Why Amazon Dominates

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amazonI 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.

Andrew Rhomberg

About Andrew Rhomberg

Andrew is the founder of Jellybooks, a start-up focused on exploring, sampling and sharing ebooks. He previously worked at txtr (whitelabel ebook retail platform), Skype (internet telephony), Reciva (internet radio), gate5 (now Nokia Maps), and Shell (oil). He holds a science Ph.D. from MIT. Follow him on Twitter at @arhomberg.

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14 thoughts on “Why Amazon Dominates

  1. No mention of the fact that Amazon is prepared to sell nestellers AT A LOSS to drive its competitors out of business then?

  2. I’ve been buying books from amazon since 1997. But I like to spread my business around precisely because unregulated monopolies are generally a Bad Thing. So when Barnes and Noble launched their online store, I ordered from them a few times and then stopped because their customer service was lousy, their database a mess (and amazon’s is by no means perfect), and their store front difficult to use. Since I seldom buy bestsellers (and never in their first year), most of the books I buy from amazon aren’t discounted. But they’re easy to find at 2 am, which is when I do a lot of my shopping, and they get to me as soon as they’re available. There’s more to customer service than showering love on the customer. There’s convenience, accuracy, and speed, all of which amazon excels in. And in the rare cases when I’ve had a problem amazon has resolved it quickly and neatly. I would love to have alternatives that do as well. But why should I reward incompetence just to keep it alive?

    • The existence of competition for any company is one of the things that helps keep them honest. If Amazon’s competition fades away eventually to nothing, don’t expect customer service to remain as good as it is now. If you think it’s frustrating to reward incompetence now, imagine how it will feel when that’s the *only* option.

      • Greg, don’t forget that Amazon competes with many other retailers in many other segments, from Wal-Mart to fashion merchandisers, and now, even industrial distributors. Even if all of Amazon’s book competitors were to go away (very unlikely,) Amazon would still have to provide good customer service.

  3. Trade houses have been burned by start-ups in search of incremental distribution so this explains their caution when it comes to the cost of legal (contracts) and other overhead to get their content up on a new platform. If the start-up in question doesn’t have effective marketing (and $ behind it) or distribution reach, publishers will see disappointing sales, poor ROI, and regret participation. Zinio, Blio, Copia all immediately come to mind. I am not suggesting they don’t seek out partners but many busdev folks in trade are hesitant since all of these require time/resources.

    • Which is why the solution of many publishers is to focus on Amazon with the result of finding themselves in a very, very poor negotiation position. Trying to pick winners will never work. When you partner with start-ups you have to be agnostic as to who wins: 9 will fail and 1 will have a real impact, but it is impossible to predict which one that will be. If the cost is to high of doing that, then face it – Amazon is your daddy and will engage on its own terms (monopsony).

      The same reasoning applies to why publishers are not supporting brick & mortar book stores (other than the last mega-chain standing – Barnes & Noble). It is too much work and effort, but in the process, the diversity is shrinking and with it how books get promoted and discovered. Focusing on the one biggest customer, who is also the most profitable, creates a monoculture.

      It delivers great financial results in the short term, but is long-term strategy with major risks.

    • off the course project Z – a.k.a Anobbii – into which 3 mega publishers poured in millions of pounds, not to mention time – was just sold to a supermarket chain for a symbolic £1. Placing all your bets on a single bet is a high risk gamble…

  4. Amazon may have a \giant DRM moat\ in place, but to the reader it makes little difference. I can purchase an ebook from the Kindle store and read it immediately on my Toshiba tablet, my Samsung laptop, my Dell netbook, and even my B&N NOOK Color using the Kindle Reader apps. I can likewise read purchases from the NOOK store on all the devices mentioned, but I generally buy more often from Amazon than B&N because I prefer their shopping experience. By the way, I could even read the purchase from the Kindle store on an iPhone or iPad if I owned one, but I cannot read anything from Apple on any device they don’t make. So that is the reason that Kindle DRM is really a non-issue.

    • Indeed, Amazon has built a beautiful garden where most readers don’t notice the walls, but you do notice them, if you ever want to leave and the competition sure notices them, too, it locks them out for good.

      Some reader’s resent the lock-in, but my non-scientific guess is that no more than 1 in 10 readers are really bothered. It is a very really barrier though, but what I was highlighting is that it doesn’t really matter all that much. Amazon aces it anyway with or without DRM.

  5. In my opinion, DRM (which makes it hard, though not completely impossible, to put Amazon books on other devices) is not nearly as key to Amazon’s dominance of ebooks as the dominant integration of the Amazon store on the Kindle device (which makes it hard, though not completely impossible, to put other books on the Amazon device).

    The vast majority of e-reader users do not even know that “sideloading” ebooks purchased elsewhere onto their device is possible, never mind how to do it. As long as this tight integration remains unbroken, the mutually-supporting Kindle/Amazon dominance of readers/devices will continue. (The same is true of the iPhone/iPad and their dominant integration with the Apple app store.)

  6. You’ve obviously never tried to work anything out with “service” at Kindle. “Scary” is a word for it, but “good” would be unlikely to occur.
    Near as I can tell it’s a fortified bunker in Calcutta with no phones and all emails answered by chimps, or worse, untouchable techs.

    • Must say, it has always “worked out” even though in one exceptional case it took 6 months, but they gave me a full refund and the circumstances were, well, unusual.

      However, I have never tried to do anything by phone with them, that seems to be impossible at Amazon, but then I prefer email anyway.

      They have beaten almost every retailer I know. Publisher, Five Simple Steps, was also very good, but they charge full whack for shipping. Outside of books, Ocado has superb customer service, but the rest have been dreadful in my experience. Most people have had similar experience.

      However, there are always exceptions. I’d say, it is the law of big numbers and you are correct Amazon is the wrong company to buy from for anybody who wants the personal touch.

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