Winning at Monopoly

Is Amazon a disruptor because of its size? Or is its size a result of previously stifled innovation?
This post was published on the now-closed HuffPost Contributor platform. Contributors control their own work and posted freely to our site. If you need to flag this entry as abusive, send us an email.

One of the yacht owners I worked for during my boating days was a master of the board game Monopoly. He did not like to lose, and so he left little to chance. In Monopoly, the element of chance comes from the roll of the die and the various intentions, choices, and strategies of individual actors. My boss did all he could to bypass this democracy of the die by appealing to the emotions of his opponents while lobbying for sympathy and support.

On rainy days, we would unfold the board game and sort the money and cards in the salon of his boat. Me, playing the shoe, would dutifully serve as the reluctant fourth. I'd then watch my boss guilt his daughter into not erecting a hotel there, or cajole his wife into some disadvantageous trade. Pitting us against one another meant that even when he was behind, he was ahead. And once he did get ahead, he never let us think it. He was always the underdog, even with power. And we were each other's threats, even when we were weak.

A similar game is being played in the book industry today, as it has been played in many other industries. At Book Expo America, the largest trade publishing event in the country, we heard a lot of talk of monopolies. Practically everyone at the expo believes that Amazon has gotten too big, that they wield a disproportionate amount of power, and that they must be reigned in or defeated.

We are told, without exaggeration and in all seriousness, that Amazon wants to "crush their competition." We hear that they want to "put everyone else out of business."

Two things are true, both of which make such statements ludicrous: The first is that Amazon most certainly doesn't want all of their competitors to go out of business, because then they'd be the only game in town and the government would have no choice but to break them up. The second is that of course they are acting as if they want to put their competitors out of business. That's how you improve your business practices. You try to out-do your competition.

Unless... you don't understand at all what it means to compete. Which I think explains the righteous indignation across the publishing landscape. But I'll get to that in a minute.

The 800-Pound Bear Cub

Amazon is a young company compared to the publishing titans it does business with. And yet, Jeff Bezos's brainchild has already disrupted the entire publishing establishment. First with the stocking and discounting of practically every book in print, then with an online sales platform that employs customer reviews, shopping habits, and big data to provide algorithmic recommendations, more recently with the release of the Kindle and the KDP self-publishing platform, and finally the move into actual book publishing with their own in-house imprints.

In many ways, Amazon has decided to compete with itself. The move toward e-books seems strange for a business founded on shipping the physical product, but it's the companies who control their obsolescence who thrive. Apple is such a company. Eastman Kodak is of the other sort. Publishers could have realized years ago that they are in the story development and delivery service, but they instead decided that they were in the book business. Which pretty much underscores all that has happened since.

While Amazon's developments and innovations have been lauded by customers, the same maneuverings have been just as vociferously impugned by legacy publishing and its adherents. A single company (often a single man's name) absorbs the full and illogical blame for what has been an inevitable move toward online shopping and on-time delivery. Some portion of the book market was always going to move online. And every facet of publishing, from newspapers to magazines to maps to encyclopedia and dictionaries, has been disrupted by the digital age.

Ironically, the biggest losers in this shift to digital and online shopping have been yesterday's villains. The massive brick and mortar discounters -- who once were blamed for literature's downfall, who sold "loss leaders," who roughed up publishers in negotiations -- have become the bulwark behind which all legacy hopes now hunker. Little explored is the possibility that Amazon is helping independent bookstores by clearing out these former predators.

When it comes to discounting and selection, B&N can't compete with Amazon. When it comes to book browsing, Amazon can't compete with curated independent bookstores. If you line the three sales models up from small indie stores to big discounters to Amazon, you'll see that neighbors compete with and harm one another. Concurrent with the shuttering of Borders and the shrinking of B&N, we are also seeing a rise of indie bookstores. Coincidence? Or are we heading toward a future where Amazon and indie bookshops coexist because they provide two very different shopping experiences and fulfill quite separate needs?

Best estimates give Amazon roughly half of the book market. With the shutter of Borders, B&N now has a more disproportionate control of brick and mortar shelfspace than Amazon does of online book sales. This is an especially powerful advantage as the rest of the smaller bookstores have less leverage for bargaining with publishers. So who is the real monopoly?

Likewise, the merger between Penguin and Random House created a mega conglomerate that accounts for half of the major publishers' revenue. There was very little outrage at this merger, which will result in lost jobs and fewer places for authors and manuscripts to compete. What we heard instead of indignation is how greater efficiency will help these grand institutions compete with Amazon, the evil company trying to lower prices and raise author pay. Again, who is the monopoly?

All of this brings us back to the shock and outrage of Amazon as a company intent on eradicating its competition. Why shouldn't they? Is diversity in the marketplace as important as progress? Is it better to have one or two companies fighting for writers and readers? Or do we need a nice mix of abusers thrown in just for the sake of variety? All businesses should approach the marketplace in an attempt to be the absolute best at what they do. To compete.

Ah, but all of this does seem crazy when you aren't used to competition, when you are used to living in a gentlemanly culture of collusion and cartel. In this system, competition appears dirty and unseemly. Why compete when you can agree to offer the same exact terms to all authors and the same high prices to all customers? If you can milk your suppliers and your customers and get away with it, why bother with the messiness of innovation and efficiency? How dare anyone tip the applecart!

The real monopoly, once you start examining business practices and attitudes, is Big Publishing itself, a group so entrenched with one another and indistinguishable from one another that they simply go by the collective moniker: The Big 5.

Their contracts are functionally identical. Their e-book royalties (and most others terms and clauses) are lockstep and are not negotiable. They have a history of working together in a noncompetitive fashion in order to raise prices for their customers (prices that they would love to set at twice what mass-market paperbacks formerly cost). Conferring by phone or email in this culture is considered polite, not illegal. It wasn't long ago that top editors at the major houses would meet on Wednesdays to discuss the bestseller list, to congratulate one another on acquisitions, and to discuss business plans and practices. All completely normal. Celebrated, even.

When members of the Big 5 do compete (truly compete, not just offer varying marketing promises and sizes of advances), the offender needs to be reigned in quickly. When Simon & Schuster innovated with print-only deals -- thereby landing bestselling authors who were otherwise never going to sign with any major publisher -- the resulting press on these deals (and likely pressure from other publishers) caused an immediate retreat. The poor publisher who stepped out of line dutifully pulled back into rank. Print-only deals were no longer on the table. Contracts snapped back to their immutable and noncompetitive form.

Or what about the "most favored nation clauses?" These pernicious contractual entities stipulate that any author who gets higher royalties in the future will trigger a retroactive match in royalties for select existing authors. This is like a sports contract that simply stipulates: "I'll always be the highest paid player." It hamstrings all the publishers in a knot of anti-competitiveness. Where is the outrage or the reporting? Once again, we have a hardening of the publishing monoculture where dissent is impossible and innovation stifled. Instead, the major publishing houses play Monopoly like my boss used to.

Unable to tolerate a move toward democratic literature, where any voice is free to publish, where authors are paid 70 percent of list price instead of a mere 17.5 percent, they rely instead on appeals to litigation, on a public relations campaign within the press, and on collusion.

This is not new. Standard Oil received the same trifecta even as the company's rise meant plummeting oil prices for consumers and towering advances in supply, quality, and efficiency. Unable to compete on the marketplace, other oil producers moved the war into the newspapers and then the courts, all orchestrated behind the closed doors of collusion.

The effectiveness of this campaign is still with us today, as all the small oil companies' abuses go unmentioned while "Standard Oil" is the bogeyman lurking in the closet of all antitrust conversations. The results are so sticky that many reading along right now are shaking their heads, thinking me the fool for suggesting otherwise. And so the pattern persists. We watched the same thing happen to Microsoft. Interesting how all web browsers are now free and bundled as defaults. But the stain of the campaign against Microsoft orchestrated by doomed non-competitors persists.

Monopolies or Cartels?

So the question is this: Is Amazon a disruptor because of its size? Or is its size a result of previously stifled innovation? The culture of the Big 5, which was built by gobbling up successful small presses and rolling them into imprints, left the door wide open for Amazon, a company that dared to sell direct to consumers, innovate the way we read, and pay authors a living wage. You know, the first company to actually compete.

The response to this new competitor has been to blacklist Amazon-published books from brick and mortar stores and to collusion within the publishing monoculture. Where is the outcry for Amazon-published authors who are blocked from sale by practically every brick and mortar store? It doesn't exist. The response is simply: That's what those authors get for signing with Amazon. Imagine an observer today saying, "That's what those authors get for signing with Hachette." The hypocrisy astounds.

In addition to the blacklisting and collusion, you now have the public vilification of this pesky upstart from Seattle who dares to compete and make the legacy publishers look bad on both price and payment. The vested interests are even able to rally the very troops they send to slaughter, as overcharged customers and underpaid authors alike fire social media broadsides in every direction, outraged that someone is fighting for the readers and the writers of the world.

Why show support for a corporation that may lower royalties to 30 percent in the future when you can celebrate a corporation that pays 17.5 percent today? Why show support for a corporation that may raise prices in the future when you can champion a corporation that colludes to raise them today? The groupthink and absence of reason is remarkable.

Amazon has grown in size for many reasons, but the success of their publishing ventures has to owe much to the long-held and unbudging monopoly of big publishers. Because the moment Amazon provided a second option, customers and writers flooded to them in relief. That's right, a second option. Cartel is just another name for a monopoly, but with more players.

We have suffered under the thumbs of a cartel that controls print distribution and refuses to compete on terms. They buy up the small and grow and grow. The company that comes along and threatens to bust up this cartel is supposed to be the bad guy?

If history is our guide, we might expect the real bad guys to pull off this campaign to the public and the courts. My boss rarely lost a game of Monopoly by employing these same tactics. Ah, but there was one day, rolling dice while anchored out in the Caribbean, when I dared to point out to my boss's wife and daughter that they were being played against one another. It made subsequent appeals more transparent. My poor boss didn't stand a chance after that. The democracy of the dice -- that equalizing force of fair chance and individual, free-thinking actors -- was too much to bear.

So let's not be fooled by the "5" in the Big 5. Demonstrate how they differ. And while we wait for that demonstration, let's be reminded that they were once called the Big 6. And as no demonstration is possible, let's be aware that HarperCollins just swallowed Harlequin. Not only do the major publishers collude and act as one, they are slowly becoming one as well. And people are pulling for them.

People are pulling for them as they refuse to pay authors a fair royalty on the e-books that provide a better margin than hardbacks. People are pulling for them even as they attempt to charge customers twice what a mass-market paperback used to cost. Who will stand against them? The media who adores them? The writers who are contractually bound to them? They have no competition.

Sorry. They had no competition. Now anyone can play at this game. Watch and see what the small and medium presses do now that they have a level playing field, provided to them by print on demand technology and e-books. Watch what the self-published authors do now that they can have their voices heard. Watch what the readers do now that they can choose books that are priced fairly. Pull for these actors, the true underdogs, the real competitors. I sure as hell am.

Popular in the Community