Battle of the two giants: Amazon and Hachette
WORLD / U.S. – The Amazon – Hachette price war has gone on for months now, and nothing indicates a compromise is on the horizon.
Letter to Amazon from almost 1000 authors
In the latest development, Amazon made a bold move on Saturday, 9th August 2014. It published a letter in response to over 900 authors’ signed letter urging the e-commerce to come to an agreement with Hachette, the publishing behemoth. In the letter, Amazon also published Hachette CEO Michael Pietsch’s email address and urged the authors to write to him.
The letter by the authors to Amazon’s Jeff Bezos can be found on authorsunited.net. The letter, which include signatures from global-renowned authors Stephen King and John Grisham, stated “for the past several months, Amazon has been:
- Boycotting Hachette authors, by refusing to accept pre-orders on Hachette authors’ books and eBooks, claiming they are “unavailable.”
- Refusing to discount the prices of many of Hachette authors’ books.
- Slowing the delivery of thousands of Hachette authors’ books to Amazon customers, indicating that delivery will take as long as several weeks on most titles.
- Suggesting on some Hachette authors’ pages that readers might prefer a book from a non-Hachette author instead.”
“As writers – most of us not published by Hachette – we feel strongly that no bookseller should block the sale of books or otherwise prevent or discourage customers from ordering or receiving the books they want. It is not right for Amazon to single out a group of authors, who are not involved in the dispute, for selective retaliation. Moreover, by inconveniencing and misleading its own customers with unfair pricing and delayed delivery, Amazon is contradicting its own written promise to be “Earth’s most customer-centric company.”
Amazon’s reply to authors
Authors, in reality, really have no say in the Amazon-Hachette saga. In the offline world, publishers choose the books to print, distributors choose the books to sell. Publishers sometimes persuade distributors to try a new author under their imprint. If you’re a well-known author on a holiday, publishers tell distributors to get retailers to display your books if they know you’re passing through the airport to keep you happy and sign more book deals with them. The bottomline is publishers choose the books to invest in, distributors choose the books that will sell or isn’t too expensive, retailers choose the books they think customers want. In the online world, Amazon is the distributor and retailer. With Amazon’s self-publishing programme, Amazon is the publisher, distributor and retailer. Unless everyone stops writing a new book till Amazon and Hachette settle their differences, the discussion is purely between the two business entities.
Amazon’s reply to this can be found on readersunited.com. The reply positions Amazon as supporters of readers and authors, with Hachette unfairly depicted as The Devil. “We want lower e-book prices. Hachette does not. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out of stock, no warehousing costs, no transportation costs, and there is no secondary market — e-books cannot be resold as used books. E-books can and should be less expensive.” “But when a thing has been done a certain way for a long time, resisting change can be a reflexive instinct, and the powerful interests of the status quo are hard to move.” A screenshot of Amazon’s message below:
Hachette responds similarly
Hachette isn’t taking it lying down, of course. Geekwire reports authors who emailed Michael Pietsch got a reply herding authors back to Amazon’s doors.
“This dispute started because Amazon is seeking a lot more profit and even more market share, at the expense of authors, bricks and mortar bookstores, and ourselves,” he writes, in part. “Both Hachette and Amazon are big businesses and neither should claim a monopoly on enlightenment, but we do believe in a book industry where talent is respected and choice continues to be offered to the reading public.”
Pietsch adds in his letter, “Once again, we call on Amazon to withdraw the sanctions against Hachette’s authors that they have unilaterally imposed, and restore their books to normal levels of availability. We are negotiating in good faith. These punitive actions are not necessary, nor what we would expect from a trusted business partner.”
Understanding the book industry
The book industry is well-established with its own set of rules that haven’t been questioned or shaken for a long time. There are two distinct sectors – trade and education – which are two huge pies. Many big publishers in US and UK have their fingers in both. These pies have always been physical print products.
In comes the world wide web, and internet technologies. Technology doesn’t just mean e-book formats, but e-learning, online journals and resources, websites, site with e-commerce capabilities.
Publishing companies have always invested in people and relationships to make things work. The common practice was for executives to fly to Asia, Europe, Australia, Africa to present new books to distributors. They negotiate pricing in person. They discuss shipment. Distributors bring their publishers to retail outlets (and plan ahead so that publishers walk in to their books on display instead of a competing edition). Sometimes, the publishers meet the retail owners and discuss better strategy for sales and to understand the market better.
The book industry has always romanticized the business, placing relationships above analytics and data. But technology is changing the face of communication, business models and consumer behaviour. The publishers that are fast and quick to adapt, like Pearson, gets first mover advantage. For publishers, moving online with an e-product is akin to building a whole new business, with new business models. Customization, content and convenience are the 3Cs that drive the online publishing world today. Pearson, and many education publishers understand this, having worked universities with to supply online journals, resources and white papers. It is the trade publishers that are struggling with technology.
Why trade publishers are struggling
Trade publishers are struggling because a shift geared towards an online model is seen as cannibalistic. Where online resources for education can be seen as a supplementary or complementary material, some publishers believe the e-book of a hardback or paperback will cannibalize sales in bookshops. The investments for books are huge – money has been put into the writing, designing the layout, production of the book, shipping and other logistical needs. For an ePub, or .mobi, or even a PDF to wipe out that investment is a very bitter pill to swallow. This is why trade publishers insist on pricing ebooks at $14.99, an issue Amazon doesn’t (care to) comprehend.
Amazon should care, but they don’t need to.
Why Amazon should care
Amazon should care because ebooks are not like other clothes sold online. An eBook is a new product altogether, yet it affects the current product. As Pietsch states in his email to Amazon fans,”We invest in advances against royalties, editing, design, production, marketing, warehousing, shipping, piracy protection, and more. We recoup these costs from sales of all the versions of the book that we publish—hardcover, paperback, large print, audio, and ebook. While ebooks do not have the $2-$3 costs of manufacturing, warehousing, and shipping that print books have, their selling price carries a share of all our investments in the book.” While trade publishers must look into a different content model for ebooks to remain a viable product alongside print books, the issue Pietsch raised is a unique problem to an industry that exists almost exclusively because of the pen and paper.
Amazon is the biggest e-commerce giant, and took it upon itself to move the book industry online. You have other smaller players that try to match Amazon but they lack two things: the money, and Jeff Bezos. If the publishing industry had a Mark Zuckerberg, Ariana Huffington, Jack Ma or a Jeff Bezos, they would have left the company in weeks. The online world moves fast and break things, and these are the two things the publishing industries don’t do. An author who have submitted his manuscript to many publishers in hope of a book deal would agree.
Amazon’s business strategy
Amazon’s model has always been to grow, grow and grow. It was not on a profit-driven strategy, but an acquisition strategy. With online companies, the customer base and its quality is one of the biggest factors that affect company valuation. It reflects on the potential earnings investors expect to gain and is also a measure of a market size. It has pumped in billions into technology, including for ebooks. It has created opportunities for aspiring writers to self-publish without the need for a publisher’s support. It has created an online global community of providers and customers that will thrive within the ecosystem.
As Amazon grew (acquiring many business along the way), publishers are concerned and interested at the same time. On one hand, going online has its own set of problems: print rights management, DRMs, commission and cuts, how the bookshops will react, potentially pulping tens of thousands of unsold books. On the other hand, if publishers don’t jump on the bandwagon, they’ll get left behind.
And so publishers and Amazon started to talk business.
The online giant awakens, working towards profitability
Amazon is at a stage where growth may no longer be top priority, and profit margin is starting to take centrestage. Amazon has a total active user base of 244 million customers, larger than any publisher can ever imagine to have – even the Random House – Penguin merger can never dream of 244 million customers they can email at the press of a few buttons. Hachette is an offline giant, but the online space belongs to Amazon, the e-beast even Google worries about (what if one day, to search for something, we’ll bypass Google and head to Amazon and look for it?).
The book industry is not the only one facing a tidal wave of change from online technology. Magazines are hit, but Conde Nast has worked hard to shift and adapt. Print newspapers are no longer raking in as much as they used to. Fashion stores and even supermarkets are facing online competition.
Amazon is great for its users who are looking to buy products at great prices. Amazon is great for self-publishing writers, and even retailers. Amazon can be great for publishers but for this to work, Hachette and Amazon must communicate a relationship, not price point. At the end of the day, the biggest loser aren’t businesses but authors, readers, consumers, knowledge and education.
But as with all things business, the question is: who needs the other more?
Article by Friz A.B., managing editor of EdChron.com
What do you think?