Aggressive Amazon

Google is doing book marketing; Barnes & Noble is in publishing; Random House is in distribution; and Penguin is in retailing according to Publisher’s Weekly. So what is Amazon doing with its latest two ventures?

Last Monday, Amazon acquired BookSurge, a print-on-demand and on-line bookstore. The acquisition gives Amazon the ability to print books in quantities as small as one copy. It also gives Amazon access to distribution in countries where BookSurge has printing partners and Amazon has no presence. There terms of the deal were not disclosed. BookSurge’s modest reputation obscures the acquisition’s meaning.

Also last week, Publisher’s Weekly announced that over the past few months, Amazon has quietly made the rounds to agents in search of authors to write short pieces for Amazon to sell. Amazon will charge $0.49 per electronic download for short stories, journalism, essays and other works ranging in size from 2,000-10.000 words. One report even suggests that Amazon may commission alternative endings to popular novels. The analogy used is Apple Computer’s iTunes—where music lovers can download songs for a fee.

In the financial structure of the deal, Amazon would charge $0.49 per download and receive 60% of each transaction. Volume of downloads is expected to be high. Which means if Amazon attracts the number of authors it intends, it could realize revenues of approximately $750,000. Amazon believes it has the ability to attract a large number of target readers without the help of publishers.

What are the implications of these two moves? One outcome is that Amazon is clearly positioned to battle Ingram in book distribution and book printing. Ingram owns Lightning Source, a competing, digital, print-on-demand book printer. Ingram is also the largest distributor of books to the bookstores. To wage this battle, what Amazon lacks in reputation and history, it makes up in marketing. Unlike Ingram, Amazon can pinpoint demand without investing a cent in additional infrastructure—which means it can begin printing immediately at a higher margin than an order placed through Lightning.

The two companies have existing working relationships, however. Lightning said in a statement that it has a strong relationship with Amazon and it “fully expects it to continue.”

What does it mean when a book retailer becomes a publisher and a printer? These two ventures are unquestionably Amazon’s most direct overlap with publishers to date. Amazon can do something that few editorial or retailer businesses can—use large amounts of exclusive writing where books are bought. One editor states, “The idea of one store being the exclusive publisher is the nightmare scenario. It would be war.” Amazon could attract authors with its marketing muscle and its ability to program search results on its site. Some observers are skeptical of the payment method. All songs on iTunes have already created a market by being previously released. It is unclear if book chapters, especially those previously unpublished, can be sold a la carte.

Time will tell if Amazon’s moves will produce results. The BookSurge acquisition validates those book printers engaged in short-run, digital book printing. If Amazon is investing money into the market, there must be an opportunity there. The move to attract authors is a longer-term investment. Will it put Amazon directly in competition with Ingram? How will Ingram react? How will large and small publishers perceive these moves? Will these ventures result in fewer book distribution options or will it expand the market for books and other printed material? Will these acquisitions improve Amazon’s share price? For now, all one can do is wait and observe the changing landscape of the publishing world.