Amazon and Macmillan

I have been kind of amazed at the backlash at Amazon over its showdown with Macmillan Publishing.  As I understand it, Apple, with its new iPad, had adopted a strategy of wooing publishers by offering promises of higher retail prices, an offer Amazon basically refused to match.   This dynamic (with retail discounters pleasing customers but ticking off manufacturers and product suppliers) is not at all new to retail.  I am sure a lot of manufacturers wish Wal-Mart was never invented, but they have to try to play ball with them because Wal-Mart wields so much power with customers, in large part because of their pricing.

In this sense, I have always thought of Wal-Mart and Amazon as my agents, using the power of my and other consumer's volume to pound manufacturers on price.  They serve the same role as, and in fact are more effective than, a buying cooperative or consumers union.

So my agent, Amazon, had to go to the mattresses with a publisher on its pricing.  This happens in all negotiations -- if you are not willing to walk out the door, then at some point there is a limit to your bargaining power.  I was ready to applaud them for it.  Sure, they had selfish interests of their own, but who cares?  That is how capitalism works -- through the alignment of incentives, people who really don't even know me or really care if I live or die work hard to create value for me  (this is the opposite of big government, where people who claim to care about me deeply work really hard to destroy value).

Anyway, the clients that Amazon represents apparently lost faith quickly, and decided they were more freaked out by a couple day blackout than increased retail prices.  Wimps.

Postscript: I understand the debate is a bit more subtle, with Macmillan arguing that they want price flexibility over a range from $6-$16 (or whatever) for e-books rather than a hard cap at $9.99.  Trust me, though, any inference that this approach roughly averages Amazon's approach is so much chin music.  Most sales would be for new books at the high price, with low-volume books at the lower price  (something, by the way, Amazon already does).  The average sales price is higher in the Macmillan approach, and I don't blame them for trying.  And Apples is just trying to differentiate itself, and attempting to lock up publishers into exclusives or sweetheart arrangements fits their proprietary business model.   So I am not crying foul, I simply was rooting for Amazon because I felt my interests as a consumer lay with them in this dispute.   And I am wondering why so many people see it differently.

  • http://freiseinundbleiben.blogspot.com/ Max

    Perhaps they believe that they root for the benevolent company of artists and that higher prices would mean more money for the writers of the books. Of course, this is bullsh*t, because the artists already have a fixed deal before these negotiations even start. The other idea is that all that apple does is inherently good (though the IPad sucks: No Flash, No Multitasking and this should replace Netbooks?!). And the third idea would be that more competition would serve the market well, however, it is stupid to assume that is happening with higher prices ^^

  • RickZ

    "through the alignment of incentives, people who really don’t even know me or really care if I live or die work hard to create value for me (this is the opposite of big government, where people who claim to care about me deeply work really hard to destroy value)."
    ---
    Point of order: Big government people do not work really hard at anything. The slower and less work they do, taking up more of your time and money, hurts you, the consumer, just as easily as working hard does. So why bother? Besides, "working hard" is an employee clause not found in SEIU and other government employee union contracts.

  • http://samablog.robsama.com rob sama

    I don't understand why ebooks should require both a publisher and a retailer. In the digital world, they should be one in the same, and the savings should thus be passed along. Macmillan should be selling its own ebooks directly, and Amazon and Apple should accept manuscripts to sell ebooks directly too. Apple and Amazon eventually will go this route (Amazon already kind of does, see here), putting the Macmillans of the world out of business 95 years hence when their copyrights run out.

  • http://www.bibliographing.com nicole

    Perhaps they believe that they root for the benevolent company of artists and that higher prices would mean more money for the writers of the books.

    They definitely believe that, and they also believe, as Coyote says above, that Amazon is acting like Wal-Mart--only Wal-Mart is super, super evil. And I've read some unbelievable stuff in the past few days that shows how little some people understand the way prices work and the purpose they serve--e.g., that Amazon had planted the idea in people's heads that they didn't want to pay more for e-books, but if it weren't for Amazon people would be more than happy to pay full hardcover price for anything.

  • tomw

    Seems to me that Apple is like the realtor who 'buys the listing' by recommending a higher listing price. Once the listing is signed, and there are few, if any, offers, the price soon becomes negotiable. But, you are signed on .... and the realtor makes a commission that could otherwise have gone to a more honest[realistic?] agent. [who might even have had a much better marketing strategy...]

    tomw

  • morganovich

    rob-

    one reason for a distributor is that consumers have no idea who published most works and don't want to know. they often want multiple books at the same time, often from different publishers. can you imagine going to a different video store or having a different netflix account for paramount, fox, pixar, etc? it would be awful. if it costs a bit more for a one stop shop, i suspect that most are willing to pay it. i certainly am.

    i don't want to go to the del monte store and the campbells store and the tropicana store. i want to go to the supermarket.

    this is why the distribution model exists.

    in the case of e-books, it's a bit more complex as well as the standards are all proprietary. effectively, amazon and apple are selling access to a platform and a format. there is no MP3 style industry standard. if one develops, distributors will likely lose some power, but id itunes is any guide, perhaps not as much as one might suspect.

  • Dave

    Disclosure - I don't own an e-book reader nor to I purchase hardcover books very often. I do purchase a large number of paperback books every year.

    From what I understand (and please point out if I'm mistaken) is that Macmillan doesn't want cheap e-books to undercut their initial hardcover sales. So, rather than push back the e-book release by several months, they'd set the initial price higher so that the hardcovers had a chance. Then, over a period of time, they'd incrementally reduce the e-book price.

    I don't have a problem with Macmillan trying out that business strategy, nor do I have a problem with Amazon attempting to negotiate a different pricing contract. I also wouldn't have a problem with Amazon declining to sell e-books that it can't price at $9.99. But when Amazon pulled ALL Macmillan titles, regardless of format, they stopped being my agent and started being a direct hindrance to me. I wouldn't have bought an e-book regardless of the price so I wouldn't have been helped or hurt by either of them prevailing but, by pulling all formats, they're now involving that don't have a stake in the actual fight - not only me, but the authors as well. At point it stopped being a laudable business strategy and became a petulant, school-yard bully tactic.

  • IgotBupkis

    > (this is the opposite of big government, where people who claim to care about me deeply work really hard to destroy value).

    I don't think they actively work to that end, it's more than likely simply the most common end-product of their indifference, as inherent agents of Friedman's fourth transaction type:

    Milton Friedman's simple but powerful take on purchasing transactions : He noted that there are four types of purchasing sitations:
    1. Individual spends his own money to buy something for himself. The right item is bought and the best price is paid.
    2. Individual spends his own money to buy something for someone else. Wrong item is frequently bought but buyer tries not to overpay -- Father's Day gifts, Anniversary gifts.
    3. Individual spends someone else's money to buy something for himself. The right item is bought but the price paid is often too high -- you spending your employer's money to buy yourself lunch.
    4. Individual spends someone else's money to buy something for a third party. Wrong item is frequently bought and price paid is often too high -- Government is the perfect example -- the spender doesn't have any vested interest in the gift, nor do they have any vested interest in the expense. From this we get thousand dollar hammers.

    I put it to you that almost all government expenditures occur as a result of being type 4 transactions, and thus don't seek to destroy value, they are merely indifferent to it. The net affect is no different, no, but there is significance in this in regards underlying motivation and how one goes about doing something about it. It suggests alternative approaches and/or mechanisms for dealing with resistance.

    Example -- if they are not out to explicitly destroy value, then one possible approach is to reward the ones doing the spending with some percentage of what they save (yes, determining this AND preventing it from being gamed is far from trivial, I grant... it's just being suggested to make the point). By doing that, the purchaser now has a vested interest in what is spent, making the transaction type 2... Similarly, if the people who benefit from the purchase are part of the people making the contract definition, then they will have a vested interest in what is purchased, turning the transaction to type 3 (yes, this, too, can be gamed but, once more -- it does help focus on possible alternatives).

    The ideal would be to minimize government expenditures, but how far do you plan to do that, AND the problem still exists for whatever remains, making it a worthwhile issue to approach even with a complete intention to pare down government actions to the absolute minumum.

    ;D

  • IgotBupkis

    > out of business 95 years hence when their copyrights run out.

    LOL, what makes you think THAT is going to happen? Corporate interests like Disney fully plan to keep extending copyright indefinitely, like they did with the Bono Bill, a blatantly unConstitutional law (it changes the rules for events which have already occurred, which is a clear "ex post facto bill of attainder", and hence unConstitutional).

    BTW, I don't recommend the Kindle.

    As happened to be revealed when Amazon Canada inadvertently sold something to US residents for which the copyright in Canada had run out, but not in the USA, Amazon has the power to not only remove items you have purchased (and no, I don't give a rat's ass if they "refund its price" or not. Once a book is in my possession it should be more than a bitflag flipping to remove it from same), but, MUCH MORE CRITICALLY, Amazon also happens to have revealed that Amazon has the capacity to alter content AFTER PUBLICATION.

    Can you say "Orwell"?

    I have four numbers for you: A one, a nine, an eight, and a four.

    I can't speak for you, but there is NO WAY in F**** HELL I'm EVER giving someone arbitrary control over the contents of the books I own.

    Because it's rather obvious that not only can Amazon abuse this, but so, too, can hackers, Government agents, and even the agents of foreign governments.

    Suppose some nasty political event occurs in China. What is to stop the Chinese government from waiting ten years, and then having their sponsored hackers go out and "revise history" to change the descriptions of the events. Are you going to remember them certainly enough that you're willing and able to disregard what "published reports" say?

    More importantly -- Are you going to convince others that you are right and that the reports they have sitting before them are wrong?

    Not claiming such abuse is likely to become common -- but I'm not accepting the idea that the system should be amenable to such abuse AT ALL -- and the fact that I can't make my own independent backups of things which can't be altered without my express permission is a systemic vulnerability which should not be tolerated.

  • Dr. T

    "I am wondering why so many people see it differently."

    They aren't as intelligent and informed, or they don't care about wasting money, or both.

  • ADiff

    As an owner of an eBook reader, to me both Amazon's price ($9.99) and Macmillan's ($16.99) are both too high. When I buy a real book, I buy content alone (including physical presentation). I do NOT have to pay for format, delivery technology or access equipment. Although it has its nice features (mostly around storage and portability) eBook readers are a distinctly inferior delivery mechanism to traditional printed materials. I've already had to pay for equipment. Why on Earth would I ever want to pay for a particular format or delivery technology (as opposed to any other) since it benefits me NOT in the least, only the particular seller, who (like any other software vendor) hopes to benefit from market share enforced by proprietary access channels (that 'format' and delivery mechanism, the use of which one's ALREADY paid for once!) No. Absolutely not. For latest releases of popular titles, about 15% of hardcopy price would right. For limited market items this would appertain for an extended period, but any popular item should drop to 5-7% of hardcopy withing a year or two. Anything older would be 'bargain basement', deserving (at best) $0.99 apiece.

    Computers are great for research. They're great for archiving. They're great for searching and cross-referencing. But for reading books, they're (still) very much sub-par. These organizations think too highly of themselves, and of their technology, and are far too convinced it'll replace traditional print. Ebooks won't do that at all....video will.

  • Kyle

    MacMillan's whine about ebook prices is a complete bullshit. The problem is that they are the worst offender when it comes to outrageous ebook pricing. Their ebook version of a FlashForward is $14. This is a book that came out 10 ****ing years ago! You can get it used for less than $7. All of their ebooks are like this. They price them more than hardcover and refuse to ever bring them down.

    By the way, the reason you're seeing so much anger over this has nothing to do with consumers. If you go over to amazon's forums, you can see that most supported them in trying to bring the prices down. It's the writers who are throwing up a shit storm. They blog a lot, and all of them are angry about losing sales on their books. I feel for them, but their publisher is run by idiots.

  • IgotBupkis

    > They blog a lot, and all of them are angry about losing sales on their books. I feel for them, but their publisher is run by idiots.

    The publisher is a middle-man desperately afraid of getting cut out of any future arrangements if the market goes in the direction it's particularly likely to go. For electronic information, not more than three people should receive payment for services rendered from the reader:

    The Writer/Aggregators
    The Editor
    The Publicist/flapper.

    That is

    a) the person or persons resposible for the creation itself,

    b) a person to help smooth over the rough edges of the creation using professional experience and natural distance from the production.

    c) the person who calls it to the attention of the reader -- usually paid directly by the reader, not by the first two: "You know what I like. What have I not experienced that you think I would enjoy?" Everyone will have dozens, if not hundreds, of flapper-agents, whose purpose is to bring new things to people's attention. This can be as simple as another author's recommendation ("I started reading Harry Turtledove because I read a blurb on the cover by S.M. Stirling, who I already knew I liked"). It can be a reference from a collective aggregate list ("IMDB users rate this a 7.9"), or it can be something more sophisticated and/or technical -- from a person making their own list of things to read/hear/watch whose opinion you've learned to trust, to automated listings tied to carefully designed psychological analysis of those with similar likes (Amazon's "people who bought this also bought..." is a very primitive example).

    Now, where the heck in the middle of that stream is any cut for a "publisher"?

    Who needs them? Who wants them?

    And that is what it's all about. Them attempting to rearrange the deck chairs on the sinking Titanic of copyright law

  • Matthew Brown

    Amazon, as it frequently does, mishandled the PR aspect of this (largely by, it seems, not even considering that there WAS a PR aspect to this) and thus set itself up to look like the bad guy.

    There wasn't even a faceless 'We regret that we have to take this action' impersonal press release about it; they behaved as if this was merely a private matter between them and Macmillan.

    It's not a private matter as soon as you annoy your own customers by doing it, and Amazon was blind to this. If you're going to take actions that annoy your customers, you'd better explain it to them.