One of the more interesting strands in Brad Stone’s new book, The Everything Store: Jeff Bezos and the Age of Amazon is watching how the relationship between Amazon and publishers evolved from one where the new online bookstore was viewed favorably as a potential counterbalance to the retail giants Barnes & Noble and Borders, dependent on Baker & Taylor to fill orders, to the most powerful and feared company in the book industry.
In Stone’s view the transition began in 2004 when Amazon’s share of book sales grew large enough dovetailed with its need to generate profits, leading the company to become hyper aggressive in seeking better terms from publishers. Bezos believed Amazon was entitled to better financial terms because it carried had the widest selection of titles and had an extremely low return rate.
Among Amazon’s demands Stone writes, were steeper discounts on bulk purchases, longer periods to pay its bills and shipping arrangements that leveraged Amazon’s discounts with UPS. For publishers that balked, Amazon threatened to pull them out of the automated recommendation system that would make it more difficult for customers to find an offending publisher’s book on the site. Stone sees the change in tactics as “en emerging realpolitik approach toward book publishers, and attitude whose ruthlessness startled even some Amazon employees.” That attitude hardened when Lyn Blake, who at one point worked at Macmillan and was Amazon’s head of book buying, left the company in early 2005.
The aggressive approach to print books was soon followed by a similarly aggressive effort to get publishers to supply Amazon with e-books to support the company’s Kindle launch. Bezos goal was to have 100,000 titles ready for the 2006 holiday launch of the device, a launch that was delayed for a year. During that time the Amazon team, led by Laura Porco used, according to Stone, both inducements and threats to get publishers to digitize more of their titles.
Having been burned by e-books before (the Rocket eBook), publishers still held a cautious view of the e-book market, in direct contrast to Bezos who saw ebooks as a way to get into the sale of digital content ahead of Apple and Google. As negotiations were proceeding, Stone notes that there was one piece of information Amazon deliberately withheld from publishers—that the price Amazon intended to charge for e-books was $9.99. Stone said while Bezos knew he would lose money at that price, he was willing to accept that because over time he was sure publishers would lower their wholesale price to reflect lower manufacturing costs. It wasn’t until the official fall 2007 launch of Kindle that publishers learned the price was to be $9.99.
One publishing executive is quoted by Stone in the book as saying the e-book negotiations “left an incredibly bad taste in our mouths… I don’t think they were doing the wrong thing, but I think the way they handled it was wrong. It was just one more nail in the coffin that no one realized was being closed over [us], even while we were engaged every single day in a conversation about it.”
Stone notes that introduction of the $9.99 e-book “changed everything. It tilted the playing field in the direction of digital, putting additional pressure on physical retailers, threatening independent booksellers and giving Amazon even more market power.”
It’s safe to say the relationship between publishers and Amazon hasn’t improved much since the launch of the Kindle.
The Everything Store also documents some interesting points in Amazons’ history. Shortly after he setup shop in the state of Washington, Bezos took a four-day bookselling course in Portland sponsored by the ABA. A few years after its official launch on November 1, 1994, Bezos and board member Tom Alberg met with Len and Steve Riggio for dinner. According to Alberg’s account, the Riggios said they were going to start their own Web site and crush Amazon. Still, Alberg said, the four discussed possible collaborations, including the possibility of operating a joint site. The discussions didn’t come to anything, and Alberg recalled, “It was a pretty friendly dinner. Other than the threats.”
By 2000, Amazon had already became large enough that the possibility that it may not survive the dot com bust sent tremors through some of the industry’s biggest players. At a meeting to reassure Ingram of its financial stability, John Ingram told Amazon executives that the company believed in Amazon and that “If you go down we do down. If we’re wrong it’s not ‘ oh shucks.’ We have such a concentration of our receivables from Amazon that we would be in trouble too.”
Stone devotes a fair amount of time to Bezos’--and thus Amazon’s--determination to a avoid paying state sales tax. In addition to setting up in a relatively low populated state, the company had color-coded maps depicting states were its lawyers thought employees could travel safely and not create nexus and states where they needed permission to travel. Stone says Bezos decided to back a federal approach to collecting sales tax because he believed it would take a while for such legislation to pass and that as part of its strategy to provide next-day delivery to major cities, Amazon will eventually have nexus in most states.
In time, Stone sees an Amazon that will make good on same day delivery to Prime members, own its own delivery trucks, roll out a grocery service beyond the cities where it exists today, introduce a mobile phone to allow customers to use another device to order products, expand its international footprint, and will also come under the scrutiny of antitrust authorities.
Little Brown released The Everything Store October 15.
