Tuesday, December 3, 2013

The Anti-Amazon Hysteria is Silly and Self-Defeating.

I participated in a lively debate at Melbourne University last night on the topic 'Amazon Will Destroy the Publishing Industry'. I was on the negative side. We won. Here is my contribution:

The book industry's antipathy to Amazon is getting really, really silly. It's descending into farce.

A month ago Amazon launched ‘Amazon Source’, a proposal that allowed bricks and mortar bookstores to sell the Kindle for a small margin and pocket a percentage of the customers’ ebook purchases for two years afterwards. It was a reach-out, a peace offering perhaps, especially given so many independent booksellers around the world are now enthusiastically stocking and selling the Kobo eReader on very similar terms.

Typically, however, the bookselling community went hysterical:

‘We don’t see this new program as being at all credible’ said the CEO of the American Booksellers Association’

‘I wouldn’t want our customers to think that we were doing trade with the bad guys…sleeping with the enemy’ said a bookshop manager in East London.

Others called it ‘disingenuous’, and a ‘Trojan Horse style attempt to gain access to our customers’; ‘a dagger disguised as an olive branch; ‘a Faustian bargain’.

Here in Australia the CEO of Dymocks claimed booksellers would be ‘mad’ to sell Kindles, because they would be enabling Amazon to ‘gain access to their customer’s database’.

Big W has decided to sell the Kindles, but the co-founder of online bookseller Booktopia called them ‘fools’. ‘They’ll sell a single device to someone then they’ll never walk in to buy a book ever again’.

There are strong counter-arguments to all of these outbursts, but frankly, the visceral antipathy to Amazon is tiresome. Way more importantly, it’s quite self-defeating.

There have been many examples in recent years, including empty gestures like ‘Kindle Amnesties’ and supply boycotts. The most notorious of course was the forcing onto Amazon by the large US publishers the deeply flawed Agency model of ebook supply. That cost publishers over $300 million in government-imposed fines. Publishers claimed they did it ‘to enhance competition’. No they didn’t – they conspired to close down Amazon’s uncomfortable disruption and to raise prices.

Let’s list some elementary facts here. Amazon didn't invent the Internet, the web, ecommerce, PC’s, smartphones, or tablets. It didn't write the tax codes under which it operates globally. It didn't invent globalization or disintermediation. It didn't invent the strategy of ‘everyday low prices’ or deep discounting. It wasn’t the first vendor of cloud computing services. It wasn’t even the first online bookseller.

Amazon is simply the consummate expression of the Internet's power and functionality in retail (as Google is in information). Of course Amazon is a ruthless operation. Of course it exhibits no care or concern whatsoever for the health of bricks and mortar retail businesses or the local communities in which they operate. It exploits unsentimentally all avenues open to it to pursue its objectives. But it's only that way because of its 'take no prisoners' focus on customer acquisition and, most importantly, customer satisfaction.

In his review of Brad Stone’s The Everything Store: Jeff Bezos and the Age of Amazon Slate’s Matthew Yglesias writes that ‘Bezos’ core ideas – long-term focus, consumers first – are correct but hardly earth-shattering. But while most companies just pay lip service to this stuff, Amazon stands out by actually doing it’.

Even Amazon's much criticized ‘walled garden’ or ‘private ecosystem’ is hardly original. Apple became the largest and most profitable company in the world because of a similar policy. Walled gardens are a common commercial phenomenon because they work. Open systems also work, as Google has shown with Android.

No one is denying that small independent bookstores are having a tough time of it today, particularly in Australia. Michael Webster from Nielsen Bookscan provided some fascinating statistics at the Independent Publishers Conference a few weeks ago that looked at trade book sales in Australia over the last ten years.

There was steady revenue growth each year up until 2009 when consumer book sales reached $1.3 billion. Then things really started to decline dramatically, by about 8% per year. Frightening stuff.

Total sales in 2012 had slipped back to 2005 levels, a drop of around $300 million dollars. If that trend line continues into 2013, as it certainly appears, then the drop will be close to $400 million, or around 30% in total. Remember, these statistics measure sales made to customers in retail bookstores.

It’s apparent that customers are deserting our bricks and mortar bookstores in droves. There are many theories as to why, but in my view the overwhelming reason is price resistance.

Australians are voting with their feet. They are walking away from the sustained over-pricing by importing publishers over the last decade or so despite the strong dollar. We should have seen prices dramatically fall, by 30% or so, but we didn’t. We saw token falls, that was all.

Amazon’s value proposition was just too hard to resist.

Close to $500 million in sales is currently being bought offshore:  $200 million ebooks and $300 million print books. That amounts to a third of trade book purchases by Australians. These numbers are shocking, but for those of us who were paying attention they’re not really surprising.

In the parallel importation debate in 2009 booksellers broke with a long tradition and sided with publishers to preserve the protections in place that allowed overpricing and underservicing by publishers. It was a classic own goal - an act of self-destruction on a grand scale that continues to this day. And yet they are blaming Amazon.

Our booksellers’ challenge now is not to get righteous and indignant, but to adjust and compete by finding new pathways for their businesses, new ways to appeal to readers who now have far more choices than they've ever had before.

Firstly, they should lobby the government to abolish the parallel importation restrictions so they can buy around at cheaper prices when necessary.

Secondly, regarding Amazon, recognize many if not most of your customers are travelling down that highway, and less often down your high street. Position yourself in Amazon’s slipstream. Amazon Source offers you that opportunity. Welcome the reach-out. Don’t spurn it. Don’t compete with each other to see who can come up with the best anti-Amazon rhetorical blast. The financial terms on offer aren’t perfect so meet with Amazon and argue for a better deal.

When those customers buy a Kindle in your store shower them with all the warmth and affection you can muster. Help them set it up and show them how to use it. They’re in your store! Offer them all the freebies you can afford. Invite them to events. Survey them. You’ll know their reading profile in detail. Yes, they are readers.

And for God’s sake, stop demanding the government clobber book buyers with a GST imposition on low-value imports, given the dollar decline of 15% over the last two years has already made their importing more expensive. Is this being nice to your customers?

It’s time we stopped seeing trivial solutions to major problems.