Amazon and the Poobahs

April 15, 2012

I read “What Amazon’s Ebook Strategy Means.” Interesting but a few degrees off center. The main point seems to be that one cannot believe corporate executives. A second point is that corporate executives in publishing should abandon efforts to protect content with digital rights management schemes.

Good start. I find that public statements by anyone require some untangling. “Meaningful use” comments from Administration officials is an example of the difference between what may be meant, what one understands, and what is actually going on.

I also like the definition of three terms. I understand disintermediation. That’s what has happened to corporate libraries when “point and click” interfaces made MBAs and English majors into expert online searchers. There was a cost savings angle too. Even better. I am semi-okay with the definition of monopoly. However, in the online world, monopolies emerge because of economics, human motivation, and the nature of systems to enjoy nodes. Big nodes are often good. Little nodes are okay, but it is tough to make them pay off unless there is a business angle. The point is important because traditional publishing represents nodes from a different time. Online nodes are here, and they squeeze, subsume, and erode nodes from a different era. I don’t think the Vanderbilts and JP Morgans of the past were into this nuance, but if these gentlemen were alive today, the business nuances would be acted upon.

I am not so sure about eh word “monopsomy.” Most buyers follow habitual behavior. This is an aspect of online which is little appreciated. The idea is that once a person online has fallen into a groove, getting out of that groove is tough. No matter how much criticism is aimed at Apple iTunes, try to get most users to change. For that “one click away” baloney. So monopsomy is a five dollar word which simply does not apply to online and user habit.

Armed with these terms, the article asserts:

If the major publishers switch to selling ebooks without DRM, then they can enable customers to buy books from a variety of outlets and move away from the walled garden of the Kindle store. They see DRM as a defense against piracy, but piracy is a much less immediate threat than a gigantic multinational with revenue of $48 Billion in 2011 (more than the entire global publishing industry) that has expressed its intention to “disrupt” them, and whose chief executive said recently “even well-meaning gatekeepers slow innovation” (where “innovation” is code-speak for “opportunities for me to turn a profit”). And so they will deep-six their existing commitment to DRM and use the terms of the DoJ-imposed settlement to wiggle out of the most-favored-nation terms imposed by Amazon, in order to sell their wares as widely as possible.

Several observations:

First, I sure wouldn’t want to try and figure out how to make traditional publishing work in today’s world. I left that sector  in the 1990s because the writing was on the wall. Shrinking margins, a shift in media channels, and the quest for blockbusters spoke to me. I am not sure traditional publishing is much more than a chase to find the one book that sells. James A Twitchell documented this a long time ago in Carnival Culture. The blend of online and the carnival are a potent combination.

Second, Amazon itself is vulnerable. The shrinking margins and the increasingly aggressive and somewhat clever behavior tells me that Jeff Bezos and his merry band know that extraordinary measures are required. The race is to capture users and leverage habitual behavior before another company does. The shortest distance between a book reader and habit is low ball prices. The WalMart approach is part of the Google Android play. Buying customers is a time honored retail method. YouTube is buying an audience with free content. Amazon is buying an audience with cheap Kindles and maybe once again cheap books. But Amazon has to pump up the revenue, control costs, and lock in its customers. Tough job.

Third, the content landscape has already shifted. Literacy in the US is a goner for large segments of the populace. Whether it is the tiny sound bite articles in Men’s Journal or the emergence of books which are collections of items, books are becoming something a relatively modest percentage of the 320 million people in the US consume. The same pressure which newspapers and magazines experience applies to book publishers. Look at the emergence of videos instead of white papers. Scary, cheap, easy, and very non-book.

What’s habit got to do with this? Traditional publishers have their habits. Buy low, sell high, and hope for a blockbuster. Online habits are different. Amazon, Apple, Facebook, and Google are big nodes and each node fosters habitual behavior among its users. Traditional publishing, therefore, is a subset of an online node. Subsets, in may cases, are expendable or have to become luxury items. The online nodes become the arbiters of taste, fashion, and what’s hot, good, or visible. Publishers have this role but for a rapidly decreasing segment of the online universe.

Chasing blockbusters is a tough business. Cutting costs and avoiding financial catastrophe is also a tough job. I am not sure either the publishers or Amazon is up to the task. And DRM? Changing habits is difficult. Isn’t it better to form the habits and use the systems and methods of capitalism than offer advice from the sidelines? The context of online has changed the rules. The old business models are interesting but less useful in the world of online.

Stephen E Arnold, April 15, 2012

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