The Amazon Conundrum: Competition in eBooks

On several forums that I visit, there has been ongoing discussion about Amazon and monopolies and how no one need worry because if Amazon were a monopoly and did raise prices, a new competitor would instantly appear. The discussions often also evolved to criticising anti-Amazon posters for not having a solution to the problem, just whining about the problem.

I think those who do not see a potential problem with an Amazon ebook monopoly for authors, publishers, and consumers are simply fooling themselves. The ebook market is not like the TV market. Unlike TVs which all meet certain standards so that a Sony can be substituted for a Samsung, which can be substituted for a Panasonic, ebooks do not meet a set of standards and a Kindle-compliant ebook cannot be substituted for an ePub-compliant ebook without some finagling and without removing any DRM.

Consequently, should Amazon drive out of the ebook business its primary national competitors, the likelihood of someone coming along and overnight becoming a major competitor is nearly nil. Consider the cost of duplicating Amazon's already-in-place infrastructure. Plus, how would a new competitor break the Amazon eco system? The only way competition might have a chance at surviving would be with Department of Justice intervention.

Picture the ebook marketplace with Sony, Apple, Kobo, and Barnes & Noble gone, leaving just Amazon. If Amazon raised its pricing to insure profitability (or, alternatively, followed the Walmart practice and instead kept pricing stable but squeezed authors and publishers), what could be done about it? Not much. To say that a new competitor would see an opportunity and exploit it is naive.

The new competitor would have to build a business from the ground up. How likely is it that Amazon would sit back for a few years to give such a company a chance to gain a foothold? How likely is it that venture capitalists would be willing to fund the necessary billions for such a venture? And if the new competitor was ebook focused, for how long do you think they could underprice Amazon? Remember that Amazon has other, well-established divisions that could support a money-losing book division, something that a new competitor wouldn't have.

To think that with the fall of the current crop of competitors new competitors would rise that could compete with Amazon nationally is simply wishful thinking with no basis in reality. The response is that Walmart didn't raise prices, but ignores that Walmart has strong national competition in companies like Costco, Kmart, and Target -- once you eliminate Sony, Kobo, and B&N, Amazon doesn't. Apple is currently a weak ebook competitor and no one thinks much of the Google ebookstore's competitive status.

This problem with Amazon was brought about originally by publishers who didn't look beyond their noses when giving Amazon significant product discounts in the early years. The problem is being compounded by the same publishers' inaction and by authors scrambling to join the Amazon exclusivity club. If publishers and authors do not take steps to halt the rise of Amazon, there soon will be no outlet but Amazon for national exposure.

The question is what can publishers and authors do? For authors, the only option is not to give Amazon exclusivity and to actively promote other ebookstores where their books can be found. If you promote Amazon primarily, you are feeding the problem, not starving it.

Publishers really are in the stronger position to halt Amazon's dominance; they just lack the willpower to do more than whine. Agency pricing (which is legal; the Department of Justice is investigating whether there was collusion to impose agency pricing, not whether agency pricing itself is legal) was a first step but as done by publishers, insufficient.

What really needs to be done is for publishers to decide that their ebooks can only be sold in the ePub format and only with Adobe adept DRM (i.e., essentially social DRM like B&N uses). Once you break the Amazon closed eco system, everyone can compete on the same terms. Combine this with correct agency pricing, and the playing field becomes perfectly level. Now ebooksellers will have to compete on other factors, such as customer service.

If Sony's ebookstore went under, it would go under because of other factors, factors that were within its control, rather than because of format wars.

The forcing of ePub and one type of DRM doesn't directly address the exclusivity problem, but it could do so obliquely. If competitors to Amazon began to increase market share, the incentive to be Amazon exclusive would diminish.

One other thing to consider: I see no reason why, now that Amazon is a direct competitor of traditional publishers -- it has established its own publishing houses to sign on authors for Amazon exclusives -- traditional publishers can't simply refuse to sell their books -- both p and e -- to Amazon. It seems to me to be illogical to require them to provide the means to fund their own funerals.

The longer the publishers dawdle in taking action against Amazon, the more power they devolve to Amazon. The point will soon arrive when publishers will be able to take no effective action against Amazon and we will be writing their obituaries.

The same is true of authors who sign up for Amazon exclusivity and who promote Amazon. There will soon come a time when the only game in town will be Amazon and you will be at Amazon's mercy. You will find that no one will stand beside you should you decide to fight at that late point in time -- publishers won't because they will be powerless; consumers won't because all they are interested in is lowest available price; other ebooksellers won't because they will be nonexistent.

The time to fight to prevent monopolization of the ebook marketplace is now. The way to do it is to encourage publishers to only permit the sale of their ebooks in ePub format with a standard DRM and for authors to not give Amazon exclusivity. In the absence of such action, we can wear the lemming label.

11 Comments on The Amazon Conundrum: Competition in eBooks

  1. I wonder where we’d be if Amazon hadn’t entered the ebook market. Not a pretty picture, what with the Big 6 trying to slow the adoption of ereading, and trying to block the libraries from getting ebooks. And now Rich seems to think we should be forced to use one ebook format and one DRM vendor, isn’t that just another monopoly? What happens when Adobe raises their fees 300% (like the publishers did with library ebooks)? That’s exactly what Rich is saying will happen with a monopoly, so why wouldn’t Adobe? Frankly, I’m getting tired of the Amazon-hater articles, I value other opinions, but people like the OP (who just so happens to be associated with the publishing industry) sounds to me like he is trying to spread misinformation.

    • Yes, absolutely. I’m completely opposed to a mandatory Adobe tax and the power that gives to one company. Watermarking would be acceptable but I’m vehemently against Adobe monopoly.

    • The cost of DRM is supposed to be offset by the increase in sales. If the DRM eats into too much profit, then people will opt to not use it. Also, it may be the case that B&N is licensing IP from its Fictionwise purchase to Adobe for the no-server-required solution, in which case there will be downward pressure on the price.

      Also, the goal is to be able to focus on compatible tools that produce compatible products instead of re-inventing the wheel constantly or forcing publishers to implement heterogeneous processes. The competition will still exist, but it will be more productive competition.

  2. Replace Amazon with Apple, Kindle with Ipod, e-book with MP3 and you have nearly the same situation with MP3 players…Hell you could probably have done the same with analysis with Betamax and VHS, Blueray and HD DVD.

    Competition in the market place is always good but unfortunately like any good competitions there are winners and losers.

    My point is that not all “market place domination’s” end with price increases and world take overs. Let’s not forget amazons roots, surely if anyone deserves to be leading the e-book revolution it is a company that started as an online bookstore!!

  3. @vaughnmr and @Timothy — First, I agree that Adobe shouldn’t be given a monopoly but if we must have DRM, which I would be happy to not have, let us at least have a single DRM scheme for all books and devices. Why should ebooks be different than DVDs? If I buy a DVD, I do not have to worry about whether it requires a Sony, Panasonic, Toshiba, Emerson, Sharp, or some other player. The DVD will work on every player I can buy at my local Best Buy. Shouldn’t ebooks be the same?

    Similarly goes the argument regarding one format. Shouldn’t I be able to read my ebook as is on the device of my choice?

    If the format and DRM schemes were universal, the competition would be on other consumer-oriented grounds, such as customer service, selection, price, features. Just as it is in the MP3 and DVD worlds.

    On other thing: I see no reason why the publishing industry as a whole couldn’t implement its own universal DRM scheme like the movie industry did. There is nothing that requires them to implement Adobe’s scheme.

    And just as if Adobe were to raise its licensing fees 300%, should we not worry that Amazon, once it is the last vendor standing, will continue to refuse to license its DRM scheme or will license it at a price that increases costs by 300%? Why do you think Amazon will always be an angel?

  4. Barnes and Noble e books are not social DRM (hate that term because it is not even remotely accurate). It is an altered Adobe DRM so that it only works on Nook devices and software. OK, without it easily being removed, that is 🙂

  5. I stopped reading this very early. It’s predicated on seeing the world through the lens of dedicated hardware, not apps. Dedicated devices are way outnumbered by devices that can run any app. There are more iOS and Android devices out there than all the dedicated eBook devices put together. If we were all locked into choosing a device, I’d say the argument has some merit. But thinking that Amazon is going to win when it’s already been swamped by devices that can read any book — in fact, just about *all* books — just doesn’t fit the world we now live in. Amazon always had a price advantage over Sony, yet Sony battled on. And why did B&N enter the market if it thought it couldn’t fight? Agency Pricing didn’t bring them or Kobo in.

    • You are almost certainly correct, Mike. However, having compatible formats and mechanisms also allows for better competition between software offerings. I realize it requires more effort (and thus, indirectly, cost) to document APIs, but it almost always works out for the best in terms of customer freedom, products, and ideas.

  6. “One other thing to consider: I see no reason why, now that Amazon is a direct competitor of traditional publishers — it has established its own publishing houses to sign on authors for Amazon exclusives — traditional publishers can’t simply refuse to sell their books — both p and e — to Amazon.”

    I asked the same question on Mike Shatzkin’s blog once.

    It turns out they can refuse to sell ebooks, but Amazon can work around a p-book ban through used sales, wholesalers, and/or their marketplace.

    It’s a good point.

    But I still agree with you that the agency conspiracy- we’re getting more details now, and it seems like it WAS a conspiracy- seems convoluted at best when viewed from the self-interest of Apple and the publishers.

    • That last paragraph didn’t make sense.

      I agree that with you that, if the publisher’s really want Amazon to go away, they should be able to make that happen in a more straightforward fashion.

  7. Form a standards committee to continue to work out the formatting — going with one existing format without a change system in place is asking for anarchy (many will roll-their-own).

    Forget the DRM part of this– they all get broken quickly and only serve to make the honest customers feel like criminals and get in the way of honest use.

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