Tuesday, March 30, 2010

Hardball, Amazon Style

Posted by Victoria Strauss for Writer Beware

Amazon has been paying hardball lately.

In February, Amazon and major publisher Macmillan went head-to-head over ebook pricing, with Amazon wanting to keep the wholesale pricing model that has till now been the norm for both ebooks and print books, under which retailers can discount book prices as much they like; and Macmillan insisting on the newer agency model, under which pricing is controlled by the publisher (a system that does not allow for discounting). When Macmillan refused to give in, Amazon turned off the buy buttons for Macmillan's books--all books, not just ebooks. Ultimately, Amazon capitulated, admitting that it wanted to carry ebooks from Macmillan, even at higher prices.

But who really won that face-off? Though Amazon bowed to Macmillan on the matter of pricing, the dispute allowed it to demonstrate the power of the buy button shutoff--and it now appears to be using this as a negotiating tool. Last week, the New York Times reported that, while agreeing that other major publishers will be able to control prices for their ebooks, Amazon is threatening to shut off buy buttons for those that don't offer concessions in return, including a guarantee that no competitor (i.e., Apple and its iBooks ebookstore) would receive lower prices or better terms.

Now the European Amazons (Amazon.co.uk, Amazon.de, and Amazon.fr), are leaning on Marketplace sellers in much the same way. The Bookseller reports that Amazon is demanding price parity beginning March 31:
In order to offer customers the best possible experience on Amazon.co.uk, beginning 31st March, Amazon will require price parity for all sellers selling under the Amazon.co.uk marketplace Participation Agreement. Price parity for these sellers means that the item price and total price (total amount payable, excluding taxes) of each product a seller offers on Amazon.co.uk must generally be the same or lower than on the seller's other non-physical sales channels.
What happens if sellers don't comply? Like the publishers, they can be shut down:
Sellers who are not willing to offer parity should remove their listings, as Sellers that do not comply with our terms and conditions will lose their selling privileges.
Amazon's Marketplace is used not just by individuals, but by bookshops, and for many shops, Amazon represents a major chunk of their online business. Because of the commissions Amazon charges Marketplace sellers, the shops often offer books on their own websites for less than they charge at Amazon--but Amazon's new price parity policy would make that impossible. Infuriated at what they call Amazon's "bullying," up to a dozen Scottish booksellers have complained to the UK's Office of Fair Trading that Amazon's new policy unfairly restricts their ability to sell at the prices they choose (pretty ironic, given that this was basically Amazon's beef with Macmillan). The OFT is considering the complaint.

This latest round of disputes is far from the first time that Amazon has used its dominant position in the market to pressure its suppliers. In 2008, it sparked widespread criticism, and also a lawsuit, when it decreed that it would direct-sell no POD books that hadn't been printed by its own POD subsidiary, BookSurge (now CreateSpace). That same year, it locked horns with several UK publishers, trying to force them to offer deeper discounts, and to penalize them for selling discounted books on their own websites. (The buy button turn-off tactic was briefly used in one of those disputes.)

Amazon's major concern right now has to be competition from Apple, and it's clearly taking action to protect its giant share (some would say monopoly) of the online bookselling business. It obviously doesn't care what its critics think--as with the BookSurge firestorm, all it has to do is sit tight, and hold fast, and people will soon move on to the next crisis. But how long can it throw its weight around (or not throw its weight around; it appears to be doing nothing about the lynch mobs that are smearing authors with 1-star reviews to protest publishers' ebook policies) without a backlash? Dennis Johnson of MobyLives believes that may already be happening. Surveying recent press coverage and commentary about Amazon's hardball tactics, he observes: "[W]hat’s gaining, it seems, is a consensus that the company is, well, out of control."

13 comments:

steeleweed said...

Lawsuits re the POD issue, price fixing/monopoly may change the game, but even if they don't, my gut feel is that Amazon is going to lose a lot of the market over the next 2-5 years.
As a writer who intends to POD several books over the next year, Amazon can kiss my a$$.
As a writer/publisher who intends to POD several books over the next year, Amazon can kiss my a$$. I suspect more authors and small publishers find also their own path to market.

M.R.J. Le Blanc said...

Amazon just keeps pushing the envelope and pushing the envelope. Eventually they're going to push too far - I hope this is that 'too far'. They're getting WAY out of hand.

Katharine Swan said...

Amazon is way out of control. In early March they dropped ALL Colorado-based affiliates to protest a Colorado sales tax law. The law didn't even require that they collect sales tax, just that they notify Colorado customers that they owe sales tax, and report purchases by Colorado residents to the government for tax reporting purposes.

It's basically the same thing as turning off the buy buttons. By denying the state of Colorado all the income made by local affiliates (which is substantial -- $37 or $38 million in 2008, I read), Amazon is trying to muscle the state legislature into repealing the law.

That's assuming that affiliates don't just join other programs, though. I found other programs I liked even more than Amazon, and have no intentions of going back even if they reinstate the Colorado-based affiliates. I agree with steeleweed -- I think stunts like this are going to chip away at Amazon's business, because people aren't going to want to do business with a bully.

Here are a few posts on the subject from my own blog:

http://blog.katharineswan.com/2010/03/has-amazon-gotten-too-big-for-its.html
http://blog.katharineswan.com/2010/03/alternatives-for-colorado-based-amazon.html
http://blog.katharineswan.com/2010/03/more-on-colorado-amazon-battle.html

Victoria Strauss said...

Thanks for reminding us about the affiliates, Katharine--can't believe I forgot that. It's not just Colorado; this has happened in several other states as well.

Harry Connolly said...

I've stopped linking to Amazon.com, and I don't buy from them, either. They're jerks.

Skeptic said...

I don't mind reading 1 star reviews when it is obvious by the content that the reviewer has read the book. When I see a ton of 1-stars that are given over e-book pricing and state it flat out in the review, it becomes as helpful to me as saying, "Don't read this book because the cover is green."

Amazon missed a great opportunity with the Macmillan power-play. Instead of educating their readers to the reality that "publishing costs" entail far more than printing a book on a press, they chose the passive aggressive route in their open letter to the customers, encouraging that they show support of continuing the practice of devaluing books.

I don't reinforce bad behavior by caving into it. Ergo, I have been done with Amazon since I read that letter, and will continue to be done with them. I can't wait to see the iBookstore grow. Per UPS, my iPad departed Shenzhen, China on Tuesday.

S.M. Carrière said...

This really is going too far. I suspect the backlash is not very far away. People don't like to be bullied, and sooner or later , Amazon is going to lose out to eBook suppliers that are more friendly!

There are alternatives out there (Lebrary.com, for example), for getting an eBook out to readers. Amazon needs to smarten up!

Lynnda - Passionate for the Glory of God said...

Pardon me if I have missed this important point, but as an author, I don't get it. In the MacMillian/Amazon skirmish, authors contraced with MacMillian received no additional royalities regardless of the battle's winner. (Unless their royalities were based on the price charged by the retailer, which is highly unlikely.) Even MacMillian gained or lost no money. The only issue that I could clearly see concerned MacMillian wanting to control the price Amazon chose to charge the reader.

I can understand why Amazon fought against that. What I have not been able to understand is why MacMillian wanted to control that price. Yes, they made statements about the devaluing of books, but that arguement doesn't make sense to me. The value of the book negotiated between the author and the publisher didn't change and neither did the value of the book between the publisher and the retailer.

As in every marketplace freely governed by the law of supply and demand, the price paid by the reader for the book determines the commercial value of the book. No change of pricing model will alter that. If the price point makes the book available to more readers, then, in my opinion, everybody wins - including the author. And Amazon should be able to make that decision.

Darrell said...

Monopolization or oligopolization has been creeping up on all of us for 30 years. Goods that have little or no inherent volatility have become subject to violent price swings.

The problem is not pricing models. The problem is monopoly, either one choke point or no more than a few that can collude together.

The answer is the same as it was in Teddy Roosevelt's time, anti-trust enforcement. Sadly, every government since the 1980's has refused to enforce laws already on the books.

Indie bookstores are flies on the scaly hide of Amazon, allowed to buzz around to give the illusion of competition.

Lexy said...

Honestly? I'm more pissed off at Apple and Google right now. Google has more power than even Amazon does to control the distribution of information and ebooks, especially orphan works, and Apple has been censoring any apps and/or books Jobs arbitrarily deems "bad." Not to mention Amazon is one of the few viable alternatives to iTunes.

That's no excuse for Amazon's treatment of GBLTQ authors, of course, or its advocacy of BookSurge.

I guess as a reader, a consumer of music, and a future indie author, I see these pricing wars as battles between two evils: the evils of monopoly and the evils of gatekeeping. As long as no one wins, I can buy reasonably-priced goods and sell cheap goods.

That's why I'm not going to complain about the agency model; if I sell and ebook for 1.99 and all of the new releases are 12.99, I'm going to make some serious money.

Sherri said...

The pricing war was what it was -- two companies who make money off the same product each trying to get what they wanted. My beef with Amazon is of longer standing.

I remember when Amazon first started. I was an early and enthusiastic customer. Over the years, though, watching the company's various tactics and actions against particular groups of authors, against companies smaller than itself, and various other things -- I can't bring myself to support it with my money.

Yes, Amazon has a right to run their business as they like. And I have the right to not support it because I do not agree with their business practices. However, they are so pervasive that it has become difficult (especially since they bought Audible, where I have long term membership. I'm wrestling with whether to severe that tie, too.)

Katharine Swan said...

Victoria, yes, I did hear that the affiliate firings had happened in other states. I believe Colorado is the only state where doing so didn't change anything. The way the law is written, they are still defined as doing business in the state and still responsible for either collecting or reporting the sales tax. They fired our affiliates to make a point, not to avoid compliance with the law.

As for the free market defense of Amazon's actions, which a couple of people have used here, Darrell is right -- there are laws prohibiting monopolies. It's not a free market system anymore if one corporation holds all the power, which Amazon is desperately trying to do.

Frances Grimble said...

Every since they started their business, Amazon has been discounting book prices considerably--at their own expense--to dominate the book retailing market. Now they want to dominate the e-book market with Kindles. As far as I know, anyone selling e-books on Amazon has to make the Kindle format available. The more Kindle-format e-books are available, the more Kindles Amazon sells. However, Amazon makes money just from selling the Kindles/hardware, whereas the publishers and authors don't.

Publishers emphatically need the power to set prices. Not all books cost the same to produce--and there are considerable editorial and production costs aside from printing, as well as paying authors. Even though publishers publish books they believe to be good and to have the potential to sell at least reasonably well, books vary widely in the number of copies sold. Therefore, books vary widely in the number of units over which the costs can be amortized, and that unit cost is what the selling price is based on.

If readers were allowed to set prices, they'd want everything free, which is what Google is training them to think. I now often hear people say they won't buy a book, they'll just wait for it to be available free on Google. MacMillian is right about the cultural devaluation of books. One of the best things authors can do for themselves is to actively educate their readers about why books are worth paying for, and about all the time and costs that go into writing and publishing them.