Why Amazon Dominates
I was reading a great article by Joel Gascoigne on the “Happiness Advantage” at and this brought to mind how Amazon out-competes publishers and other book retailers (no matter what you think about devices and DRM).
Joel cites a great quote from Marc McLeod of Shoppify, an online retailer site that allows users to set up their own storefronts:
“You really need to shower your users with love. People buy technology from start-ups for one of two reasons. One, it’s technology that they can’t get anywhere else, or two it’s a level of service and support and love that they can’t get anywhere else. The start-ups that do really well and take off have showered their users with love. You send a request to support and you hear back right away. They’ve got a very active blog and they build a community. Every time an executive goes to a different city they’re having dinners for the users in that city. They’re building massive loyalty and those users are going out and becoming ambassadors and helping recruit more users.”
In many ways Amazon, despite being a company 100 to 1,000 times the size of many publishers, still behaves very much like a start-up, while many publishers do not behave like start-ups at all.
Most publishers think their content is unique. They think they have the equivalent of must-watch shows, like Mad Men (A&E) or Game of Thrones (HBO, SKY) – that makes cable channels so profitable and secures them a place in the can’t-do-without subscriber bundles (even if the rest of the programs they offer might be crap), but books are much more fungible than TV programs.
We live in a world where hundreds of thousands, maybe even millions of new books are published every year (>2.5 million ISBNS now issued in the U.S. alone per year!) and even the most voracious reader can surely read no more than 500 books a year. Even power readers (people who read a book a week) can only get through 50 books in a year (1 in 50,000 books published = 0.002% and that is only counting front list). This is off course why discovery matters so much now!
Where Amazon beats publishers hands down is the level of support and service it offers, be it free shipping, no questions-asked return policy, etc.
Low prices on a small range of best sellers are just “link bait”. Many items are actually more expensive at Amazon than at many other retailers, but consumers still would rather buy from Amazon because of the trust they have in Amazon and the easy of shopping combined with the “no regret” customer service Amazon offers and the awesome breadth of its catalog.
Many industry insiders and pundits have pointed out that removing DRM will not change Amazon’s dominance and that is very true, because Amazon offers such a killer service. Especially, now that Amazon’s brand of service is established, the moat of proprietary DRM is something that Amazon could surrender, if it wanted, but Amazon has no incentive to drop DRM unless forced to do so by regulators (or publishers/readers).
Does dropping DRM still make sense for publishers? Yes, if they want to encourage alternatives to Amazon, because few retailers will be able to survive if they can’t deliver e-books to Kindle owners, too.
A retailer with 60-90% market share is very powerful, the 800 pound gorilla, but if Amazon has to worry about new entrants eating its lunch then it will be much more reasonable and accommodating in negotiations with publishers.
An Amazon that faces no threat to its dominance (giant DRM moat in addition to awesome customer service) can dictate terms, which means it can push its suppliers (publishers) into a position where they barely manage to cover their marginal cost and might not manage to even cover overhead = will be unprofitable.
Supporting Barnes & Noble breaks the monopoly, but in the long term just creates a duopoly with the same consequences. Publishers really need not just behave more like start-ups, but engage with more start-ups, too or they will be operating in a market where the buyers (retailers) have oligopoly power.
It is not always simply market share that matters, but the ease with which new players could enter the market, if a dominant player were to abuse its market position.