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Amazon Gets Demanding with Print-on-Demand Publishers

We often hold up Amazon as an example of one of the original Web 2.0 companies. Their survival amid the tech meltdown was driven largely by the value of the data they’d acquired through thousands of reader reviews, recommendations, and "people who bought this bought that" collaborative filtering. Amazon was a system that grew more valuable with more users: a network-effect-driven data lock-in.

That kind of lock-in is implicit: publishers were free to sell their books elsewhere, and readers were free to buy them elsewhere. Such implicit lock-in is characteristic of other Web 2.0 success stories, like eBay and craigslist. These sites relied on the value of the unique data/marketplace they were building to implicitly raise enormous barriers of entry. Not much fun if you’re a newspaper, but a boon for buyers and sellers.

But today’s news from Amazon about Print-on-Demand is the latest move from Amazon revealing a trend toward much more aggressive explicit lock-in attempts. (Not that it’s an entirely new strategy from the folks that brought you the "one-click" patent). Amazon has effectively told publishers that if they wish to sell POD books on Amazon, they must use Amazon as the POD printer. Small/self publishers are unsurprisingly feeling bullied.

Let’s look at four levels of lock-in at play here:

  1. Data-driven lock-in. This is the core "Web 2.0" piece. Reviews and recommendations (and now data on S3 and EC2 usage). Again, this implicit, and in general is good for consumers.
  2. Format lock-in. Now things start to get explicit. Much like Apple/iTunes, the Kindle is built around a proprietary data format, and if you want to sell your title on the Kindle, it has to be in their format. This one is bad for consumers (who can’t read their Kindle books on another device — oh, the irony!), but isn’t immediately much of a problem for publishers — at least until it leads to …
  3. Pricing power lock-in. Just as Apple reset the price of music (Wal-Mart just got the memo is throwing their own weight around on that front), Amazon is resetting the price of a book. For customers who feel they shouldn’t have to pay as much for something that never needed to be printed or shipped, this makes sense. It’s good for consumers, but bad for publishers. Then again, the reason it’s bad for publishers means it may wind up bad for consumers too. When there are only three major retail outlets for a computer book publisher like O’Reilly, our publishing decisions are heavily influenced by three very powerful industry buyers. If they don’t want it in retail, we can either pass on publishing it, or try just going direct — but the smaller volumes resulting from going direct mean the price must be higher; consumers will either have less choice (because we don’t publish titles that those three buyers don’t want) or higher prices for some titles (since we have to make up for the reduced volume). The upshot here is that lower prices in the short term can have expensive long-term consequences.
  4. Channel lock-in. This one raises the stakes considerably. There are implicit ways of working this one, as Amazon has done with their Prime program: if you want that free 2-day shipping, you gotta buy it from Amazon. But today’s news means that for publishers (and I use that term loosely) who want to sell a Print-on-Demand book in Amazon, Amazon is demanding they be the ones that print it. This is very bad for publishers, particularly because it’s really a 1-2 punch of pricing-power lock in as well. When a book intended for POD has only one route to customers, the company controlling that route is free to add whatever tolls it would like. But it’s also bad for consumers, who will soon have fewer places to find POD-only titles, and less choice is rarely a good thing.

Lock-in per se is almost always good for businesses, at least initially, and that’s certainly the case here. But rather than building or improving a system that’s built to implicitly add another brick into the barriers of entry every time someone uses it, Amazon is taking the shortcut of using market dominance to dictate favorable terms. Of course, Amazon is not a charity, and if Jeff & Co. believe this is the best way to create a sustainable competitive advantage, that’s their choice — but publishers will defensively respond to this by treating Amazon more like an adversary than a partner (eBay has some experience on that front), which in the long run isn’t good for anybody.

More coverage from around the web:

  • Publishers Weekly: "’I feel like the flea between two giant elephants,’ said the head of one pod publisher about the upcoming battle between Lightning Source and BookSurge/Amazon."
  • PersonaNonData: "As a practical matter, it is becoming harder (and may be financially impossible for many small POD publishers) to maintain separate relationships with Amazon and all the rest of the publishing community."
  • LibaryThing: "Amazon’s move should concern all publishers, and indeed readers. Amazon has always had a lot of leverage, but they haven’t used it. That’s clearly changing."
  • TeleRead: "I’m not saying that Amazon can achieve as complete a control of e-books as Rockefeller did of oil, but if you go by WritersWeekly’s account of the BookSurge move, Amazon comes across as a bully who can be predatory with both E and P." 
  • VirtualBookWorm: "This move would also force publishers to increase the retail price of books, since Booksurge/Amazon is going to charge for the printing of the book AND take 48% of the net (although some have been told 48% of the retail)!"
  • Booksquare: "While the publishing industry worries about Google (and I am still convinced that working with search engines to optimize access to your content is in the best interest of everyone) and watches while Barnes & Noble moves further into traditional publisher territory, Amazon is amassing what is essentially a secret army."

Note:This post originally appeared on the O’Reilly Tools of Change for Publishing blog.

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  • richard

    Regarding your “Format Lock-in.” The only format lock-in is if you require DRM.

    You can ship using .mobi and .prc

  • http://dasht-exp-1a.com Thomas Lord

    You are reasoning circularly if you argue that Amazon survived because of “Web 2.0″ features.

    They survived. So, people can spin whatever “just so” stories they like. That’s all there is to it.

    Personally, my guess is that they survived because early on a lot of folks got excited about the ease of home shopping and Amazon ran a tighter fullfillment chain than anyone else. They were smart about inventory. They were smart about optimizing pick/pack;/ship. They have some good hackers that kept their web site from failing. (Because, it turns out, they have some *very* good hackers).

    It’s little to do with the Orwellian-Surveillance-Society concepts of “Web 2.0″. It’s just straight up operational excellence in a niche that was well chosen for the early commercial web. Sorry to burst bubbles but, well, if you stop trying to blow bubbles I won’t have to.

    -t

  • http://toc.oreilly.com Andrew Savikas

    Richard: My point is not about DRM (though certainly I’m not a big fan), it’s about standards. I should be able to sell a book on the Kindle using the .epub format, and not have to use a format like .mobi that is entirely controlled by Amazon. Amazon has proven they can win using their customer data, but they’re choosing to compete using format lock-in.

  • http://www.buzzspray.com Jeff L

    Whats the best way then to create a COMIC/KIDS book ? I have agreat story and a create illustrator Its about a superhero cat any thoughts

  • http://toc.oreilly.com Andrew Savikas

    Thomas: Operational excellence rarely leads to sustainable competitive advantage because it’s too easily duplicated. What’s not easily duplicated is a database of thousands of customer reviews and a meticulous trail of customer activity across millions of visits and purchases. While I’d certainly agree Amazon runs an impressive fulfillment operation, there’s more to their success than solid operations.

  • http://dasht-exp-1a.com Thomas Lord

    Andrew:

    That’s the theory, I agree, but what Amazon did (at the early stages) in fulfillment was unprecedented and very hard at the time in practical terms. Bezos, I think, displayed some serious prowess. So they got a lot of first-mover out of that. Once you are the leader in a category like that, on Internet scale, who really is going to cross the barrier and challenge you? Barnes and Noble gave it a college try but were underprepared. Bezos hit a sweet spot that way. Too late now — he’s “coke” or “pepsi” to everyone elses’s generic brand.

    The database of customer reviews and the way that Amazon’s “Hey, other customers bought X, you should too” email catches our attention… yeah, that’s pretty extreme competence at capitalizing on the initial operational rationality (the same rationality that made Walmart). The database is nifty in some ways, creepy and obnoxious in others, and anyway what many have come to expect from the activity of shopping for books etc. but….. the database didn’t make amazon. amazon made the database.

    Saying that Amazon’s “web 2.0″ features are the key to their success is a bit like going back to the 50s and saying that IBM’s key to success is that they picked blue rather than brown suits as the the standard company dress.

    -t

  • http://blog.museway.com marco

    Well, I believe this is the natural step of amazon on its evolutionary path. Amazon is the biggest online bookstore actually existent. Its focus is vaguely international (we can’t define the international shipping as an international service), but, hey, they have to manage an impressive quantity of books. And it has to cost a lot this management activity.

    To become a huge typography is a natural evolution.

    Honestly I believe the publishers are right while upsetting themselves because of the approach amazon is trying to impose.
    The strict control on production, distribution and pricing is not justified.
    The strategy is obviously the copy of the iTunes one. Apple has a distinctive advantage on applying this strategy, Apple controls also the technology. It’s quite difficult to define “technology” a book.
    Amazon could try to do this only with the kindle thing.

    cheers

  • Joe Siegler

    Look at the date on that Walmart $10 CD article you linked to. They didn’t “just” get the memo. :)

  • http://bloodsugar101.com J Ruhl

    So now Amazon, the retailer is telling companies using POD (including mainstream presses that use it for back list) that they must manufacture the product using Amazon’s factory or they won’t carry the product.

    If that works, the next step is to tell all publisher they must print their books using Amazon’s facilities or sayonara.

    Then Fox buys them and they tell publishers they will only publish books whose content is in line with the company’s political views.

    Not at all impossible, given their dominance in the market.

  • http://toc.oreilly.com Andrew Savikas

    Joe: Good catch. I’ve updated with the more recent news I’d intended to reference.

  • Jay

    Amazon’s spokesperson said this was a retail strategy move to better serve Amazon buyers. This makes total financial sense; once Amazon has a book in-house POD, they can produce it virtually anywhere (e.g. close to the consumer), without storage (no warehousing costs), they have inventory forever (always available), they can schedule production very accurately (give better delivery estimates), and can drive down costs (control the operational aspects of production). It’s easy to see why they want to do this.

    The problem arose in Amazon’s complete mismanagement of their relationship with the publisher (see the writersweekly.com post). This publisher is also an Amazon customer. To put one customer out, for the benefit of another is not being customer-centric. Amazon should have managed the relationship with this customer by saying that 1) There is no requirement for you to use our POD printing services for distribution in other non-Amazon sales channels; it is simply for buying Amazon customers. You can still print and distribute with any other services 2) Given that there is a time and money overhead incurred by the publisher to set up the POD services for all of their (possibly thousands of) books, we are going to work to minimize those costs either through technology (e.g. converting from your other POD service file formats), reduction of on-boarding/fixed service costs, or by providing you with free or close to free personal service to help to get you on-board.

    From the writersweeky.com post it sounds like Amazon is doing neither of these things. They sound like they’re saying if you want Amazon to sell your book, we will handle all sales channels and distribution and you have to pay all costs to get on-board even if you already have these services set up with other providers… all at OUR prices. This is not being customer-centric.

    From Amazon’s last quarterly report news release:
    “This quarter showed accelerated sales growth and record operating profits,” said Jeff Bezos, founder and CEO of Amazon.com. “In our view, these unusual financial results are driven by one thing: continuously improving the customer experience.”

  • http://www.forgottenfutures.co.uk Marcus Rowland

    The quality of POD books has always been more variable than normal printing methods. If Amazon are serious about this their POD arm will have a huge increase in throughput, which means that standards are likely to slip. A recipe for turning customers off POD altogether, and getting them to buy ebooks instead, I suppose. Does that make more money for Amazon, by any chance?

  • http://www.styleteachers.com/ Ajeet Khurana

    I guess Amazon can always hide behind the facade of their POD being better supply-chained with their bookstore or something like that :)

    I guess it must be very difficult for a neo-monopolist from behaving like one. :)

  • Author

    A good case can be made that what Amazon is attempting to do violates anti-trust laws. Waiting for federal anti-trust action would take many years–years to get the Justice Department to act, years of trials, years of fussing over what the court decision means. Notice how long it took to deal with Microsoft’s tactics, despite the fact that the corporations they were bullying were large and powerful. None of us can afford that long a wait.

    Action at the state level, however, could move much faster, particularly if it involves off-the-record contact and a somber warning from those who can make trouble for Amazon. Amazon is headquartered in Seattle about a ten minute drive from the office of the Antitrust division of the Washington state attorney general, also in Seattle. Here’s the contact information:

    Office of the Attorney General

    Antitrust Division

    800 Fifth Avenue, Suite 2000

    Seattle, WA 98104-3188

    http://www.atg.wa.gov/Antitrust/default.aspx

    Telephone: 206-587-5510

    Fax: 206-464-6338

    Note the remark on that web page that “The Antitrust Division only processes complaints that involve either Washington State residents or businesses located in Washington State.” Amazon is in Washington state, so it matters not where you are. You might also want to raise the issue with your state attorney general’s antitrust office, asking them to get in touch with their colleagues in Seattle. If you’re a publisher, encourage your authors to write. If you’re an author, encourage other writers to contact them.

  • http://crueltobekind.org Nicole Simon

    At first, I can see how it could be compelling to have such an integrated solution. I had a quick look on the Booksurge webpage because I was thinking of perhaps using one POD service, and this would be nice to work with.

    Oh boy was I wrong. I have never seen a more uninviting POD service and the offerings are just so far off what the market wants and buys that I am flabbergasted at why Amazon of all stores would try to look people into THAT thing.

    They will regret that move. They would win with a compelling offering in the likes of Lulu or such at once, but this is not going to go well.

  • http://www.frugalfiction.com Annie

    This is just the next step. For years, six major publishers dictated what the public would read. It was their 1.3M annual rejection letters that created the self-publishing industry. Now, I believe I read, there are about 65k publishers out there. That, folks is a a lot of paper.

    As the distribution channel, Amazon is no dummy. I’m sure they read what I did: About 200 million people in the US want to write a book. Many will self-publish and “need” Amazon. And, so, we go from dictation by publisher to dictation by distribution.

    I thought I saw a bright light in ebooks – a chance for independent authors to band together and create their own distribution channel, which is why I started Frugal Fiction where we offer ebooks for only $3.99 – after all, there are no shipping and printing costs. Alas, all the talk is Sony and Kindle, which means ebooks, which should have benefitted consumers, will not be delivered at lower price points.

    Actually, the ones who should flex and grab control are the authors. If they don’t want mega-giants dictating the sales channel they should create their own. After all, without their efforts, there’s nothing for publishers and Amazon to fight about.

  • http://www.findthebestlawyers.com/ Lawyer

    RE: Print on Demand – Amazon.com Inc., flexing its muscles as a major book retailer, notified publishers who print books on demand that they will have to use its on-demand printing facilities if they want their books directly sold on Amazon’s Web site.

    So this seems to be approaching a form of monopolizing and extortion toward vendors wanting to sell books through Amazon. I can understand if Amazon offer deep discounts to publishers to use the Print on Demand service at Amazon but to forcefully and selectively refuse to do business with publishers may be going a little to far. What is next for Amazon that all shipping of books, appliances, electronics to Amazon has to be delivered on Amazon trucks with whatever their fees may be? This find of business tactic reminds me of the FAILED Mexican owned CompUSA. They took every measure to screw their vendors whenever possible. Including not paying vendors for up to six months. Vendors were losing money dealing with the unscrupulous CompUSA.

    Amazon forceful tactics are leaning in the same direction as CompUSA did in the past and look where they are today.

  • http://immateriel.fr Xavier Cazin

    I’m a bit disappointed that nobody took the time to read Amazon’s statement on the matter. Instead, every remarks are made after a very short WJS online article on a matter that very few people get: POD.

    Eventhough it is understandable that people outside publishing industry think that Print On Demand has to be one-book-at-a-time to deserve its name, it’s just not the normal way to do business.

    Professional publishers, even the smallest ones, do need inventory, maybe not more than 5 or 10 copies per title, but enough to be able to fullfil their promise of immediate delivery, to lower the cost per unit and, more importantly, to be able to easily mix several titles per order. The service to customer greatly balances the potential cost of destroying a few over-printed units.

    Granted, the most efficient POD printers proxy-cache this step, acting as a warehouse for these small quantities. Actually, this is the process Amazon explains in its statement: if you really, really want one-book-at-a-time, you have to go through our system for logistic reasons. If you’re doing real business, then do it your way and send us the few units you’d like to sell.

    I see no scandal here: individuals should go lulu.com, and professionals should work with (maybe tiny) inventories.

  • Wayne Niddery

    Andrew,

    You say you should be able to publish in any format and anywhere and still sell on Amazon. Why? What “right” are you suggesting you have here that entitles you to control the property of others? In this case the property is very rightly Amazon’s and they have earned their dominance and market advantage. If they do not want to sell your product, that is and should be their choice.

    BTW, their “one-click” patent is the fault of a patent office with inadequate software expertise. It IS and invalid patent (as are most software patents) but that is hardly Amazon’s fault.

    Notice they have not sat on their duffs – as antitrust theory would have you beleive they should be able to do. In order to *keep* their advantage they must keep raising the bar, coming up with new ways to serve their customers better and at less cost.

    Failure to do so would quickly lead to others being able to challenge in some way despite the huge advanatge of data you claim as a form of “lock-in” and a barrier to entry. It actually does not take many sales, relatively, before you have enough to begin competing on those terms, and the continued ease of providing access and promoting oneself to customers over the internet constantly makes it harder for Amazon to keep their advantage. Also note it is advances in *publishing* that is responsible for Lulu’s and other POD providers, and it is only logical that Amazon would try to get in on this action in order to avoid it becoming a nemesis.

  • http://toc.oreilly.com Andrew Savikas

    @Wayne: Thanks for the comment, though I didn’t say that one should be able to publish in any format and anywhere and still sell on Amazon, and I certainly didn’t say anything any “rights” of control (besides the “right” of Amazon to do as they wish).

    What I said was that much of Amazon’s advantage comes from the system they built that gets better the more that people use it, the same implicit lock in enjoyed by ebay and craigslist. Amazon is free to engage in more aggressive explicit lock-in tactics, but shouldn’t be surprised when publishers respond negatively.

  • craig

    Amazon’s reason behind this is one thing only – more money for Amazon.

    From all reports, Booksurge’s quality is inferior to other PODs… yet their prices are higher. Not only that, Amazon demands a much higher share of the profits.

    So the benefits to consumers are that they get to buy an inferior product at a higher price.

    The benefits to the publisher is that they get to have their product be less attractive qualitatively to their customer, be less attractive financially to their customer, but in return for that, if it does manage to sell, they get to make less money on it.

    The benefit to Amazon is that they get to have complete control, a virtual monopoly, and use that to squeeze more money out of both ends – the consumer AND the publisher.

    What’s not to like?