Cover Story: Amazon: The Elephant in the Room
Generally, however, Amazon gets mixed reviews. Joe Wikert, general manager and publisher at O'Reilly Media Inc., is a good example. "From day one, Amazon has been terrific at finding more efficient models for the industry, and I applaud that," Wikert says. "It's some of their more recent practices that have me concerned."
The Problem With Pricing
One of the most powerful forces for change in the industry has been the switch from wholesale book pricing, in which publishers sell to retailers at a discount from the list price and retailers set prices for consumers, to agency pricing, in which publishers set the prices retailers can charge. This change mostly happened in 2010, but it arguably was a response to Amazon's increasing e‑book clout, and industry fear of widespread consumer expectations for low-priced e‑books. Amazon's move to set prices at $9.99 and lower for e‑book versions of hardcovers that listed for around $25 intentionally pushed Kindle sales, at the expense of other e‑book sellers' margins. Agency was seen as a way for other e‑book sellers to compete.
Shatzkin sees the agency model as benefiting large publishers because it lets them control pricing much better with e‑books than they could with print books, and also change the way the supply chain allocates consumer dollars. Because the agency model was adopted by five of the six largest publishers, Amazon also can be seen as the impetus behind the summer 2011 filing of a class-action lawsuit against Apple and the five publishing heavyweights—excluding Random House, which delayed adopting the agency model until early 2011—alleging anti-consumer price fixing. That lawsuit, along with several copycat class-action filings, probably won't be resolved for months and possibly years. But whatever happens with it, book pricing won't ever be the same.
Shatzkin says pricing has irreversibly been affected by Amazon's strategy of pricing books to acquire customers, rather than to make a profit on book sales. Amazon, he says, sees e‑commerce book-buyers as potential buyers of the consumer electronics and other goods Amazon sells much more profitably. While loss-leaders have been around since retailing began, and discounters like Wal-Mart and Costco have long been thorns in bookstores' sides, the scope and depth of Amazon's influence and discounting make this a different game, he says.