Price times units sold

Last week, an open question about Amazon's discount tactics was tackled by David Streitfeld, writing for the New York Times. His article, "As competition wanes, Amazon cuts back discounts", told the stories of authors and publishers who have seen the street prices of their books increase over time.

I found it to be a curious lament, on three fronts:

  • Authors and publishers who want to sell their books at lower prices could simply change the list price
  • Authors and publishers worried about Amazon's market strength would find allies among independent bookstores, who benefit as Amazon moves closer to list price
  • Unless you want to maximize unit sales (see the first bullet), authors and publishers operating in an increasingly (or entirely) digital realm are better served maximizing revenue

I'm not really sure why Streitfeld bought the argument that university and independent presses have been hurt by any move by Amazon to lower discounts and move sales prices closer to list price. The presses set the price. Whatever their terms with Amazon, higher list prices yield more revenue per unit sold, but for the publisher.

Arguing that Amazon should maintain a deeper discount so that publishers can sell more books sounds like "Amazon should make less money so that we can make more". That's not a competitive position I'd want to count on.

Publishers have defended agency pricing as a way to ensure that healthy competition is maintained among ebook retailers. If all outlets offer a book on equal terms (went the argument), the price incentive disappears and stores compete on service. This is one of the reasons many European markets maintain fixed-book-price laws.

Arguing that the largest retailer should offer discounts that few or no other retailers can match potentially hastens the loss of smaller, independent stores. If you believe that support in niche markets comes largely from these kinds of retail outlets, weakening them is a bad move.

Streitfeld did pull out an interesting perspective from a distributor that has gone toe-to-toe with Amazon:

Curt Matthews, chief executive of the Independent Publishers Group, a Chicago book distributor that got in a dispute with Amazon last year over margins on e-books, speculated that Amazon could be data-mining its customers.

“They are wondering, ‘If we knock off only 10 percent as opposed to 35 percent, where do we come out ahead?’ ” Mr. Matthews said. “They don’t care how many books they sell. They want to know how many dollars they get.”

I understand his point of view; in fact, it's an argument I've made before about Amazon's strategy. It dovetails with another argument I've made: as the marginal cost of a good approaches zero (as is the case with digital books), revenue maximization can become a shared goal.

About Brian O'Leary

Founder and principal of Magellan Media Consulting, Brian O’Leary helps enterprises with media and publishing components capitalize on the power of content. A veteran of more than 30 years in the publishing industry and a prolific content producer himself, Brian leverages the breadth and depth of his experience to deliver innovative content solutions.

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