Amazon, Hachette and Commodification

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A recent editorial by Joe Nocera in the New York Times  got me looking at this conflict in a new light. Nocera, a business writer with keen insight and an alert conscience, boils the conflict down in this way:

No matter what you think of Amazon’s tactics, they surely don’t violate any laws. It is acting the way hardheaded companies usually act — inflicting some pain on the party in a dispute to move it toward resolution. On some level, the book industry has never fit comfortably in the contours of big business. But over the years, as one house after another was bought by conglomerates, as they merged with each other, as they tried to increase profits with the kind of regularity that pleases Wall Street, they began the process of commoditizing books. Jeff Bezos? He’s only taking that process to its logical extreme.

With all due respect to Joe Nocera, I have to ask: really? Books are inevitably headed down the path of widgetification, in which the only thing that matters is maximizing profit margins and moving units? And there is nothing to be done about it? What a dispiriting reality, if that is true.

But I don’t think it is.

Let’s take a quick look at commodification. When it comes to the market economics of products, commodification is at the far end of the Value-Volume spectrum.

At the Value end of the spectrum, the market price of a product depends more on the unique qualities of the product. A Stradivarius violin or an original Picasso are examples of the farthest Value-based valuation. Lower down the scale, you might find a Bentley or a Rolex, elite luxury goods whose prices are based as much on their quality as on market demand and production costs (although these factor in). With a traditionally lower supply for Value products, the price skews to the highest price that buyers will pay for it (such as an art work sold at auction).

As we move down the spectrum toward Volume-based valuations, profit margin (factoring in costs of production, distribution, and marketing along with price) becomes all important. If you have the formula for producing a product at even a small profit, and you can scale your production efficiently, you can maximize overall profit infinitely by increasing volume. Most consumer packaged goods (CPGs) in the world (such as soap and soybeans) are securely toward the Volume side of the spectrum. These are commodities. Prices for commodities skew toward the lowest price a manufacturer or producer can bear.

In aggressively driving to minimize the costs associated with their supply chain, which Amazon is unquestionably doing, they are certainly abetting the commodification of books. I don’t think any writers believe this is a good thing, nor do I.

Hachette of course is taking the position that not only is commodification bad for writers, but that publishers are an intrinsic part of the value-creation process itself (they are not just glorified “manufacturers”); they provide curatorial, editorial and marketing services which raises the quality of goods across the board, which ultimately serves both readers and writers.

To a certain extent this is true, although I agree with Nocera that corporate aggregation in the publishing industry has generally worked against the Value proposition for writers, and more towards a corporate bottom line orientation. You may feel (as I know my colleague Mark Schroeder does) that Hachette’s recent round of layoffs, followed quickly by its corporate acquisition of Perseus Books Group, puts the lie to Hachette’s moral high ground stance.

I’ll conclude by affirming my own belief that the best way to look at this dispute is not to look at what is best for Amazon or Hachette, and how that might then effect our economy down the line, but instead to look at what is best for readers and writers, and ask how the publishing industry might be best aligned to serve society down the line.

Books have always been an elite product, and they have served society magnificently. Does driving book costs down for consumers really serve society? I would prefer the costs of books remain higher, to better serve readers and writers.

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1 Comment

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One response to “Amazon, Hachette and Commodification

  1. ‘look at what is best for readers and writers, and ask how the publishing industry might be best aligned to serve society down the line.’
    Not just well said, but absolutely perfect. Bravo!

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