Skip navigation

Amazon’s one of my favorite companies.  It’s initial business–selling books on the internet–has disrupted the industry, using a centralized clearing-house model to easily match buyers with sellers (Amazon itself is often the seller).  In doing so, Amazon spares buyers their time spent retail shopping for books, protects buyers from the local monopoly power of sellers, and circumvents the seller’s need to choose which books to stock.  Thanks to Amazon, buying books is easier and cheaper, while selling used books is easier and more lucrative; in other words, Amazon is creating meaningful surplus for consumers and independent book-sellers.

Amazon expanded its business model to include most physical goods that can be shipped–DVDs, clothes, electronics, etc.–and these businesses appear to be equally lucrative and economically beneficial.  Like its namesake river, Amazon.com is a truly momentous force.  Until now, I’ve had nothing bad to say about Amazon.

Not content to have disrupted the book business just once, Amazon developed the Kindle, a device that electronically stores the texts of books, newspapers, blogs, etc.  Now, instead of mailing physical copies of written material, sellers (Amazon) can transport electrons to buyers, thus cutting printing, transportation and storage of books out of the equation, further reducing costs.  However, contrasting with their initial business, Amazon’s incentives aren’t aligned so as to create as much surplus for consumers and independent book-sellers.

Though the Kindle is a competitive product, Amazon has monopoly control over Kindle files, meaning there’s little competitive pressure pushing prices downward.  As a result, books and newspapers are more expensive on the Kindle than they ought to be.  The extreme example is the curiously common case where it’s more expensive to buy the same information on Kindle than on paper, shipped to your door.  Given that sizable swathes of the supply chain have been cut out of the Kindle file sales process, this is fairly ridiculous.  Understandable–the economics scans–but nonetheless ridiculous.  Amazon is blatantly taking advantage of its monopoly power to screw its customers.

In order to maintain my perception of Amazon as a company that does well by doing good, Amazon should explore ways to correct this.  (Ideas to follow in a future post…)

Advertisements

7 Comments

  1. Ben,

    This has not been my experience with the Kindle at all. First, authors with control over their publication rights (yours truly included, although more a more effective example might be Joe Konrath) are deeply discounting their work to give them a competitive edge over more established work. This is feasible because Amazon offers 35% and 70% royalty options, so that in some cases an author makes more off a $3 Kindle sale than a $18 print edition sale. This is still a nascent response to the technology, but I have heard that mainstream publishers are experimenting with similar discounts to give their own catalogs at least a short-term spike. Which would seem to refute your premise that “there’s little competitive pressure to push prices down.”

    You are right, however, that, much as text messages cost something like $.00002 to send, so every text someone sends is something like a 5000% markup (or whatever arbitrarily high figure is correct), *that* is true of Kindle books and Amazon as far as I can tell. But the prices have come down so dramatically as compared to printed media that this seems to be almost a negligible consideration to me, from a consumer’s perspective.

    Also, you are right that the development of the Kindle has, as yet, offered little opportunity for retail surplus. But I almost have to consider this a development that booksellers have to respond to. Chain bookstores today are the best example; they are notoriously inefficient, and they pass the problem on to distributors and publishers. It would seem to me that the challenge Kindle represents is a legitimate technological challenge for booksellers to up their game.

    Lastly, but significantly, there are competitors to the Kindle on the market, and this is still relatively new and rapidly evolving technology. I’m not yet cynical that Amazon or its competitors are devoting sufficient resources to improve product, price, and quality.

    I may, however, have misconstrued your point above. Please let me know if I have done so.

  2. Connor,

    Thanks for chiming in. Our views may be more compatible than you realize. You’re clearly right that for many titles, the Kindle version is priced much lower than hard-copies, and I expect that eventually the rest will follow. But right now, there are cases where it’s not, including some titles I’ve been looking at, and some pretty mainstream ones.

    I just searched for The Girl with the Dragon Tattoo (a mainstream title, not one I’ve been looking at). A new paperback version costs $5.47 from Amazon. The Kindle version costs $8. That’s weird, no?

  3. It is weird.

    But it isn’t Amazon setting the price of the Kindle edition. The publisher sets the price and Amazon takes a percentage. Typically, the publisher would receive a smaller percentage of a print version than of an electronic version. So I suspect what you are seeing with that title is a greedy publisher (seeking to increase profits on a known hit in exchange for the advantage of instant availability) increasing prices on the edition with the higher profit potential, as opposed to Amazon lording their technological advantage over readers and publishers.

    However it shakes out, it’s nice for those of us trying to claw our way up from the bottom, because it gives us a tool they are either unwilling or unable to utilize.

  4. (“Greedy” isn’t the right word; most publishers are struggling as much as booksellers, and a few hits go a long way to balancing the books. I just meant that the price manipulation is happening on the publishers end.)

  5. “Amazon is blatantly taking advantage of its monopoly power to screw its customers.”

    I don’t think so. First, Amazon doesn’t have monopoly power. There are other e-readers. It is also crazy to say that they have monopoly power over Kindle products. That is a silly thing to say when Kindle products have so many close substitutes. Amazon has less monopoly on its books than say, Nintendo has over Wii video games.

    Second, in the case of newspapers, you’re forgetting about the additional bonus on the digital copy of not having advertisements. That increases the costs of the digital copy relative to the paper copy, or even other digital copies (e.g., Economist.com has advertisements, the Kindle’s version does not). As I’m sure you know, advertising is a substantial form of revenue for many newspapers.

    Last, competition is higher than you think. If you wanted, you could PDF all the articles on Economist.com and load them on your Kindle. You could also do this with books on Gutenberg.org instead of paying the $0-$5 you have to pay on Amazon.com for a classic that is out of print. And as essentially a piece of intellectual property, books are good candidates for eventual piracy. I’m surprised there aren’t (well-known) illegal websites that are doing this overseas already. At some point, I expect you’ll see websites offering black market digital versions of the Harry Potter books, or something like 1000 of the best-sellers of the late 20th century for $20. No reason these couldn’t be Kindle compatible, much as MP3s are iTunes compatible.

  6. Joe and Connor,

    You both make good points. Apparently the best way to provoke comments is to say things that are wrong.

    Unfortunately, none of your points alleviate my frustration. Arggh.

  7. Look at it this way: You made us feel good about ourselves while demonstrating that your blog is an interesting, thought-provoking place (with a gracious host in the mix as well)… a great recipes for regular visitors! 🙂


3 Trackbacks/Pingbacks

  1. […] About « Amazon.com – Do Well by Doing Good […]

  2. […] in Business Since I’m in the habit of bashing Amazon.com (apparently unconvincingly, based on comments), I’d like to criticize Amazon for its response […]

  3. […] cell phones) have barely begun to reshape the world to their full extent.  We’ve seen highly disruptive business models emerge, and I anticipate further innovation will continue.  The internet has changed the political […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: