Breaking my blog silence for a thought
I remember two or three years ago at Frankfurt (I think it was three years ago, but not quite sure) trying to convince people that Amazon’s position wasn’t as strong as the industry thinks.
Of course, everybody disagreed with me back then but I wonder if people would today? There are a lot more people these days who are questioning Amazon from a non-partisan perspective. (Publishing industry folks love to criticise Amazon, but they are also very invested in the idea of Amazon The Invincible Giant.)
My line of reasoning back then was as follows:
Amazon can’t rely on the good graces of the stock market forever. They’ll eventually need to show profit or at least more focused growth. (Focused growth meaning expanding the share of ecommerce over regular commerce instead of trying to compete head on with device companies or publishers, which are sideshows to their core business. Ecommerce has a lot of potential still that Amazon hasn’t tapped.)
When that time comes Amazon will find it difficult to increase their margins because a lot of the factors necessary to do so are out of their control:
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They can’t raise prices without inviting competitors. Amazon Web Services was then facing brutal competition and tech companies were and are eyeing ebooks. (On a related note: I had a conversation with a tech company CEO a couple of years ago where he said that switching to AWS from his current “own the servers, run your own data-centre” setup would double his company’s server costs. Which should give you a hint to just how brutal the price was between AWS and its competitors is going to get.)
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Lowering the cost of acquiring digital content is hard. Movie and TV studios aren’t afraid of Amazon and have no reason whatsoever to give in to their demands. And, despite what people think, Amazon really needs the big pubs as much as they need it. Titles from big publishers are still responsible for a very substantial chunk of Amazon’s publishing revenue and losing those titles would sink its Kindle business.
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Fulfilment, the core cost of AMZ’s non-digital business is fundamentally expensive. It’s hard—and costly—to fully automate. Lowering the costs there requires either legalising slavery (Amazon’s existing labour practices can’t become more hardcore and ruthless while still remaining legal in the western world) or inventing completely new things with the uncertainty and risk that entails.
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They don’t own the platforms (iOS and Android) which will hurt them a lot in the long run as Apple’s moves had clearly demonstrated by then.
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They can’t fight that with their own platform because no matter what they do, Android and Apple will always have substantial marketshare. They will always remain vulnerable to bullying by platform owners.
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The first show of weakness, a demand for a demo of ROI from the market and a failure to deliver, could easily turn into a downward spiral.
Everybody I pitched this line of reasoning to at Frankfurt back then (3 years ago) was utterly unconvinced by this argument. I wonder if the response will be different this time?
I think Amazon is generally a very well run company staffed by very smart people but so are the other major tech companies. They all want to own digital content.
I think the Fire devices, both tablets and the phone, are Hail Mary passes because Amazon can’t see any other way of getting around the hold Google and Apple have over Android and iOS respectively.
The sad fact is that big publishers and Amazon are natural allies. They are both heavily invested in the English language trade publishing industry which is, in my view, a slowly sinking ship: a relic that is facing disintermediation by the web and apps and the communities and connections they enable. Both of their interests would be better served by collaborating on expanding book reading and books in general than by their current incessant adversarial wrestling.