Is Amazon too powerful? Is it too weak?

The Kindle is a big success, because a rumor says it’s a big success.

Now, Teleread wonders whether Amazon has too much power. It’s an excellent topic for an article. It’s also very right, and very wrong, for several reasons.

Yes, Amazon has too much power

If you wanted to build a case, to claim that Amazon has too much power, it’d be easy – provided you ignored the latter half of this post.

You could take all the things Rich Adin at Teleread mentions -

  1. Authors and Publishers have the perception that they must sell at Amazon to be successful.
  2. Some stuff about censorship I don’t fully understand. Apparently, Amazon’s importance as a retailer means Amazon can dictate what authors should write.
  3. The proprietary format of the Kindle.
  4. Amazon puts its own interests in front of everyone else. Honestly, everyone does this. Don’t see why this is a reason to complain.
  5. The assumption that once Amazon captures the ebook market it’ll increase ebook prices.

It’s a disappointingly short and narrow follow-up on an interesting topic.

If you wanted to strengthen the case that Amazon is too powerful, you could add-on the following things -

  1. Amazon has a tremendous capacity to delay gratification and profit. Very few companies have this capacity. This is the one thing that might keep Amazon safe in the midst of overwhelming competition.
  2. It’s one of the few companies that actually cares about selling books. It also seems like it’s in it for the long haul.
  3. It’s taking the 100 years view – Which means that it has huge strategic advantages over companies that are experimenting with eReaders and eBooks.
  4. Amazon makes shopping at Amazon the path of least resistance. Bookstores and Publishers use moral arguments to try to guilt-trip people – Amazon makes things easier.
  5. It has great customer service.
  6. ‘Kindle = reading’ in most people’s heads.
  7. Kindle and Kindle Store both have the lead. In any market, it’s almost impossible to catch the incumbent (please consider all markets you know, and not the 3 or 4 which are exceptions). That’s why B&N releasing a ‘Reading Tablet’ is such a great idea – create your own market.
  8. Kindle Reading Apps have a lead. This is a red herring – However, you can throw this in there.
  9. Amazon single-handedly created an opportunity for indie authors. Which means indie authors will always value Kindle Store more than they should. Note: Apple is also a real hero here, for getting Indie authors 70% – it’s perhaps as big a contribution as Amazon’s.
  10. Amazon has captured the majority of readers of good intent (out of those who have bought eReaders so far). Combine this with the lock-in of a proprietary format, and it’s almost impossible for Amazon to lose the battle to win over and keep readers of good intent.

There’s a very interesting trend here – A lot of these are advantages rivals and commentators won’t even notice.

Amazon makes buying from Amazon the path of least resistance. Amazon reduces friction. Amazon uses the power of the default. Amazon delays gratification. Amazon focuses on building trust and customer loyalty.

These are all invisible things, that happen to be far more powerful than the supposed big issues. People get all worked up about things like DRM, which aren’t really as powerful, while they ignore the real magical stuff.

Amazon, beyond a shadow of a doubt, has a lot of power. However, we can’t ignore the real elephant in the room.

Readers have too much power

The only people paying money for books, in the entire equation, are readers. Publishers had too much power because they managed to limit the supply of what readers wanted. That’s gone now – all the artificial restrictions are gone.

Authors, and Amazon, are completely at the mercy of readers. Publishers are too, but they are unlikely to ever comprehend it, and even less likely to embrace it.

Readers have all the power. All the various moves by Apple and Amazon and other companies (DRM, proprietary formats, closed ecosystems) are not meant to guard against competitors. These are all moves to guard against the infinite power of customers.

Customers could set $5 as the new $9.99, and Authors and Amazon and Publishers would have to agree

Tomorrow morning, readers could get up, take a look around, and decide that they would like $5 ebooks. There’s nothing anyone could do about it. Everyone would have to fall in line.

Amazon was doing a great thing for Publishers and Authors by introducing $9.99. By fighting it, Publishers added an incentive for readers to fight for prices less than $9.99.

The only things saving everyone right now are – readers don’t realize they set the prices, readers can’t bear to delay gratification, readers are loath to suffer any inconveniences.

Readers are blissfully unaware that they have the most control

Consider the Agency Model.

Readers boycotted $14.99 for the most part, and it failed as a price point. Readers couldn’t wait for $12.99 books to drop to $9.99, so $12.99 survived.

Now, most Publishers introduce a new book at $12.99, then reduce it to $9.99 after a few weeks. The prices are completely patterned on what customers will accept. If customers had been more patient – there would be no $12.99. If they had been less patient – there would be $14.99 books.

It’s all based on reader behavior, and readers can choose to control reader behavior.

The Invisible Bonds of Convenience

We’re all human, and anything that makes things easy for us, is very appealing.

Sony assumes we’re robots, and don’t mind going to a computer to get our books. Publishers assume we won’t remember who treated us well.

The only company that’s factoring in the human aspect fully, is Amazon. Almost all of Amazon’s power resides in its ability to realize that people will follow the path of least resistance, and that people want to be treated well.

Is there any company that’s making things easier for readers? Not to my knowledge.

Is there any company that’s treated readers better? Well, Publishers are treating people badly, and most companies are indifferent to how readers feel.

Everyone’s fixated on things like lock-in and DRM – What about the fundamental things like treating customers well?

Amazon is only powerful as long as its the company serving customers best

This is the biggest weakness imaginable. Amazon’s power stems almost completely from its ability to serve customer better than any other company.

It doesn’t have exclusives on most of the products it sell. It doesn’t make most of the products it sells. It’s selling products to customers, and its power stems almost completely from being able to earn customers’ trust, offer them better prices, and make things easier for them.

All a company has to do, to win over Amazon’s customers, is provide an easier path and better customer service. If you look at the companies Amazon buys up, you begin to see a pattern – Zappos.com, Diapers.com. These are mini-Amazons – focused on convenience and customer service to the same degree as Amazon.

There will be a company in the future that will be better than Amazon at customer service, and which will not sell itself to Amazon. At that point, Amazon is in trouble unless it’s built up huge defences.

Of course, a much bigger problem than imaginary companies are the other Giants Amazon has to compete against.

Yes, Amazon is too weak

All the things that make Amazon super-powerful also create opportunities -

  1. Amazon delays gratification, so it doesn’t have a cash hoard like Apple, Microsoft, and other giants.
  2. Amazon delays gratification, so it isn’t as profitable as some rivals.
  3. Amazon is a retailer. It doesn’t have its own products, with the exception of Kindle, and a few experimental product lines like Pinzon.
  4. Amazon’s intense focus on customer service is a weakness because customer service is very costly. That person you talk to on the phone, to discuss your Kindle issues, costs a lot.
  5. Kindle Reading Apps can disappear instantly. They are an undependable strength.
  6. Being #1 in both eReaders and eBooks puts a big target on Amazon’s back.
  7. It improves constantly, but that means it often misses out on making revolutionary changes. This is probably its second biggest weakness after the tendency to delay gratification forever.

On top of that we have several huge enemies -

  1. WalMart.
  2. Apple. Especially if it decides that eReaders are a big enough market for it to create a dedicated product for.
  3. Google, if it ever gets really serious about books.

And several smaller, but dangerous enemies -

  1. B&N, which might find enough inspiration from its struggles, to steal away a significant portion of the eReader market.
  2. Kobo, which is fighting Amazon on price, and has better international reach.

The big advantage Amazon has, is that the giants aren’t very interested in books and eReaders. They simply don’t see the long-term implications of tens of millions of people owning Kindles.

Amazon is stuck in the middle, and wholly dependent on customers

Amazon is a super powerful company that’s stuck between other super powerful companies -

  1. It’s absolutely vital for it to get traffic from Google, Social Websites, and the sites around the Internet. 
  2. It’s absolutely vital for it to get products to sell from companies making products.
  3. It’s rather important for it, that its rivals don’t understand all the key things that make it successful.

In 10 to 20 years, Amazon might become a lot more dangerous. At the moment, it’s very, very dependent on others. 

Amazon is also completely dependent on super-powerful customers -

  1. Microsoft, Apple, and Google have products that serve customers’ needs much, much better than competitors’ products – needs that might be as amorphous as company policy, feeling good, and ‘1 second faster’. Amazon, except for the Kindle, isn’t really selling any products of its own.
  2. It’s the combination of Kindle, Kindle Store, and Infrastructure, which makes Kindle the current #1. The Kindle itself doesn’t hold a huge lead over other reading devices.
  3. Customers can get up and go anytime. The only thing keeping them with Amazon is convenience and lower prices. Contrast that with Apple and Microsoft and Google – the second-best product offerings in their niches are so much worse that leaving is almost unthinkable. For this comparison, please consider the average customer’s needs – a normal user can’t learn Linux, and the level of polish Apple’s products have is unmatched.
  4. There’s WalMart, and there are lots of good online retailers like NewEgg. For the other giants, there is no WalMart. Customers have a lot of options when it comes to retail. This is another reason why Zappos and Diapers.com were such important acquisitions for Amazon – to ensure it doesn’t let mini-Amazons spring up.
  5. Customers have lots of alternatives even in ebooks. B&N is a decent alternative. Leaving Kindle Store would not give you the sort of shock you’d get if you had to leave Google, and depend 100% on non-Google offerings.

The notion that Amazon is getting too powerful is laughable. It’s particularly laughable in ebooks.

eBooks are in the ether, and Amazon isn’t writing them

Let’s say you’re an author – What’s stopping you from selling direct to customers over the Internet? Nothing.

Let’s say you’re a bookseller – What’s stopping you from setting up a website? Nothing.

There are lots of authors selling direct to customers, and lots of companies offering decent ebookstores (Kobo, B&N). Amazon doesn’t have a monopoly over anything. It isn’t writing the books, and it doesn’t have some great distribution monopoly.

If you consider the concessions it’s had to make over the last 12 to 14 months – adding PDF support, giving authors 70%, announcing it’ll add lending, adding reading apps for other platforms – it should be pretty clear that it’s catering to readers. Readers are not catering to Amazon.

Could there come a time, when Amazon is so powerful, that readers have to cater to it?

No. Readers are a lot smarter now. You can’t undo smart.

Amazon is getting 30% from books. It’s paying something for its own costs, and paying something for bandwidth charges. After all is said and done, it’s making 15% or less per ebook sold. That’s hardly the mark of a monopoly. It’s a very smart move – because with scale that 10% or 15% really adds up. However, it’s very, very far removed from a monopoly. You can’t make a monopoly on things like customer service, the path of least resistance, and the power of the default – just a supremely dangerous company.

Perhaps Amazon’s biggest strength is that its biggest strengths are invisible.

2 Responses

  1. I agree that that article really exaggerates lock-in. Lock-in only can be said to exist for people who use the Kindle device. (And anyway, lock-in doesn’t apply to DRM-free ebooks) For people who use Android or iOS devices, the world is open. (What I really want? A 10-inch e-ink Android device, so I can run various viewer apps) E-readers are also going down in price, so the costs of switching are also going to lessen.

    I also think that if Amazon tries to censor things in a certain niche, ebook stores specializing in that niche will probably spring up.

    I also agree with you about how the article ignores some of Amazon’s legitimate achievements in convenience and customer service. The lower the products are priced, the less price-sensitive customers become. Then, non-price elements (such as convenience and customer support) assume more relative importance. This is especially true for non-technically inclined customers.

  2. Amazon is not powerful or weak, Amazon is Amazon and will be Amazon ( A greedy retailer company ). The Kindle is a crippled product that doesn’t comply or fulfill what it promises to the customers, its popularity is based on hype and numbers that only Amazon knows about. Until the device really work as advertised buying content from Amazon is only a choice for the people who has money to throw away.
    To have an idea read the customers reviews of the product.

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