George Orwell’s essays are always worth revisiting. As he says in [amazon_link id=”0141036613″ target=”_blank” ]Books v Cigarettes[/amazon_link], there are “books that become part of the furniture of one’s mind and alter one’s whole attitude to life.” Certainly some of his, including [amazon_link id=”0141185295″ target=”_blank” ]The Road to Wigan Pier[/amazon_link] and [amazon_link id=”0141184388″ target=”_blank” ]Down and Out in Paris and London[/amazon_link], which I first devoured as an idealistic teenager and have returned to over the years, fall into that category. But this morning it was the essays collected in Books v Cigarettes that I turned to, prompted by a feature about the demise of Borders in the face of rivalry from Amazon. And not just Amazon as a retailer of physical books at cut prices, but Amazon as purveyor of e-books. This week the Association of American Publishers reported that e-book sales were up 160% in the first half of 2011, while sales of physical books had slumped.
The title essay of the Orwell, noting that factory workers regard book-reading as an expensive hobby not for the likes of them, compares the cost of reading favourably with the cost of other forms of entertainment. As Orwell puts it, they wouldn’t spend twelve and sixpence on a hardback that might take a whole day to read, but thought nothing of spending several pounds on a day out at Blackpool. But, he adds, “It is difficult to establish any relationship between the price of books and the value one gets out of them.” There are several complicating factors.
First, books are an experience good. You have to read them to know what they’re worth to you, and so evaluate the price with little information about quality. This is why reviews matter, why authors deliver series of books, and why Sherwin Rosen’s ‘superstar’ or winner-takes-all economics apply in publishing.
Secondly, books are a good example of consumption of goods as a signal. Millions of people bought Stephen Hawkings [amazon_link id=”0553175211″ target=”_blank” ]A Brief History of Time[/amazon_link], but only a tiny fraction of them read it. It was probably, like making coffee in a cafetiere, a signal of being middle class and cultured. Coffee table books are all signals, as are fashionable recipe books, and – in their own way – old paperbacks of George Orwell’s work scattered around the house.
Thirdly, books have a new social value. They bring people together in book groups. They are gifts in the gift economy of book swaps – we have one at the local station. They are useful small presents when wine or chocolates won’t do.
None of which is relevant to the brutal competitive struggle in book retailing, where Amazon is coming to have a dominant position. Publishers share some of the blame, as they all let Amazon have discounts which enable it to undercut bricks and mortar booksellers, especially independents. The short term lucre blinded the publishing industry to the longer-term strategic issues. There are two areas for competition authorities to look, I think. One is whether the barriers to entry to online bookselling have become insurmountable, with any book needing to be on Amazon to sell – or whether, on the other hand, the technologies which enable on-demand printing and online access to customers make it possible for a book to by-pass Amazon. The other is the retailing of e-books, where the pricing – just below hardback price – is clearly not reflective of either marginal or average cost and could only be justified as the recovery of capital investment. Even so, if e-book prices are cross-subsidising the prices of particular e-book devices, that would be a cause for concern too. These are empirical questions and I hope competition bodies are checking it out.
I’m sad about Borders. Their range had narrowed and dumbed down in recent years, but the stores have always been pleasant enough places to hang out. Still, as Orwell wrote in Bookshop Memories, “In a town like London there are always plenty of not quite certifiable lunatics walking the streets, and they tend to gravitate towards bookshops, because a bookshop is one of the few places where you can hang about for a long time without spending any money.” That was Borders’ problem – extracting the money. You can hang about in a cinema all afternoon, of course, but only after handing over the £15 for the 3D experience.
[amazon_image id=”0141036613″ link=”true” target=”_blank” size=”medium” ]Books v. Cigarettes (Penguin Great Ideas)[/amazon_image]
Good post and much to consider in it but I’m particularly drawn to the idea of Amazon having to recover capital cost and the cross-subsidising of devices.
A new author recently sent me his manuscript which I converted to a format suitable for the Kindle using open-source software. To me this is a huge chink in Amazon’s armour. As you’ve alluded to in your post, there are ways for publishers to bypass Amazon altogether. Anyone can publish directly to e-book format now and handle the entire marketing and distribution process themselves.
So, this need to recover costs and pay for the incredibly low prices at which Amazon sells its Kindle puts Amazon in ostensibly a weak position. What keeps it in business is purely its relationships with the publishers and its brand dominance. The absence of barriers to entry in this market of Amazon’s own making should make both publishers and Amazon itself very nervous.
In moving from a physical to a digital world Amazon exchanged relative security for all the vagueries of the internet. All that needs to happen for Amazon to be seriously compromised is for consumers and publishers to recognise this.
I agree with you that it’s certainly possible that Amazon’s currently dominant position could change quickly. This is after all a pattern that’s become common in digital markets – a company can be massively dominant, until it isn’t, and is overthrown by an upstart. However, the market awareness advantage is a strong one. I do think this is an open question.
A separate issue, not covered in this post, is whether Amazon is diluting its brand by selling tacky clothes, toys, electronics etc. Do book-buyers specifically want to buy from a book-seller? That’s a strategy question rather than a competition question.
With regard to being overthrown by upstarts I believe that Clay Shirky provides an interesting read on the subject: (http://www.shirky.com/weblog/2010/04/the-collapse-of-complex-business-models/). And the whole idea of sophistication as a weakness rather than a strength brings us on to your second point. Yes, I do think that they are making a mistake diluting their brand the way they do. What they should have done (and in fact did with Zappos) is create or acquire new brands to help them access the new markets.
The business side of it all, I don’t really understand. A couple of days ago I was in Barnes & Noble in downtown Manhattan. I went in to get a couple of magazines to read, but I couldn’t decide which ones I wanted, so I picked out three or four and wandered over to the cafe. It was absolutely jam packed. Bought a coffee and a cookie, which came to about $5 I suppose, and sat and read my magazines in peace, then checked my e-mail on the free wifi. I ended up not buying any of them. But the margin on the coffee must have been pretty good. How sustainable is this? I don’t know.
I went to a an excellent cafe in Beijing where people brought used books, the walls were lined with them. You just picked a few books, had a coffee, and if you wanted to buy any of the books (which were an amazingly eclectic mix – I bought a travel guide to Paris from the Edwardian era purely because of the beautiful pull out map. It cost a £1 I think). E-books will end this too!
So this is how I resolve the situation currently: I buy physical books from Amazon or bookstores and on my Kindle I have free books only. Just about to start on Tom Jones.
Not even the people in the business really understand the business side of it! There’s a desperate hunt for margin everywhere, but I think people sometimes forget that the absolute size of the margin matters as much as the percentage size for viability. The second hand question is very interesting. Online retailing makes it bigger business – I buy from Abe Books, for example, can find titles I want online there. But the same e-title can’t be traded second hand – can’t even be shared in the family. And there’s also a gift economy in secondhand books. What does it all mean?
You bemoan the dominant position of Amazon in the book retail market in general, and by implication their dominant position in on-line bookselling (via your comment about barriers to entry for on-line booksellers), yet each of the books you mention (the Orwells and ABHOT) have click-through links to Amazon.co.uk, rather than to some other bookseller (e.g. the aforementioned Abe Books) or Google Books which allows previews and choices of where to purchase.
This is a little ironic, no?
(p.s. love the blog. As you can probably tell I’m catching up with old posts right now!)
I wondered when somebody would point out this irony. You’re quite right! The reason is that I’d like to find a way to make enough from the blog to offer occasional guest reviewers a reward and the Amazon programme (which I’ve been testing for about a month) looks promising. I couldn’t find another UK retailer with an associates programme – but if there is one, I’ll gladly pilot that instead.