Books have long been a relatively conservative medium; since Gutenberg published his first Bible, the mass produced printed word has relied on relatively small frills — sure, technologies such as pop-up and scratch and sniff have come and gone, but for the most part, the concept hasn’t changed much in half a millennia: concentrate, use your imagination, be rewarded. From a technological standpoint, the ebook isn’t even much different — it may pave the way for a more innovative and interactive reading experience — but the formula that makes a book a book is not likely to change anytime soon. Which is why the current and increasingly public battle over the book is so fascinating: Tech giants such as Amazon and Apple pitted against each other and the federal government, venerable publishing houses — long thought to be the Kings of the realm — fending for themselves in an uncertain world.
The latest chapter is that of The Educational Development Corporation, publisher of children’s books such as the award winning “Fox,” and “Anna Hibiscus,” removing its entire catalogue — 1,800 titles — from Amazon’s virtual shelves.
Last February IPG, America’s second largest independent book distributor, had its own 5,000 ebook titles pulled from Amazon after it failed to negotiate new terms more favorable to the online retail giant — those books have not yet returned to Amazon. EDC’s move is expected to cost the company an estimated $1.5 million in annual sales.
“Amazon is squeezing everyone out of business,” Randall White, EDC’s chief executive, told The New York Times. “I don’t like that. They’re a predator. We’re better off without them.”
EDC has 77 employees and a market capitalization of $18 million. Amazon employs over 56,000 workers at the time of this writing, with a market cap of roughly $86 billion — nearly 5,000 times larger than the small publisher. Although EDC does not currently sell ebooks, it has seen its physical inventory bought in bulk from distributors by Amazon and then heavily discounted — a common tactic for the online retailer of the type that may have caused major book publishers and Apple to band together in developing a new pricing system for ebooks last year — a deal that has resulted in a high-profile lawsuit brought by the US Justice Department.
It is clear simply from the vast disparity in size that EDC pulling its titles will have little impact on Amazon’s bottom-line; but the gesture is also symbolic of a retailing Goliath that has become more ruthless in its singular mission to drive down prices, many times at the expense of smaller retailers. Last December, Amazon offered a holiday promotion in which consumers could use the retailer’s mobile app to scan an item at a brick and mortar store, and then receive a $5 dollar discount to purchase that item through Amazon, a controversial tactic that incensed many store owners.
Amazon argues that book publishers in particular must adapt to a changing marketplace or face extinction; indeed, many major publishers have seen Amazon as both a blessing and curse — a vast new method of distribution and a honeypot in ebooks, at the risk of doing business with a notoriously cut-throat company that could demand cheaper prices or change the terms of sale at any time, due to its relative monopoly.
And consumers have benefited from Amazon as well — the very basis of the Justice Department’s lawsuit against Apple is that if the Cupertino company hadn’t brokered an agreement with major publishers and effectively “fixed” prices of some titles, consumers could have probably been able to purchase those books more cheaply through Amazon. It doesn’t exactly help Amazon’s credibility in the matter, however, that the law firm that originated the complaint against Apple actually happens to share a Seattle address with Amazon.
But the most alarming aspect of Amazon’s current aggressive pricing is that it just doesn’t seem sustainable. As The New York Times puts it, “Amazon has $48 billion in revenue but hardly any profit.” Take a look at current revenue metrics, and you’ll see that the company’s profit margin is around 1.3 percent, low even for retail. Amazon sells its flagship tablet, the Kindle Fire, at a loss of about $3 per unit.
The tactic is a well-worn one: Undercut your competition as long as you can or until they are out of business, and then drive prices up. The problem, of course, is that by the time consumers become keen to Amazon’s methods, there may be no competition left.
Image Credit: Whatswerves
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