Monday, April 07, 2008
Is Amazon grabbing the long tail?
Regular commenter Christopher Chambers passed along this email from the Authors Guild about a decision by Amazon.com that is couched in terms of customer service, but which seems like a land grab:
Last week Amazon announced that it would be requiring that all books that it sells that are produced through on-demand means be printed by BookSurge, their in-house on-demand printer/publisher. Amazon pitched this as a customer service matter, a means for more speedily delivering print-on-demand books and allowing for the bundling of shipments with other items purchased at the same time from Amazon. It also put a bit of an environmental spin on the move -- claiming less transportation fuel is used (this is unlikely, but that's another story) when all items are shipped directly from Amazon.
We, and many others, think something else is afoot. Ingram Industries' Lightning Source is currentl y the dominant printer for on-demand titles, and they appear to be quite efficient at their task. They ship on-demand titles shortly after they are ordered through Amazon directly to the customer. It's a nice business for Ingram, since they get a percentage of the sales and a printing fee for every on-demand book they ship. Amazon would be foolish not to covet that business.
What's the rub? Once Amazon owns the supply chain, it has effective control of much of the "long tail" of publishing -- the enormous number of titles that sell in low volumes but which, in aggregate, make a lot of money for the aggregator. Since Amazon has a firm grip on the retailing of these books (it's uneconomic for physical book stores to stock many of these titles), owning the supply chain would allow it to easily increase its profit margins on these books: it need only insist on buying at a deeper discount -- or it can choose to charge more for its printing of the books -- to increase its profits. Most publishers could do little but grumble and comply.
We suspect this maneuver by Amazon is far more about profit margin than it is about customer service or fossil fuels. The potential big losers (other than Ingram) if Amazon does impose greater discounts on the industry, are authors -- since many are paid for on-demand sales based on the publisher's gross revenues -- and publishers.
We're reviewing the antitrust and other legal implications of Amazon's bold move. If you have any information on this matter that you think could be helpful to us, please call us at (212) 563-5904 and ask for the legal services department, or send an e-mail to staff@authorsguild.org.
Interesting. Whatever the legality of Amazon's move, it graphically illustrates the extent to which control over the distribution channel dictates the value of the underlying product. Put differently, the means of distribution often represents the largest proportion of the economic value embedded in a product. That fact is perhaps annoying to people who believe that making "things" is somehow more important than the delivery of those things or services incidental thereto, but that does not make it any less true.
5 Comments:
By 
Christopher Chambers, at
Mon Apr 07, 04:16:00 PM:
A few Princetonian writers urged the mugging of Jeff Bezos at Reunions. This included some who consider themselves strong "conservatives." Proving again that some things transcend political views.
By 
, at
Mon Apr 07, 04:48:00 PM:
I'm not sure I understand what changed. How does it work now? Is Ingram the only company or can you use others?
As far as I can tell, Amazon is justified in charging more to authors for the use of their distribution channel. After all, Amazon has spent tons of money over the years building the infrastructure and name recognition that make it the choice for low-volume titles. I'm not sure I see why authors feel entitled to benefit from that investment. Why should Amazon share its on-demand publishing profits with Ingram if it can do the job itself? Ingram didn't take the considerable risk of investing in an e-commerce infrastructure like Amazon's.
By , at
Mon Apr 07, 04:51:00 PM:
Amazon, like Microsoft, has looked at what Apple has done in controlling the distribution channel for audio content and is looking to get a piece of the pie. Microsoft is being pilloried for the DRM parts of Vista relating to "premium content" read HD here and here by Peter Gutman.
JLW III
By , at
Mon Apr 07, 11:07:00 PM:
But can you discount antitrust implications?
By , at
Mon Apr 07, 11:09:00 PM:
But can you discount antitrust implications?
