The Buy Button is the Gate, Amazon the Keeper

Amazon’s online partisans have lambasted big New York publishers for being “gatekeepers,” barring authors’ paths to the land of milk and honey. But if book publishers are doing any gatekeeping, they are doing a spectacularly bad job of it: according to Bowker, traditional publishers released 304,912 titles in print in the United States in 2013, and nontraditional publishers released 1,108,183 titles, for a total of 1,413,095 titles. While these numbers include public-domain republishing mills, they don’t include eBooks. Hachette Livre, with whom Amazon is negotiating for better terms, publishes about 1,300 titles per year in the United States through its Hachette Book Group division, or less than one-tenth of one percent of the total.

Compare this with some real gatekeepers: NBC, CBS, and ABC (before cable smithereened the television business). As late as 1980, more than 90 percent of prime-time viewers were watching one of the big three networks.

The truth is that book publishing has always had low barriers to entry. In 1999, the Book Industry Study Group (BISG) and Publishers Marketing Association (PMA) estimated there were 53,000 small publishers. And it has always been possible, with grit, determination, and marketing savvy, to self-publish: I know because I have helped dozens of authors self-publish since the early 1990s, including Vince Flynn, who leveraged his self-publishing success to become a bestselling author before his untimely death.

Not only is being a book publisher not like being a television network, it is also not like being one of the big three eBook platforms: Barnes & Noble’s Nook, Apple’s iBooks, and of course, Amazon’s Kindle. According to a 2013 study by the BISG, the three platforms together controlled 87 percent of eBook sales. Barnes & Noble’s Nook and Apple’s iBooks garnered 11.8 percent and 8.2 percent, respectively. The Kindle platform commanded the largest share by far, at 67 percent. There is nothing to suggest that these relative shares have budged much in the last year.

Amazon has been especially brilliant at lock-in, that dream of every tech company in which the customer faces high switching costs and/or network benefits that make sticking around a no-brainer. One-click purchasing is a dream. Free shipping is great. The Kindle digital rights management makes reading books purchased on Amazon impossible to read outside of the Kindle walled garden without hacking. The Kindle ecosystem is now the de facto library for most eBook-reading consumers.

For most tech companies, lock-in is the road to high margins, but Amazon sells eBooks at prices so low they often lose money on the sale—a practice that continues with their recently launched subscription service. CEO Jeff Bezos says he is focused on the long term: gaining and keeping customers now at any price will produce benefits at some future date. The thing is, it has been 19 years since Amazon was launched.

After its last dismal earnings report and forecast of big losses, Amazon’s share prices dropped precipitously. Bezos’s pixie dust is wearing off. Now constrained by the stock market’s growing skepticism, Amazon has to increase its margins. How?

How about increasing the Prime membership fee? Okay, that helps a bit.

How about raising prices? That’s a slippery slope, eroding of one of the key elements of Amazon’s value proposition to consumers.

How about squeezing book publishers again—and hey, force down eBook prices at the same time? But it’s getting to be blood from a stone. It used to be that publishers wanted to meet their Amazon buyer in person, thinking it would help sell more of their authors’ books. Now, many publishers are happy not to: visiting Amazon is just asking for heavy-handed arm-twisting on the terms of sale.

How about taking down publishers’ buy buttons, cutting off two-thirds of their eBook sales plus a big chunk of their print sales, and see if that changes their minds?

In other words, how about closing the gate?