Charlie's Diary:
What Amazon's ebook strategy means: By Charlie Stross It seems to me that a lot of folks in the previous discussion don't really understand quite what makes Amazon so interesting—and threatening, for that matter—to the publishing industry. So I'm going to take a stab at explaining…. I'd like to introduce three keywords that need defining before you can understand Amazon:
Disintermediation…. Monopoly…. Monopsony.
Disintermediation
is the removal of intermediaries in a supply chain: "cutting out the middleman"….
Disintermediation initiated by consumers is often the result of high market transparency, in that buyers… buy directly from the manufacturer and thereby pay less…. Jeff Bezos… designed Amazon to be a disruptive disintermediary: to buy wholesale and sell retail, using the internet as a tool to reach remote customers directly…. [I]t's not an accident that Bezos' start-up targeted the book trade. Bookselling in 1994 was a notoriously backward-looking, inefficient, and old-fashioned area of the retail sector…. [B]ookselling… was ripe for disintermediation…. So. What's wrong with this? Well, there's nothing intrinsically wrong with this way of doing business—if that's all that was going on. But it isn't. So now we come to our two new words:
Monopoly
exists when a specific person or enterprise is the only supplier of a particular commodity….
Monopolies suck for their customers because they don't have to give a shit about product quality or price: they have you, the customer, over a barrel with nowhere else to go….
Monopsony
is a market form in which only one buyer faces many sellers….
Monopsonies suck for their suppliers because the suppliers are systematically starved of profits by the middle-men running the monopsony….
And the peculiar evil genius of Amazon is that Amazon seems to be trying to simultaneously establish a wholesale monopsony and a retail monopoly in the ebook sector….
Until 2008, the ebook side of publishing was a vestigial, if not irrelevant, irritation from the point of view of the major publishers—at less than 1% of their turnover…. [T]he executives who ran the big six had all been given their marching orders…. DRM…. But publishers aren't software companies. They just want to sell books. And so they outsourced the DRM to the ebook resellers. Including Amazon….
For AMZN, the big six insistence on DRM on ebooks was a windfall: it made the huge investment in the Kindle platform worthwhile, and by 2010 Amazon had come close to an 85% market share in the ebook sector (which was growing at a dizzying compound rate of 100-200% per annum, albeit from a small base). And now we get to 2012, and ebooks are likely to hit 40% of total publishing sales by the end of this year, and are on the way to 60% within five years (per Tim Hely Hutchinson, CEO of Hachette UK). In five years, we've gone from <1% to >40%. That's disruption for you!
Now, most ebook customers are not tech-savvy…. By foolishly insisting on DRM, and then selling to Amazon on a wholesale basis, the publishers handed Amazon a monopoly on their customers—and thereby empowered a predatory monopsony…. Anyway, here's the important take-away:
DRM on ebooks is dead. (Or if not dead, it's on death row awaiting a date with the executioner.)…
If the major publishers switch to selling ebooks without DRM, then they can enable customers to buy books from a variety of outlets and move away from the walled garden of the Kindle store. They see DRM as a defense against piracy, but piracy is a much less immediate threat than a gigantic multinational with revenue of $48 Billion in 2011 (more than the entire global publishing industry) that has expressed its intention to "disrupt" them….
And so they will deep-six their existing commitment to DRM and use the terms of the DoJ-imposed settlement to wiggle out of the most-favoured-nation terms imposed by Amazon, in order to sell their wares as widely as possible.
If they don't, they're doomed. And all of us who like to read (or write) fiction get to live in the Amazon company town.
