Amazon vs Hachette: And Why An Axe May Beat A Hammer

For those not up to speed on the war of words (quite literally) between Amazon™ and Hachette™, it basically revolves around one central theme: Amazon believes a price should be X, and Hachette believes it should be Y. So the question everyone is asking is, “Who’s right?” In my view that’s the wrong question to even begin with.

The reason being is this (and I’m not trying to be coy) both are correct if you understand what the real question and answer should be, and that is: Whomever owns the product owns the right to price. Whomever owns the distribution point (or the store) owns the right to carry it or not. Period.

For those who want to disagree you need look no further for a clear example of this than Apple™.

A distributor and a producer can agree to disagree on what their respective businesses should make in profit, but a distributor is in the distribution business, not the creation of product business. (Regardless if they create their own product within that very same business.) Their models, their strategies, their world view as distributors is not the same as what the producer or creator of a said products business model or priorities are – no matter how much they say, nor how broken they believe them to be.

There also lies within this great debate one of the greatest conundrums that no one (and I mean no one) is addressing. As broken as the publishing business model is debated and pointed to as the broken model of models, I ask: and Amazon’s model is perfection? Hardly.

I’ll follow that statement with this: It might be even more broken and in need of restructure more than the publishing industry. (Yes, I did just make that statement.)

Why would I say such a thing you’re asking? Easy: Let’s not forget Amazon has still yet to prove it can make or turn a profit worthy of its stock valuation. And that question is still up for grabs even though it just celebrated its 20th year since founded.

Some are asking why is this happening to begin with, along with why now? Many thought or believed Amazon was the greatest friend of book publishers, authors and more.

Yes they were, but as I alluded to earlier I believe something has changed in Amazon’s business model that now needs correcting. Something most just turned a blind eye towards as if it would never need to be addressed in the future. i.e., Amazon needs to start turning real profits in order to convince Wall Street that their investment in this retail experiment can actually pay dividends or profits which can be returned to share holders in the future. That future – is now here.

In my view this is just another one of the realizations I’ve warned about rearing its ugly head: Without the Federal Reserves QE pumping and the spigot almost closed, the once hot money now chases cold hard facts. i.e., “Show us the money!” If not – the hot stories will begin to get the cold shoulder, and the once darlings of Wall Street are not only far from immune –  they may have bulls-eyes painted on their backs. (Do you stay in Amazon? Or, do you move to let’s say the next greatest of the same story as in Alibaba’s IPO?)

For all intents and purposes Amazon is still “an experiment” in online retailing. And Wall Street is becoming increasingly incessant on wanting many of the “old” questions answered since the Federal Reserve has been turning off the spigot of free speculation money.

And the question that hangs over Amazon like the sword of Damocles is: Will they ever make money? Or, is this the best it gets?

One needs only look at a stock chart and notice the eery timing coincidence of its descending share price and the announcement that the Federal Reserve was actually serious in reducing the QE flow of free cash.

Remember, for as large and encompassing as Amazon is with all the wonderful things it can and has done to make shopping better; it can only last so long before selling at a loss catches up with it. And that has only been made possible as Wall Street stays committed to the story that “someday” Amazon will make money to justify their investment.

Without that narrative in place and believed, Amazon as we know it changes. Again getting back to “why this is all happening” my view and belief is that the real issue here for Amazon is: Many (including possibly Amazon itself) have forgotten it’s not 1999 anymore.

Just a scant 15 years ago the internet and everything we now take for granted was almost unimaginable. If you were placed in hibernation then only to wake now it would be the equivalent of being a Quaker suddenly transported to the deck of the Enterprise.

Smart phones alone are only 8 years old and the Blackberry™ (a what?) was at the time a marvel of marvels. Today? What is the same is Amazon’s business model. i.e., Sell at break even if not a loss, for as long as it can till they are the dominant (if not only) choice.

The “for as long as it can” part of that statement is what I believe is now jeopardizing that model. Amazon is still if not more convenient as ever as a first go to place to check prices and more. But (and it’s a very big but) it is far from the absolute price dominator on all items it was in respect to just 4 or 5 years ago.

You can buy securely, and find alternatives in about 2 keystrokes today from some of the very retailers Amazon was handily decimating earlier. Many have adjusted their own strategies and are actually beating them at their own game. Not on everything, but in enough places and in enough volume to cause significant concern for the once unquestioned king of margin reduction.

So in getting back to this debate let’s focus and use what’s being argued that currently has to do with eBooks and authors. (putting aside the ever-growing Disney® contention)

Authors create the content to be sold. Amazon distributes that content. But without Amazon authors can still create, still make product available, still have fans, still have sought after products. Amazon? Without authors – they are empty shelves whether tangible or virtual.

Adding more confusion to the mix is the cohort of authors demanding theirs, as well as other publishers, “should just suck it up and stop being greedy.” I can’t help but wonder: Where was the outcry when the price of Prime™ membership increased?

For all intents and purposes, that increase on a customer that only purchased eBooks and didn’t use any other service or purchased an item (for what ever the reason) over a year would be a 100% windfall of net profit to Amazon – not to any authors.

Would it have been “fair” for the publishing industry to argue that increase in price and profit should be distributed how they saw fit? How about the same argument reversed? i.e., The increase in your Prime membership is too much and will drive down customer participation getting less eBooks into customers hands.

Based on Amazon’s own argument – they had every right (if not even more so) to make it. For after all – they actually represented the product and authors.

What is also quite instructive (and much to my amazement) is the very public dealing with customers, authors, and the publishing industry. Not only is this in full view, but rather the distributor is inviting public participation into what is truly a pure business/profit argument.

Even more amazing to me is the lack of, if not deafening silence of what should be the very loudest vocal group of all: The competition!

This alone shows me how hunkered down, scared, lack of strategic vision (just to name a few) many of the businesses that were decimated by the Amazon model have become.

If I were the CEO or the head of sales/marketing let’s say of Barnes and Noble™, I would have a team of the best in advertising whether within my structure or hired out and making ad buys hand over fist and more using this public discourse as fuel why customers could get what they need right where they used to get it – with me or my store.

I also would have my purchasing, author relations, and other departments (as well as myself) on the phones, on planes, on what ever it took and start making deals. And I mean deals using this as a vehicle to cut once unimaginable deals where before they might have never been listened to. But now? All ears would be open.

However, what has been the response? (Insert chirping cricket sound here)

Personally these once formidable competitors are acting like the sheep they’ve become. (i.e., Book retailers of any sort, but not limited to them in isolation either.)

What an opportunity being lost for businesses that relish competition seriously. Here they have an opportunity to push back being handed to them on a silver platter by the very competitor they see as a nemesis, free of charge and – with free shipping. Absolutely amazing to anyone with business sense.

Remember: For as large, dominating, along with great service and free shipping. If you want let’s say Malcolm Gladwell’s latest work you’re not going to go to an empty slot and say, “Oh well, I’ll just buy Michael Sadwell’s latest. They’re probably the same seeing they’re in the same section.” Same thing for a Steven King novel.

Yet, the way this argument is playing out by both Amazon as well as the authors siding with them, one would think Amazon was “the only” place where one could by them.

As I alluded to earlier, if you listened to the deafening silence coming from Amazon’s competitors, it’s easy to believe that to be true. (Again just on the sole issue in a lack of a cohesive, strategic response that has been afforded them via this fight, I am still in absolute total amazement and bewilderment.)

The internet and buying via retail through it too say “has changed” since 1999 is of course an understatement. But, what seems oblivious to all players is Amazon today is more in the camp of “habitual” or “convenience” purchasing rather than what it was back in the early ’00’s where it was truly – in a league of its own with nearly no alternative.

Today there is not the hesitancy to purchase online at other places. As a matter of fact, you can find many items cheaper than Amazon with just as good of an experience from online retailers that have upped their games and learned how to use e-commerce far more effectively than they were just 5 years ago.

Credit card processing, checkout, customer service, and yes – prices can be found that are rivaling Amazon at their own game in many areas.

What might be more at stake and where I feel is the most important area to watch is if in fact Hachette holds firm, refuses to capitulate, and pulls its products or services out from Amazon. As I’ve said over, and over, Whether you agree with one side or the other, the fact remains – Hachette, and their respective authors own the material.

If they decide to pull while at the same time have the guts to increase the retail price of their offerings and distributing them via a more friendly vendor: it may be the first crack in the armor that Amazon has yet to ever face.

Remember: A customer not only can, but will go somewhere else and actually pay more because: The product has value, is worth it, and they want it. Now.

This is the true model that many have forgotten. And no one has forgotten it more than the publishing industry itself. If they can get back to understanding and relating to that basic fundamental principle – the publishing industry model can fix itself.

The reason they’re both in such straits is one forgot, while the other is forgetting exactly what business they are truly in. One business creates the product, the other distributes. The cost and business of creation is not the same as the cost of distribution. For if that were the case, why is there such a thing as copyright?

© 2014 Mark St.Cyr