Is Amazon the New Walmart?

In the recent dust-up between Amazon and MacMillan books, in which Amazon tried to set the sale price of McMillan-published eBooks for the Kindle, it occurred to me that I’ve seen such behavior before. This is the same sort of business practice that Walmart has and still uses to keep supplier prices at an artificial low, thereby effectively pricing every other competitor out of the business.

It’s an ugly business practice that does, in most cases, benefit the consumer, but can also cheapen products overall and result in reduced selection in the long term. How it works is that the vendor, or retailer, makes a demand of the product’s producer to lower the price to a certain level. The retailer uses the threat that “we’ll get the product elsewhere for the price we demand, and you will be out of the market entirely.” The producer usually caves, reduces costs and/or quality, and provides the specified product at the price the retailer wants. Walmart has successfully practiced this way for many years, providing cheaply-made name-brand products on its store shelves while turning huge profits. (For an example, google Walmart and Briggs and Stratton; they are a very good example of what happens to goods manufacturers that have survived this heavy-handed practice by Walmart.)

Amazon and McMillan were deadlocked in a similar process. Amazon wants to sell new releases for the Kindle at $9.99 every time. Publishers know what their costs are, and what the need for profit is, and in McMillan’s case, that price was $14.99. Amazon used the same threat Walmart does: “we’ll get what we want from another vendor and you will be locked out.” It was a 50/50 shot at who would blink first. Turns out Amazon doesn’t have the guts for such fights, and they capitulated in less than a day. I have to wonder, however; next time Amazon tries this, they might just be able to hold out and not blink. And if they don’t blink, what happens to the publishers?

Fortunately for all of us, publishers have a little more sway on how things go overall. A book published by McMillan is only available as a McMillan book; Amazon could not go to McGraw Hill or Pearson or Elsevier and get the same book from them. This does give them leverage to a point. But there is also what the market will bear, and I think Amazon needs to back off of demanding pricing limits and let the market work the way it is intended to work. The buyer, the eventual end-user, knows what they are willing to spend. They will speak with their pocketbooks, which is going to be more accurate than any other measure.

Would I pay $14.99 for a Kindle book? Hard to say, considering I’ve only bought a handful of books for my Kindle to begin with. I don’t know that I’m a typical user, as I’m not fond of my Kindle (or any eBook Reader, to be honest). I’m still way to tactile and I like having that paperback or hardback in my hand, especially for books I reference frequently or want to make notes in. And Kindle books can’t be passed on or resold when I’m done, like all my purchased paperbacks can. And I don’t think my attitude is all that far off. I know what I’m willing to pay for a book. Amazon setting a price for publishers to follow does not really affect what I’m willing to pay, and further, such questionably ethical behavior by Amazon probably is going to do more to turn me off from purchasing from Amazon than I might be otherwise.

Would love to hear other opinions on this latest dust-up.

3 thoughts on “Is Amazon the New Walmart?

  1. Both deliverables are equal in costs up to publication, then eBooks cost next to nothing (time to distribute the files) and print costs begin (printing, binding, shipping, storing, space for sale or ship for sale).

    The publishing houses are looking at the sunk costs of business and whether the pricing scheme can support their continued existence as the ratio shifts.

    One thing the Kindle pricing scheme does not take into consideration is the difference between a new product/book and inventory. There is no premium for a new release, for the hot item.

  2. Michael, yes, I would assume so too, that they’ve looked at how much pure profit is made from eBooks vs. traditional print books. There were so many angles I could have taken with this story. So much to consider. I sell my own eBooks for pennies, compared to the print version. eBooks are almost pure profit, low overhead, little production.

  3. Susabelle:

    Music companies had decided that they wanted to hit $20 for a new CD, but as iTunes came out they gave in to the new 99 cent pricing model as it helped battle piracy so they made *something*. There has been a constant struggle ever since, with the publishers looking to charge more – but not so they can reward artists more, of course.

    Book publishers are trying to cling to an old business model, and extract every bit of profit from ebooks without more reward for authors. They fear ebooks so they want loads of DRM; they assume everyone is a pirate so they want DRM and high costs. I assume someone there has actually done a cost model on ebooks to show how much they are saving through the elimination of paper, printing, storage, shipping, and so on.

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