Amazon’s Tactics Confirm Its Critics’ Worst Suspicions; For years, authors and publishers have warned that Amazon,Jeff Bezos’ book-selling giant, would one day use its power for ill.

Amazon’s Tactics Confirm Its Critics’ Worst Suspicions

By FARHAD MANJOO

MAY 23, 2014 4:29 PM 25 Comments

Amazon is confirming its critics’ worst fears and it is an ugly spectacle to behold.

For years, authors and publishers have warned that Amazon,Jeff Bezos’ book-selling giant, would one day use its power for ill. Sure, so far, Amazon has marketed itself as a book buyer’s best friend. It sells books at terrifically low prices, it delivers them amazingly quickly, and it constantly invents new technologies to improve the way we read. Amazon has also invested heavily in publishing new authors and it has pushed exciting new formats made possible by electronic distribution.

Yet the literary community has always greeted Amazon’s moves with suspicion. The fear is mostly about the future. What will happen to books when Amazon controls the entire industry? How will authors and publishing houses reckon with Amazon’s unchecked power?

This week, as part of a contract dispute with the publisher Hachette, we’re seeing Amazon behaving at its worst. The company’s willingness to nakedly flex its anticompetitive muscle gives new cause for concern to anyone who cares about books — authors, publishers, but mainly customers.

Here’s the back story: In an effort to exert pressure on Hachette, Amazon began taking down preorder buttons for many Hachette titles. It has also suddenly raised prices on some Hachette books and has changed its page design to more prominently recommend other titles. These moves follow weeks of increasingly hardball tactics. Among other customer-punishing moves, Amazon has increased shipping times for Hachette titles from a few days to weeks.

For years, Amazon’s drive for cheaper prices has been good for consumers, and arguably for literary culture, too. When books are cheaper and more widely accessible, more people can read them — and there’s nothing better for literary culture than people owning and reading books.

Physical bookstores sell books at a huge markup, which necessarily reduces the number of books that people can afford to buy. Amazon sells printed books, e-books and audiobooks for much, much less. Anyone who has used Amazon’s services has noticed how that fact changes one’s attitude toward books. Through its Prime program, through the Kindle, and through its audiobook subsidiary Audible, Amazon has made it possible to buy books on impulse.

Just wait, the company’s critics have always shot back. Wait till Amazon controls the whole market — then see how well it treats authors, publishers and customers.

Now Amazon is walking right into its detractors’ predictions. There are a couple obvious reasons this is a bad strategy. It’s bad public relations — if it doesn’t already, Amazon may soon control a monopolistic stake of the e-book market and its tactics are sure to invite not only scorn from the book industry but also increased regulatory oversight.

But the more basic problem here is that Amazon is violating its own code. To win a corporate battle, Amazon is ruining its customer experience. Mr. Bezos has long pointed to customer satisfaction as his North Star; making sure customers are treated well is the guiding principle for how he runs Amazon.

Now Amazon is raising prices, removing ordering buttons, lengthening shipping times and monkeying with recommendation algorithms. Do these sound like the moves of a man who cares about customers above all else?

 

Amazon Flexes Its Muscles in Fight Against Publishers

By DAVID STREITFELD and MELISSA EDDY

MAY 23, 2014 7:24 AM 339 Comments

Updated, including a statement from Hachette and more on Amazon’s practices in Europe.

Amazon’s power over the publishing and bookselling industries is unrivaled in the modern era. Now it has started wielding that might in a more brazen way than ever before.

Seeking ever-higher payments from publishers to bolster its anemic bottom line, Amazon is holding books and authors hostage on two continents by delaying shipments and raising prices. The literary community is fearful and outraged — and practically begging for government intervention.

“How is this not extortion? You know, the thing that is illegal when the Mafia does it,” asked Dennis Loy Johnson of Melville House, echoing remarks being made across social media.

The battle is being waged largely over physical books. In the United States, Amazon has been discouraging customers from purchasing titles from Hachette, the fourth-largest publisher by market share. Late Thursday, it escalated the dispute by making it impossible to order Hachette’s forthcoming books. It is using some of the same tactics against the Bonnier Publishing Group in Germany.

But the real prize is not the physical books. It is control of e-books, the future of publishing. Amazon is by far the dominant e-book company, and feels it deserves more of the digital proceeds than it is already getting. The publishers, contemplating a slide into irrelevance if not nonexistence, are trying to hold the line.

Late Friday afternoon, Hachette made by far its strongest comment on the conflict.

“We are determined to protect the value of our authors’ books and our own work in editing, distributing and marketing them,” said Sophie Cottrell, a Hachette senior vice president. “We hope this difficult situation will not last a long time but we are sparing no effort and exploring all options.”

James Patterson, one of the country’s best-selling writers, described the confrontation between Amazon and the publishers as “a war” in a Facebook post titled, “Four of the most important paragraphs I’ll ever write.”

“Bookstores, libraries, authors, and books themselves are caught in the cross fire of an economic war,” he wrote. “If this is the new American way, then maybe it has to be changed — by law, if necessary — immediately, if not sooner.”

Mr. Patterson is published by Hachette. His forthcoming novels are now impossible to buy from Amazon in either print or digital form.

Amazon is also flexing its muscles in Germany, delaying deliveries of books from the Bonnier Media Group, a major publisher. “It appears that Amazon is doing exactly that on the German market which it has been doing on the U.S. market: using its dominant position in the market to blackmail the publishers,” said Alexander Skipis, president of the German Publishers and Booksellers Association.

The association said its antitrust experts were examining whether Amazon’s tactics violated the law.

“Of course it is very comfortable for customers to be able to order over the Internet, 24 hours a day, seven days a week,” Mr. Skipis said. “But with such an online structure as pursued by Amazon, a book market is being destroyed that has been nurtured over decades and centuries.”

Christian Schumacher-Gebler, chief executive for Bonnier in Germany, said the group’s leading publishing houses noticed delays in deliveries of some of its books several weeks ago and confronted the company about it.

“Amazon confirmed to us that these delays are directly related to the ongoing negotiations over conditions in the electronic book market,” Mr. Schumacher-Gebler said.

Amazon is, as usual, staying mum. “We talk when we have something to say,” Jeffrey P. Bezos, the founder and chief executive, said at the company’s annual meeting this week.

The retailer began refusing orders late Thursday for coming Hachette books, including J. K. Rowling’s new novel, published under the pseudonym Robert Galbraith.

In some cases, even the pages promoting the books have disappeared. Anne Rivers Siddons’s new novel, “The Girls of August,” coming in July, no longer has a page for the physical book or even the Kindle edition. Only the audio player edition is still being sold (for more than $60). Otherwise it is as if it did not exist.

The confrontations with the publishers are the biggest display of Amazon’s dominance since it briefly stripped another publisher, Macmillan, of its “buy” buttons in 2010. It seems likely to encourage debate about the concentration of power by the retailer. No firm in American history has exerted the control over the American book market — physical, digital and secondhand — that Amazon does.

The retailer, whose Kindle device popularized electronic reading, has increased its control over the United States digital book market after the Justice Department’s successful pursuit of most of the major New York publishers on antitrust violations having to do with the pricing of e-books. Hachette was one of those publishers.

For several months, Amazon has been quietly discouraging the sales of Hachette’s physical books by several techniques — cutting the customer’s discount so the book approached list price, taking weeks to ship the book, suggesting prospective customers buy other books instead and increasing the discount for the Kindle version.

Amazon has millions of members in its Prime club, who get fast shipping. This, as Internet wits quickly called it, was the “UnPrime” approach.

The retailer’s strategy seems to be to drive a wedge between the writers, who need Amazon sales to survive, and Hachette. But this does not seem to be working quite the way Amazon might want. Nina Laden, a children’s book writer, was one of many Hachette authors lashing out at Amazon in the past week.

“I have supported Amazon for as long as Amazon has existed. I’ve been published for 20 years now and you have sold so many of my books,” she wrote in a Facebook posting she also sent to the retailer.

She went on to say that she was “frankly shocked and angry at what you are doing” to her new book, “Once Upon a Memory.” “It has made me tell my readers to shop elsewhere — and they are and will,” she wrote.

One of the coming books affected by Amazon’s actions is an updated edition of Brad Stone’s “The Everything Store: Jeff Bezos and the Age of Amazon.” The book revealed how Mr. Bezos said Amazon should approach vulnerable publishers for better terms “the way a cheetah would pursue a sickly gazelle.”

“What irony,” said Mr. Stone, a former New York Times reporter. “A book detailing Amazon’s heavy-handed tactics in business negotiations becomes, at least in a small way, a victim of those tactics.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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