I understand that Amazon’s size is a problem for the marketplace. I am a strong antitrust advocate.
However, I also understand being the biggest guy in a fight doesn’t categorically make you the bad guy. Most importantly, I understand that spreading lies and logical fallacies, however well-intentioned, is toxic to the integrity of public discourse and therefore hurts everyone in the long run.
A lot of Amazon’s critics don’t seem to understand those last two critical facts.
For example, thriller writer Lee Child has been getting a lot of press lately for a BBC Newsnight interview in which he tries to dismantle Amazon’s position in their dispute with contract-fumbling, deadline-bumbling Hachette. But, when you take a close look at his logic, if you can call it that, not only does it fall apart but it displays a remarkable lack of basic knowledge and reasoning.
Specifically addressing Amazon’s arguments about the economic efficiency of selling ebooks at lower prices, Child calls Amazon’s claims “disingenuous,” then sneers:
There is a very specialized branch of science that you can examine these propositions with. It’s called arithmetic.
Let’s remember that Child is invoking disingenuousness and arithmetic. They’re the ropes with which he’ll hang himself.
Their [Amazon’s] numbers about how many people will buy it at 15 bucks and how many people will buy it at 10, I mean, Amazon does not run two parallel universes in which they sell books at two different prices.
It’s truly remarkable how often Amazon’s critics resort to straw man arguments. Not to mention the ad absurdum nature of Child’s contrast, essentially: “For traditional publishers to be wrong and Amazon right, we’d have to slouch into the realm of science fantasy!”
Of course, we don’t have to conjure up parallel universes, because Amazon is really only claiming the mundane ability to perform standard economic analyses and modeling better than traditional publishers. They can’t run parallel universes, but they can run parallel pricing experiments by electronically segmenting their user base, something far more difficult if not impossible for traditional publishers to do. Considering that some of those publishers, like Hachette, can’t even remember their own contract deadlines, Amazon’s claim to have more reliable and realistic economic analysis is a fairly reasonable one.
By the way, if you’re looking for a good example of “disingenuous,” Lee Child clouding the issue with this parallel-universes mumbo-jumbo would do.
The best they can possibly be saying is that for every 100 people that will buy at 15 bucks there are 174 that will buy at 10 bucks.
Again, Child is being disingenuous, because that’s not “the best they can possibly be saying.” It’s simply what Amazon did say (without the red herring Child inserted) the exact same 100:174 ratio using larger numbers, 100 thousand to 174 thousand. You know, arithmetic.
It’s almost as if Child wants to frame Amazon for his own straw man absurdity—as if they were the ones who brought up this multiverse silliness and he was the rational one talking them down to reality from their delusional precipice—hoping (as with his novels) that we simply won’t notice the egregious plot hole.
Now for more arithmetic. Amazon is saying that the ratio of potential 15-dollar buyers to potential 10-dollar buyers is 100:174. This sort of pricing analysis, trying to find where the supply and demand curves intersect, is high school economics. The meaning of this basic business calculation is that it’s more profitable to sell 74 percent more books than to sell at a 50 percent higher price.
This is arithmetically incontrovertible. 100 x $15 = $1500 while 174 x $10 = $1740.
If we assume Amazon’s numbers are accurate (and while it would be fair and rational to suspect their methodology, Child conspicuously does not) this means that pricing as Amazon suggests results in more books for readers and more money for Amazon, publishers, and authors.
If Child understood that “very specialized branch of science” he boasts as his weapon, he’d understand this. Instead, he pulls this unimaginably dumb trick:
And what publishers actually do, of course, is they sell the 100 to the people prepared to pay 15 then they sell to the people prepared to pay 10 and they make more money than Amazon says they’re going to make.
If you understand mathematics, economics, and the book trade, your mouth dropped when he turned the ratio terms into simple numbers. Instead of properly interpreting the 100:174 ratio as representing two alternative book-pricing schemes, he treats it as an addition problem and adds the terms together.
In other words, he treats “100 at $15” and “174 at $10” not as two mutually exclusive possibilities between which he must choose, but as if they were two co-existing realities and he can simply add them together. He’s not only conjuring up parallel universes, as he falsely accused Amazon, but also pooling the profits between these two worlds!
In his failure to understand a basic arithmetical expression of a basic economic principle, Child is playing Dr. Frankenstein to his own straw man.
You might object: “He’s not saying there are two different realities, idiot! He’s just saying that you can squeeze the consumer by running the higher price and the lower price one after the other, then add the profits together.”
But, no, you can’t really do that. Not and sell all of the books you would sell if you started at the optimal price. And, here’s why:
By suggesting publishers can rack up the 15-dollar profits until that market segment runs dry then turn their eyes to the 10-dollar market, Lee Child is displaying a remarkable ignorance of the book trade (or a complete disregard for all but elite writers like Lee Child) because the rate of rotation for new books into the market makes the expectation of a second, fully realized round of sales incredibly unrealistic. Publishers don’t do promotional work for most books as it is, focusing their efforts on elite writers (like Lee Child) who need them least. They certainly aren’t going to push second-round sales of a typical ebook when they have the latest offering from some elite writer (like Lee Child) to overprice as usual.
If you think I’m simply being snarky toward traditional publishers and wealthy writers, I direct your attention to the exact same dynamic in print books, the majority of which never see a second printing. Why? One reason is that most of them either don’t cover costs or make too slim a profit.
And, what might cause sales to be too slow to justify a second printing? Initial prices that are, just a Amazon is saying, clumsily too high. Publishers are not making as much as they could because they’re trying to make too much up-front.
So, for most books there is no addition going on, no first-round plus second-round sales as Child implies. In reality, for everyone but elite writers (like Lee Child) it’s a choice between mutually exclusive pricing schemes, the basic economics we all should have learned in school. Publishers make their choice and, when they make the wrong choice, they make far less money than they could have because their bad choice not only results in lower-than-necessary initial sales, but these lower-than-necessary sales eliminate the viability of a second printing.
Child’s arithmetic makes about as much sense as this:
“Princess, most writers have no first-round bread, because the publishers set prices too high!”
“Let them eat second-round cake, then!”
The only reason Child can even dare make this second-wind argument for ebooks is because their digital format spares them one key consequence of up-front overpricing. You don’t have to reprint an ebook. You just leave it on the server. Electronic copying is virtually cost-free compared to reprinting.
Even so, low duplication costs don’t sell books. Consumer interest sells books, and that is driven largely by promotion, which traditional publishers have abandoned for all but celebrity authors (like Lee Child) and sure-thing sales like reprints of books adapted for film (like Lee Child’s One Shot).
In other words, Lee Child’s self-centered, profit-hungry opening price scuttles the possibility of the following discount price on which his argument (and his clutzy arithmetic) hinges—for nearly every literary asset in the market who isn’t Lee Child.
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WHOSE SQUEEZING WHOM?
And, having promoted a mathematically false, economically absurd, and professionally naïve publishing scheme that relies on a self-sabotaging attempt to squeeze higher front-end profits from customers, Child makes this stupendously disingenuous allegation against Amazon:
They are squeezing the customer, most of all, by depriving the customer of what the customer wants. And this is a very bizarre thing.
Keeping in mind that Child’s alternative is to squeeze up-front profits from the customer in defiance of basic economic principles, and that his compensatory second wind of discount sales is largely a fantasy, you realize that it’s not Amazon who is squeezing and depriving the customers, or even depriving most authors. It’s traditional publishers doing that.
When the BBC interviewer asks him what the customer wants, of course, Child not only leaves out the pricing aspect but repeats a flat out untruth about Amazon’s treatment of uncontracted books.
The customer wants the books that she wants to read, and Amazon is not delivering them now because of this row.
No, Amazon is sidelining the books because Hachette fumbled a contract deadline, procrastinated in responding to negotiations, and skipped over a counter-proposal deadline they set themselves. Authors and customers are not being used as “pawns” by Amazon, as Child alleges. They’re being trod upon by stumbling, careless, near-sighted publishers like Hachette.
I’ve said this before, but it clearly bears repeating: Having a book sold on Amazon is not a fundamental human right. This is not about censorship or blacklisting. It is a matter of contract negotiations. If a publisher like Hachette can’t remember contract expiration dates, can’t respond to queries on a timeline appropriate to any decade since the telegraph was invented, and can’t even meet their own deadlines, you can hardly fault Amazon for not treating Hachette’s books on par with those of publishers who have done their part of the work ethically, diligently, and professionally.
In fact, after Hachette ignored Amazon’s pre-expiration queries and strolled blithely past the contract expiration date, Amazon temporarily extended the contract under existing terms to help authors and customers avoid the consequences of Hachette’s poor behavior. This is not David and Goliath, folks. This is the Grasshopper and the Ant.
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BASIC ARITHMETIC, BASIC ECONOMICS, BASIC BOOK TRADE
Finally, like a machine-fighting John Henry ironically hammering his own logical coffin shut, Child closes out the interview with a silly claim that the difference between £10 and £8 per ebook won’t make much difference to someone who has already paid for a Kindle, going on to make the inane assertion that Amazon is pushing cheap ebooks to prop up the notoriously lackluster Kindle device, in order to “take over the world.”
Firstly, a 25 percent hike in price from £8 to £10 is a 25 percent hike in price regardless of the overhead cost. Again, Child doesn’t seem to understand arithmetic, economics, or the book trade. With the bottom-end Kindle currently selling at around £58 at amazon.co.uk (full disclosure: I don’t own one and have no intention of ever owning one), those £2 savings compensate the customer’s overhead investment after 29 ebooks.
Forbes, for example, estimates a three-year replacement rate for Kindle, with five to ten ebooks annually, at roughly $6 apiece, in dollar-to-pound exchange about £3.6 and thus a £6.4 markdown per book from Child’s hypothetical £10. Using Child’s £10 starting figure, you’d have a gross savings of £96 to £192, and net of £38 to £134, over three years, more than paying for a £58 Kindle.
Again, basic arithmetic, basic economics, and a basic understanding of the book trade.
Secondly, and more to Child’s melodramatic view of Amazon’s sinister purpose in pushing Kindle ebooks, the Kindle is not just a device. It’s also a free app that can be downloaded to smartphones and non-Kindle tablets like the iPad, which is one reason I don’t own a Kindle. The premise that Amazon even needs the unpopular Kindle device to sell ebooks is factually incorrect, and any argument based on propping up Kindle is ignorant and ridiculous.
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BOTTOM LINE
Again, if anyone wants to discuss the problematic nature of Amazon’s market-skewing size, I am fully on board with that. Oligopoly power is a serious problem in today’s global economy, and it deserves serious attention and serious remedies. I have a sneaking suspicion, however, that Amazon’s perennial difficulties in turning a profit might make their ballooning scale a self-limiting malady, but it is still a serious concern in the meanwhile.
But in this dispute with Hachette, Amazon is the lesser of two evils. Traditional publishers are having a hard time adjusting to the electronic revolution, but some like Hachette are exacerbating the transition by behaving like an arrogant, oblivious, entrenched aristocracy: obnoxious, unprofessional, and delusionally entitled.
Most importantly, however, the maelstrom of ignorance and logical fallacies driving the panicked reaction to Amazon is dangerous not only to the book trade, but to our economy and civilization as a whole. Enough with the reactionary bullshit.