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[publishing] Amazon, Gillette, cross-subsidies and supply chain integration - Lakeshore — LiveJournal
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Jay Lake
Date: 2010-02-06 09:45
Subject: [publishing] Amazon, Gillette, cross-subsidies and supply chain integration
Security: Public
Tags:amazonfail, cancer, health, pubishing
Reuters continues with the lazy reporting about the actuality of Macmillan's pricing proposal.

tnh at Making Light with a very cogent analysis of the agency model, and why it's critical to the continued health of publishing. As usual, that woman makes a hell of a lot of sense.

I asked on Twitter this morning, "Trying to figure out why the price of ebook readers (sold by tech cos) should be linked to the price of ebooks (sold by publishing cos.)" @philipbrewer responded, "Cross-subsidies are an old trick, as in "give away the razor sell the blades."

He's got a great point, but I think he's wrong. Gillette owned the razors and the blades, controlled the whole supply chain. Likewise HP with printers and ink, another example of this. That integration allows them to set the dial on profit and loss in different lines to maximize overall profit.

[ ETA: @philipbrewer responds thoughtfully to my point and counterpoint here. ]

Amazon with the Kindle does not control the supply of content. As tnh explains (and has been explained elsewhere), they've been inserting themselves as a publisher with the rights play embedded in the up-til-now Kindle contract. That's still not supply chain integration. So where Gillette can take a loss on razors to sell blades within one larger profit-and-loss calculation, Amazon has been pushing publishers into a position of taking a loss on hardcover sales to elevate Amazon's Kindle profits. They're killing their own supply chain, unless they plan to go into originating content on Kindle in a big way. Which would be an unsurprising next step for Amazon, but still provides the publishers with no incentive to continue down Amazon's path.

I probably have a lot more to say next week, when I'm out from under this chemo infusion session. Currently on the 5FU pump, and rather hard of thinking. I do suspect the razors-and-blades issue also ties into my recent observation that ebooks (at least the DRM variety) are a service and not a product. More to come, when I have brainpower to pursue it. In the mean time, feel free to be intelligent about these question in comments.

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Shaughn
User: shogunhb
Date: 2010-02-06 20:05 (UTC)
Subject: (no subject)
I don't understand why every "reputable" news source is only quoting the 12.99-15.99 price cap... How is it everyone on my friendslist knows more about this issue than, oh, CNN for example.
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Jay Lake
User: jaylake
Date: 2010-02-06 20:15 (UTC)
Subject: (no subject)
My assumption is the sourcing is Amazon letter on the Kindle boards, which states that. Even a moment's research would reveal the issue is more complex. But more complex = more difficult to explain in the reporting. The media doesn't do nuance these days, we know this from political reporting. I'm disappointed in seeing this in business reporting.
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martianmooncrab
User: martianmooncrab
Date: 2010-02-06 20:26 (UTC)
Subject: (no subject)
can take a loss on razors to sell blades

..military contracts are even better models.
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houseboatonstyx
User: houseboatonstyx
Date: 2010-02-07 03:31 (UTC)
Subject: (no subject)
Maybe Amazon wants to sell a lot of Kindles now. Later they can raise the Kindle price, and/or manage some way to get more control of or profit from the content.
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