Amazon vs Hachette and the digital supply chain

Amazon is a monster of Schumpeterian destruction presently ripping through the centuries-old book industry. Big Five publisher Hachette, especially as portrayed by kindred spirits like The New York Times, is the white-hatted underdog fighting for justice in the face of a bully. Both are ultimately actors in a bigger drama which is all about shifting economic activity off the physical supply chain and onto the digital supply chain.

Bully tactics

Amazon is currently using its massive market power (41% of all new books sold in the US and 50% in Germany) to penalise Hachette for holding tough in negotiations over revenue splits on e-book sales. Consumers are being prevented from, or at least inhibited in, ordering any of 500 book titles published by Hachette at this moment.

The sales slowdown has got to be hurting Hachette. Even worse, it is killing the authors. This is especially true for new authors who, lacking a strong sales record on debut work, are unlikely to ever sell another book…at least to a traditional publisher.

Amazon can no doubt handle the lost sales, which are immaterial given its scale. Hachette and its brethren in the traditional publishing houses have much more at stake, but none are likely to be pushed out of their posh Manhattan digs anytime soon. The truth is that one bully (the publisher) has come up against a bigger kid (e-commerce) and is about to get a bloody nose.

Many writers reflexively support Hachette in solidarity, reminiscent of striking shipyard workers in 1970s Scotland. Rallying to support institutions focused on their own survival, rather than their members’ well-being, once doomed Detroit and Newcastle. Are writers making the same mistake?

Hachette isn’t really interested in helping masses of struggling writers succeed so much as it is trying to preserve its special place as tastemakers in the world of literature. Rejection letters are still what it does best.

Revolution by electron

Old-school publishing houses built a gatekeeper empire around the expensive, inefficient and clunky supply chain that brought traditional books to market. Once upon a time publishers needed to screen writers to avoid wasting valuable capital and retail real estate on loser books.

Total time to market for a new book can still be 24 months from sold manuscript to shelf. Returns of unsold books from retailers often amount to 35% of total production and, unlike consumer electronics, which have teardown value, such returns are simply shredded.

The economics that increasingly drive publishing mean that most books sell a few thousand copies and are deemed failures, while a few blockbusters carry the portfolio. This is how it works in feature films, venture capital and pro sports, all of which look for a few home runs rather than many singles. From a supply chain perspective, this means massive material waste and many broken hearts.

The role of Amazon in this revolution is really just a matter of fixing these horrible economics. With e-books and the delivery infrastructure of Kindles, high-speed internet service and wireless networks, Amazon, not to mention Apple, Barnes & Noble and others, are making possible a nearly infinite market for writers to access.

Consumers already have self-published and crowdsourced options for their reading pleasure – Fifty Shades of Grey being perhaps the most famous example of this dynamic at work.

The revolution in digital supply chain is all about getting more literature in front of more readers in ever finer niches. Amazon does a bad job of explaining this, but it is actually doing writers a big favour.

Still room for the elite

The ”epic battle” storyline makes for good copy, and some relish a humiliating end for traditional publishers. But this is not going to happen.

Writers crave the validation of a “real” publisher’s approval and no matter how many self-published copies one sells in this heavily digital future, there is still a very real need for curators of art. Everyone has a stake in keeping the top tier of literature excellent.

The end game in this battle is not about who loses but who wins. As I see it, the big winners are writers.