I’ve just been reading Clay Shirky’s recent post on the Amazon – Hachette feud, Amazon, Publishers, and Readers, in which he does a good job of presenting the standard argument that Amazon is on the side of the consumer because it keeps the price of books low. Publishers, the argument continues, are only looking to support their own profits. I suppose it makes sense to assume that Amazon is not after profit since it has traditionally made so little. However, Amazon does need to turn a profit in order to continue its operations, and indeed has a strategy for doing so. This strategy was outlined by Eugene Wei in a post last year, Amazon and the “profitless business model” fallacy
Amazon is a classic fixed cost business model, it uses the internet to get maximum leverage out of its fixed assets, and once it achieves enough volume of sales, the sum total of profits from all those sales exceed its fixed cost base, and it turns a profit. It already has exceeded this hurdle in its past.
Amazon’s business model is based on volume of sales. Amazon does not want to keep book prices low for their customers. Rather they use their customer base to enforce low prices for the commodities they sell, allowing them the high volume sales that they require to survive. Amazon has no interest in, and little business experience of, the cost of publishing or production of quality textual products. They know how to inform customers of product availability, to keep the purchase process simple, and to deliver the product quickly and cheaply. Where those products come from is not relevant. A self-published novel is better for them than a commercially published one because the price can be kept lower, and hence volume higher.
Low prices are not an automatic good, despite what many pundits claim. If the price of a commodity becomes lower than the cost of its production, then the economy for that item does not have a long term future. It’s a bit like a farmer who finds the cost of raising sheep is higher than the price of lamb and ends by selling the farm. The price of books has to be sustainable and can not be regulated solely by the retailer.
If Amazon was, in fact, concerned with the customer and the customer’s needs, it would be investing in quality products. It would be investing in the book trade as an economy. Its single-minded pursuit of the lowest possible price is not a long-term strategy for an industry.