales vs price points.

    In addition to the belief that all books are being raised to $14.99, which isn’t true, the other point is that Amazon has the option to remain with their current system, but with a 6 month delay on new releases. Because Apple offered publishers a sweet deal, and Amazon won’t match it, publishers are still happy to sell to Amazon, they just won’t give them same day release.

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