Why Amazon will never lose the book war

Image: Reuters/Ralph Orlowski
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If you were looking for a simile to describe Amazon’s relationship with authors, you couldn’t do better than picturing Amazon as King Kong and the authors it desperately and clumsily wants to court as Fay Wray. One compelling reason for this analogy is that the courtship between brute and beauty was destined to leave a lot of collateral damage in its wake. The pointless, brutal fight between Amazon and Hachettte that ended somewhat abruptly late last week illustrates the point.

Amazon has been trying to get around publishers and win the affections of authors for some time. There were several strategic moves. Launching the Kindle—which coincidentally took place seven years ago today—was one. The ill-fated hiring of a voluble New York publisher in the hopes that his brash, big advances would entice authors to publish directly at “the world’s largest bookstore” was another. And the purchase of the Good Reads social network for book readers was the third prong in the company’s attempts to build a Platonically ideal publishing platform.

Looking at Amazon’s actions from the outside, the thinking seems to be that the company can rationalize the deeply fickle and irrational book business.

The problem isn’t that Amazon’s strategic thinking is wrong. On paper, authors get a lousy deal from their publishers and Amazon is in a unique position to improve the economics for authors, as it has done with the many genre writers who now publish on the Kindle platform. If you’re an unknown, or write in an unfashionable but popular genre, no New York publisher populated by hipsters is going to get excited and give you a big advance. You’re better off showing your moxie and reaping the rewards of a 70% Kindle royalty rate.

Tactically, however, Amazon keeps behaving like a big brute. As the Hachette conflict showed, Amazon is too quick to remind anyone who resists its strategic moves that the company dominates book retailing and distribution. Combining physical and ebook sales, it is said to account for half of all the books sold in the US. And, of course, Amazon dominates non-book retailing and distribution as well.

Amazon’s poor impulse control—trying to strangle Hachette by blocking the sale of their books—served only to rally authors around the publisher. In the end, the conflict produced a short-term victory for publishers—they retain control of pricing for their books through the agency model—and a public relations defeat for Amazon. But nothing terribly important has changed; Amazon is still really playing a long game. And it’s positioned to win.

Although the transformation is not taking place fast enough for Amazon, the retailer continues to expand its influence over the book market. Lower ebook prices—exactly what Amazon wanted and what Amazon has said they will incentivize the publisher to provide—will only accelerate that trend.

As much as Hachette wants to defend its prerogatives and shore up its physical books business, its profit margins lie not in the choice of format (ebooks are of course much more profitable for publishers because the authors receive a lower royalty and there’s no incremental cost for each additional book sold) but in the publishing house’s ability to generate hits.

That’s why despite appearances, it probably wasn’t an accident that Amazon chose to pick a fight with Hachette, which has been the hot house of publishing for many years now because of Harry Potter, James Patterson, Malcolm Gladwell and the Twilight saga. Hachette has built its success on publishing franchise authors and consistently drives a greater market share with fewer titles than any other house. Hachette is a publisher that has been everything that book business is not: disciplined, efficient and marketing focused. For Amazon to win against publishers as a whole, they had to go after, and kill, the king.

It makes you wonder why Amazon doesn’t simply make the Lagardère Group—Hachette’s owner—an attractive offer and plug its operations into the Seattle mothership. In effect, this is what Amazon tried to do a few years ago when it hired Larry Kirshbaum, the former CEO of the company that became Hachette,  to start its own publishing company. Instead of harnessing Amazon’s unparalleled trove of big data—customer purchases, reviews, Good Reads comments and more—to create a Netflix-like direct-to-author, data-informed commissioning system, Kirshbaum chased celebrities, poached one-hit wonders and generally behaved like the worst of the New York publishers that Amazon so resents. Kirshbaum left last year for personal reasons but his fate had already been sealed by his poor decisions.

Yet even mogul behavior isn’t what really did Kirshbaum in. Amazon’s publishing ambitions ran aground when independent bookstores and competing chains refused to carry Amazon’s books. Having half the book market makes you a bruiser but it is still only half the market. No author dreams of making it only halfway.

Still, Amazon can tough it out. Over time, there is a path for Amazon to become an author’s first-choice platform. It’s a peerless distributor that has already harnessed its prowess in warehousing and distribution logistics to its on-demand printing business, which lets it act as a wholesaler as well as a retailer of books. Bolt on a data-gathering publishing platform like Medium, or simply better integrating Kindle with Good Reads, and Amazon would have a low-cost business development sandbox, a platform that aspiring authors without followings could use to build their audiences.

Works that reach a sustainable level of sales flow and volume could migrate seamlessly into print, with distribution to retail outlets. Yes, bookstores will keep boycotting Amazon titles for a while. But then a hit will come along, and need and greed will trump pride and principles.

Amazon thinks its over-sized royalties should be more than enough to attract authors. (And King Kong thought he and Fay Wray had a future together.) Those royalties are an extension of Amazon’s overall low working capital approach to business. But what authors get from publisher’s advances is more than money. It’s validation, encouragement and support. Those are the human emotions Amazon has to satisfy in order to woo authors into its new version of the publishing business.

Lest you think that need for big advances is simply a risk-averse vanity, the breadcrumbs of those payments are important to those who need the money and those who don’t, equally. The status value of an author’s pay day is best illustrated by the example of author like former Google CEO Eric Schmidt, worth about $8.3 billion, who still bothered to sell his book to Knopf for a reported seven-figure advance.

Schmidt, who remains the chairman of a company with one of the most powerful platforms in the world—a company with the need to promote its own Google Play ebook store—chose instead to be published by a prestigious old-school publishing house. When authors like Schmidt—those with the resources, fame and institutional muscle to take control of their own publishing—still behave so illogically, it’s no wonder that everyone from James Patterson to rank-and-file midlisters sided with Hachette over Amazon. With the Hachette settlement, Amazon just sent a signal that it wants to be seen not as Kong, but as a gentle giant, so as to avoid further militarizing authors against its cause—until, perhaps, it can create a market where the authors simply have no choice.