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Posted by on May 26, 2014 in featured, Life, Skepticism | 2 comments

Amazon, Hachette, and Business

I’ve been reading some interesting commentary on the Amazon/Hachette kerfluffle.

As always, I try really hard NOT to comment on things until I know what is going on. So far, I have found that Hachette doesn’t seem to be the white knight standing up to the evil dragon that is Amazon. Of course, Amazon still controls 90% of e-book sales and is a first stop for a huge variety of products (I mean, I bought my lawn mower via Amazon).

Take, for example, the problem of general merchandise retailers: Target, Wal-Mart, K-Mart (does that one still exist?), even the super grocery stores (HEB for example).

Wal-Mart is obviously no friend to anyone. Their business practices are not good. But, then is Target any better? Really, who’s your bet on the next major data theft? Of course, even local chains have their problems. And for many people, it’s a chain/general merch store or they don’t get that product. Go ahead, try to find Q-tips that’s not in a chain store (or costs $1 for 30).

It has gotten to the point where major issues are so prevalent in ALL of the corporate entities (and many local ones), that you can’t just “not shop there”. If I didn’t shop at stores that had policies and practices I disagreed with, then I wouldn’t be able to shop. I mean that quite literally, if I couldn’t get it at the farmer’s market (which, I honestly have no idea if they are legit or just buying it at the local grocery store and bringing it to the market), then I couldn’t get it. That’s clothes, underwear, food, electricity, internet service, water, any products and the majority of services. Don’t even get me started on banks.

Sadly, business issues have become so common that if one was to stand on principle, then one would likely be homeless and starving on the street in a matter of weeks.

A friend of mine was shocked to discover that 90%+ of all papaya are genetically modified. The rest are not organic. The reason for this is that if GM papaya didn’t exist, then papaya wouldn’t exist. A devastating disease hit the plants. Now, where they are grown, there is basically a small cluster of non-GM plants surrounded by 100X that number of GM plants… to protect them.

Since my friend is staunchly pro-organic (for reasons that are not clear to even my friend), the papaya problem is problematic. The solution is simple, don’t eat papaya.

But what if this applied to every single food you eat (in the US it almost does)? What if it also applied to everything you purchase?

Our society depends on people doing things in a very efficient manner. Experts perform tasks in minutes that would take anyone else hours or days, with mostly poor results. That specialization has allowed our society to grow and achieve a very comfortable level for nearly everyone.

I don’t have to grow my own food because there are experts who can do it much better and with a far higher economy of scale than I could. I seriously doubt the ability of my land to feed my entire family for an entire year. Of course, I have skills that I provide to my company, which does things that other people depend on.

Instead of coming home from work and then tending the garden and chickens, fixing the car, repairing some plumbing, writing a book to entertain me, creating a cartoon that my child can watch, and providing k-college education for said child, I can depend on experts to do that for me.

And we all want the most reward for the least effort. I would love to get paid a couple million a year for writing my blog. But it’s not that valuable. I’d love to get 3x what I make at work. And I’m actively working on making myself more valuable to my company. And all those people that provide each other goods and services are actively trying to get the most reward for the least effort.

The plumber would love to get twice his hourly rate. Why doesn’t he? Because other plumbers wouldn’t charge that much and he wouldn’t make any money at all. The guy who needs his plumbing fixed would gladly pay only $6 for all the pipes in the house replaced. But no one will do the work for that fee because other consumers would be willing to pay more.

Over time, the market generally settles on something approaching a rate for various goods and services and a minimum quality level. But then you start throwing in middle men… those general merch stores, for example. Instead of buying a product at the normally acceptable price and selling it at the normally accepted price (with a slight markup), some of these stores are trying to buy at much cheaper prices and sell at slightly cheaper prices… making more profit and more sales.

Theoretically, the original producer would get a boost in volume, but that’s not always the case. What generally happens is that the producer loses money. But that producer can’t sell to anyone else, because that big general merch store has driven everyone else out of business by charging half the price for nearly everything.

Now, this is NOT what is happening with Amazon and Hachette. Because Hachette is a middle man too. They don’t write books, they buy books from authors and add some value (copy editing, a snazzy cover, and marketing skills) and then sell the books to the general merch and book stores.

So Hachette wants to make more money by selling more books and getting a better rate from Amazon (and trying to give less money to the author). Amazon wants to make more money by increasing market share and paying less money to the publishing company. They increase market share by offering books for less money to consumers.

The consumer gets a generally good deal and the author kind of gets the shaft. But you see, there’s no right or wrong in this kerfluffle. Each side wants the best possible deal. And both are willing to use whatever means they have available to do so.

Amazon can stop pre-orders (which may also be a result of Hachette being a UK publisher and/or Hachette not fulfilling pre-orders on a timely basis), they can stop promoting Hachette published books, they can stop offering discounts, etc.

Hachette Book Group is owned by Lagardère Publishing, the largest in France and number two in the UK. It does publishing across the rest of the world too, enough to make it the world’s second largest trade publisher overall.  Lagardère Publishing is itself part of Lagardère Group, a giant worldwide media company – magazines, radio, television, online, digital, and books – with annual revenue of approximately $10 billion. So, it can (and very well may have) constructed an organized campaign to cast Amazon as the bad guy and get Amazon to give it some concessions.

Again, there’s no right or wrong here… that I can see at this time. As more information becomes available, I may well change my mind. But this is just corporate negotiation at the very highest level. These are both multi-billion dollar companies both of whom are leaders in their fields (publishing and selling) and when negotiations begin, things can get heated.

At this point, I’m not that worried about it. I am a pretty avid Amazon user.  I wouldn’t call myself a fan-boy, but the combination of products and systems that Amazon provides are pretty useful to me and my family so I will remain an Amazon user. Of course, I occasionally shop at Target too.