The Power of Amazon: The pros and cons

By Peter Osnos, Senior Fellow for Media at The Century Foundation

Moderator’s note: For another perspective—on the economics of the iPhone platform, which some see as a Kindle rival for e-publishing—check out Bill Janssen’s essay. – D.R.

It may not be everybody’s idea of summer reading, but I am engrossed in Michael Dobbs’s One Minute to Midnight: Kennedy, Khrushchev, and Castro on the Brink of Nuclear War (Knopf). After reading excellent reviews in the New York Times and the Washington Post, I flipped the switch on my Amazon Kindle, and within a minute for $9.99, the book was mine to read at leisure.

Appeals to top-end shoppers

The Kindle was launched last fall and is priced at $359. Amazon is still coy about revenues from the device and the 125,000 titles available for purchase. In a recent appearance at Book Expo, CEO Jeff Bezos said Kindle sales now account for six percent of the total revenues of those books.

The anecdotal evidence of friends—and our experience at PublicAffairs of two Kindle bestsellers (books by George Soros and Scott McClellan)—supports the notion that Kindle (and to a lesser extent the comparable Sony Reader) is gaining acceptance among a category of top-end consumers. The main appeal of the Kindle seems to be that you can buy books through wireless, which makes downloading a breeze. The availability of newspapers and magazines is, surprisingly, also a significant plus, with subscription costs well below the print versions.

Kindle a winner for books like this

The upshot is that the Kindle is convenient, compact, and for travel, an attractive alternative to the traditional bundle of print products (okay, not for the beach). When I last looked, the Dobbs book was on the New York Times bestseller list and is clearly established as a summer book for a certain kind of reader, proving again that all is not lost in the annals of quality nonfiction.

There is another side to the Amazon story that the success of Kindle tends to underscore. The online bookseller and all-around shopping behemoth has become a dominant force in the publishing world. From its launch in 1995, the Amazon model transformed the way books are sold. For the first time, consumers had a vast selection of titles at their fingertips at great prices and with the assurance that, once ordered, they would be delivered to your door. For all the appeal of bookstore browsing and the community service that the best stores provide, buying a book can be a pokey experience: a clerk tells you the book is out of stock and that to obtain it you have to put expectation on hold until it can be located, which may be never.

Convenience vs. guilt

What Amazon has done for the book business is make the buying of books a transaction so convenient and gratifying that you can almost sublimate the guilt about not supporting the brick and mortar stores, especially the cozy independents that give bookselling its sense of commercial virtue.

Yet the better Amazon is for the customers, the tougher it is becoming on the publishers, especially those below the corporate giants like Random House and HarperCollins. As the director of a leading university press observed recently, “Amazon has the best customer relations and the worst publisher relations of any company I’ve ever dealt with.” The more formidable Amazon becomes as a retailer of books, the more pressure it puts on suppliers to get terms that increase its margins, which, given its discounts to consumers and capital costs, are very narrow.

Hit among readers but scary to publishers

In March, Amazon declared that all books to be sold in print-on-demand (POD) formats, an increasingly important source of backlist and hard-to-find titles, would have to be provided by its POD subsidiary rather than any outside vendors. In Britain, Amazon has been in a feud with Hachette, which owns the Little Brown imprint, and apparently has disabled the “buy” button from the company’s titles on Amazon’s site. The net effect of what amounts to corporate swaggering is that Amazon is becoming as fearsome to publishers as it is popular with readers. Presumably, arrogance is a benefit of power and through its brilliant strategies of pricing and performance, Amazon has claimed the right to be prideful.

But the extraordinary thing about the developments in technology and marketing in the years since Amazon was founded is that it has also created opportunities for entrepreneurs to develop their own means for reaching consumers, including someday doing everything Amazon can and more. This is roughly what happened to the record store and music companies when the iPod was invented. The video chains with annoying late fees were undone by NetFlix and video on demand.

The positives: Boost for Dobbs’s book at a promotionable price

A generation ago, the new force in bookselling was the mall stores (Crown, Walden, and B. Dalton) that seemed to favor a small selection of titles, threatening the availability of the vast catalogue of less commercial books. Because of their limited inventory, among other reasons, the mall stores are now in inexorable decline (Crown is gone) and books have never been more available, at least online. Amazon was a breakthrough. The Kindle appears to be another. I am very glad that Michael Dobbs’s book is for sale in the format I wanted and at a promotional price.

Chillier climate ahead for Amazon?

Still, I wonder, and so perhaps should Amazon, whether the power it has accumulated can evaporate. Publishers are giving in to Amazon’s demands for selling terms because they have little choice. Then, needing to show additional profit, Amazon will turn to the customers, raising prices, insisting that they buy proprietary formats such as Kindle and charging for other services. That’s when the climate for Amazon could get a lot chiller than it is now.

Moderator:  Peter Osnos is founder and editor-at-large of Public Affairs Books and executive director of the Caravan Project. Reproduced with permission from a regular Osnos column called The Platform.  – D.R.