Six Crises and a Challenge


Winter 2002 (Vol. III, No. 4) Table of Contents

Among those who post regularly on the message boards of the various booksellers’ communities that I frequent, it is safe to say that the company Amazon.com and its founder and CEO Jeff Bezos are somewhat unpopular. While this phenomenon is not universal, there is a culture of Amazon-bashing across all these communities, in which no topic or rumor is too trivial or too grand for the regulars to resist taking potshots. Bezos is blamed for everything that is perceived as being wrong with Amazon, and Amazon is blamed for everything that is perceived as being wrong with the world of online bookselling.

Jeff Bezos

Jeff Bezos

Although the animosity toward Bezos may be slightly more intense because of his publicly chronicled Forbes 400 wealth, the fact is that booksellers have not come just recently to the practice of identifying and bemoaning crises, bogeymen, nemeses, or unfair competition, and online booksellers are no different in this respect than the broader category of our brothers and sisters. When Bezos was still in short trousers and the internet was unknown beyond MIT and the Defense Department, booksellers of all kinds had long been dividing the world into “us vs. them” warfare of one sort or another, but it seems worth noting that the identity of the bogeyman keeps changing. “It’s the chains that are killing us!” we said in the 1980s, and since then we have alternately identified the hit men as the publishers, then the discounters, then the jobbers, then the Super Stop and Shops and the Walmarts, then the video shops, then the used booksellers, then the remainder sellers, then the age of the computer, then Amazon, then ABE and Alibris, then Amazon again, and always, of course, the penny sellers. It’s positively dizzying.

It may indeed be that this state of dizziness is an especially appropriate one for many booksellers these days. Lately when I take a step back and observe the actions of the growing mass of booksellers, I am struck by similarities between our activity and that of a large, established ant colony and its thousands of ant-citizens. And, with apologies to the fascinating ideas of author Steven Johnson ( Emergence: The Connected Lives of Ants, Brains, Cities, and Software ), when I get down on my hands and knees and watch some ants for a while – something I’d rather do than watch most TV – they always seem a tad dizzy to me.

As individuals, ants seem dizzy. As individuals, they live extremely short and pointless lives. As individuals, there often seems no economic rhyme or reason to their lives. Yet, taken together, they can populate and work effectively for the betterment of a highly complex yet leaderless “system” of astonishing systemic wisdom, efficiency, and organization. Despite the myth of the misnamed queen, there is no leading monarch or central committee, yet their colony gathers and rations food, defends its reproductive agent, disposes of its dead and other refuse, and may live as long as 15 years on a decidedly hostile and menacing planet.

I would never disrespect Jeff Bezos or his company by likening him to an ant queen or any other player in the colony. But Bezos’ signature accomplishment — Amazon’s recognition of and relentless adherence to a set of “rules” that define its customer-driven business model – has done more than just build out Amazon as a formidable corporate entity. The same rules that have built Amazon have also dictated the birthing of a far wider and more complex system of sellers and buyers. Indeed, the “Marketplace” name says it all. Amazon’s goal is to create a multi-channel, multi-product marketplace, almost in the classic sense of the Greek agora , that will meet virtually all of its millions of customers’ online shopping needs, and to allow market forces to dictate as much of the customer experience as possible, even if it means driving prices on some mass market paperbacks down to a penny a pound.

One result of all of this, of course, is that Amazon continues to capture a greater and greater share of the growing number of internet-connected consumers in the world, and that more than any other group of visitors to any other website, Amazon’s customers come to its site with their credit cards handy (or already on file), ready and usually eager to buy books and/or other products.

An increasingly clear result for booksellers is that nearly everyone is selling on Amazon, including a growing number of independent booksellers who are stalwart members of the American Booksellers Association, and even some former online competitors such as Alibris and abeBooks. If you want to sell books online, ignoring Amazon or refusing to sell there because you feel it is the independent booksellers’ bogeyman is like wanting to open a brick-and-mortar bookstore and ignoring the old maxim that the three most important factors in determining a retailer’s success are “location, location, and location.” You can turn your back on Amazon’s customer base, but why would you want to do that? Ideology? Please. Personally, when I read comments by the developer of a fledgling online bookselling database, to the effect that his site should not be compared with Amazon because Amazon is not a “pure bookselling site,” I have to wonder if puristic hasn’t become puerile.

The activities of writing, publishing, and marketing a book about online bookselling, in and of themselves, have focused my attention more on trying to step back and gain a wider perspective on what is happening in bookselling than I ever achieved simply as a result of my day-to-day work in the bookselling and publishing trades over the past couple decades. The desire to consolidate various scattered efforts to market the book left me to establish a free website, the Online Bookselling Resource Center, and one end result of the entire process is that I find myself engaged daily in reading emails from sellers, message board posts, and news articles and other documents of and about the issues facing online booksellers today.

In the process one can’t help but notice that, beyond the bogeymen, there are six major problems that vex and preoccupy online booksellers today:

  • the market glut of sellers and available copies;
  • artificially low pricing or lowballing;
  • the inconsistency of professional standards and ethics among online sellers;
  • a wide range of perceived threats related to the Amazon business model;
  • selling venue glitches, conspiracies, and performance issues; and
  • the coming shakeout.
  • Some of these problems are serious, but some can be overcome. Let me offer a somewhat contrarian view on each.Six CrisesThe Market Glut . The concern here is that everyone with two pages to rub together, attached to a binding or not, is proclaiming himself a bookseller, flooding the market with copies, and driving down the price market of all legitimate booksellers’ wares – used, new, and antiquarian. Personally I believe that the phenomenon is more about the increased transparency of the market of books for sale, rather than the increased quantity, and it is important to remember that the total number of books in existence is finite. If secondary markets begin to reduce profits for publishers, they will produce fewer books, and eventually this will slow the growth of secondary market copies available. This long view may not offer much hope to a seller who is hanging on by the fingertips today, but for those who can hold out, it is likely that some buyer-seller equilibrium will obtain in the future, particularly with respect to less common titles. The key to this equilibrium will be the continued growth of the online buying market, which has a great deal more room to grow, given that online book sales still hover around 10% of all book sales. A few months or a year can seem like a very long time in the online world, but it is worth noting that, in the case of Amazon, its active customer base has grown from zero to something over 30 million in just over seven years, and its population of third-party sellers has grown from zero to over 200,000 since early 1999. As Amazon continues its push for growth in each category, it is natural to expect that some equilibrium will occur between the two growth rates and populations in the near future. Fortunately, it now seems likely that Amazon will continue its recent practice of ratcheting down its owned inventory of new titles when the Marketplace supply of alternatives is ample.Lowballing . Apart from the existence of a market glut, many sellers are artificially depressing book prices by offering books at prices significantly below those of competing copies. This, in turn, leads to other sellers coming along and making a snap judgment that they will not be able to sell X title unless they price it alongside the cheapest copy available. A herd is created and, dumb as sheep, lowballing sellers create a relentless downward pricing spiral. A great deal of speculation occurs as to the motivation or rationale of sellers who would price large portions of their inventory at a penny: are they making money off of shipping, are they acquiring email addresses to sell at a profit, are they trying to attract traffic to a site, are they trying to build up their customer feedback rating, are they nuts? It doesn’t matter. In any marketplace, as Dr. Vernon Smith, recipient of this year’s Nobel Prize for Economics, has shown, there are a significant number of players who, faced with uncertainty, act compulsively, irrationally, and self-destructively, and sometimes they influence others to join them. My view is that one should never join them, but should see them as loss leaders in one’s shop, and be grateful that one is not taking the financial hit for providing the loss leader. Where a lowballed book is in some demand, the lowballer may make an excellent arbitrage victim. To assign lowballers too much power is to underestimate the power of the huge online bookbuying customer base. Buyers often choose higher priced copies within a title’s selection based on condition, presentation of both copy and seller, and perhaps some of the same phenomena observed by Professor Smith. Over time, we can hope that sellers will become wiser about their pricing strategies, and that market forces will find a way of saying goodnight to those who don’t. Meanwhile, our best protections against lowballing are to avoid those hypercommon titles where the downward pricing spiral is most pronounced and to do what we can to increase the population of online bookbuyers.

    Professional Standards . Many sellers believe that the huge influx of casual and often unschooled sellers is laying waste any and all standards for book packing and shipping, descriptions and rating, and customer service and business ethics to an extent that will turn off and away significant numbers of buyers from repeating as online customers. Further, beyond this casual and benign or ignorant neglect lies another more sinister level of dishonest sellers who actively defraud customers by failing to ship, misrepresenting an item, relying on drop-shipping without any concern for follow-up, etc. Amazon and Half.com have been shamelessly laissez-faire about these practices and are fouling their own nests as a result. While Amazon seems to depend on free market forces to fix a great many problems, all one must do is review the customer feedback files of some of the larger Marketplace sellers to reach the conclusion that the market is not working effectively on this problem. Instead, Amazon needs to do a better job of policing flagrant and frequent offenders, and sellers need to continue and expand efforts such as IOBA’s Buyer’s Bill of Rights to educate buyers about how to avoid or follow up on bad deals. It’s also my hope that my forthcoming book,Buying Books Online: Finding Bargains and Saving Money at Booksense Stores, Amazon’s Marketplace, and Other Online Sites, will make some small contribution to this educational effort.

    Amazon’s Business Model . Sellers have recently become fond of referencing “the good old days” of selling on Amazon, from the Spring of 1999 through early 2001, when all manner of books would sell quickly, seemingly at any price posted. Having regularly sold 40% of my listed inventory each month in those days, I miss them too. However, I have to admit that I find laughable the accompanying commentary to the effect that what’s gone wrong is that Amazon has changed everything, and that if Amazon had simply continued doing what it was doing then, all would be fine. The continued development of Amazon’s customer-driven big tent business model, while it may not have been entirely predictable, is the inevitable denouement of the company’s guiding principles over the past few years, and of course Amazon has every right to continue its growth in the future. In thinking about how we as third-party booksellers ought to relate to this business model, it is essential first to try to understand the model and what it creates in terms of the customer base which makes Amazon an appealing selling venue in the first place, and second to understand that all of the “trade association” proposals we might want to make to somehow limit the population of sellers or available books are going to fall on deaf ears. Amazon is going to be around for a long time, and it is going to continue play a huge role in defining how bookselling is done on the Internet. We would be wise to adapt, unless we do not want to participate.

    Selling Venue Glitches, Conspiracies, And Performance Issues . Every seller who depends on large database venues such as Amazon, half.com, abebooks, or Alibris has plenty of horror stories about glitches, lost listings, twice-sold tales, and overall poor site performance. On Amazon at least, the remarkable thing about all these many problems – and they are many – is that they almost never seem to affect the customer experience. I am constantly mystified at how a company can run such a smooth and seamless site for buyers while exposing such a slow, clunky, and generally flawed back end for sellers. The problems can be serious; for instance, when failure to update open or closed listings makes it difficult for sellers to avoid duplicate sales. On the other hand, too much worrying and checking for site performance problem resolution ends up being counter-productive, particularly if the problems are things that don’t effect sales or fulfillment.

    The Coming Shakeout . Many online booksellers have worried for over a year now that a combination of forces – generally speaking, the sum total of the five crises enumerated above combined with a failing national economy – would shake a large percentage of our colleagues out of business over the course of the next year or two. My view is simple: if it has not happened yet, it probably will not happen. The national economy did not keep Amazon sales from growing more than 25% over the year-ago quarter, and Marketplace sales are growing at an even faster rate than Amazon’s owned-inventory sales. B&N.com also grew in the same quarter. Publishers’ retail prices continue to rise. As for the “revolutions” of e-books and print-on-demand, well, you know, we all want to change the world. The basic demand for a secondary market of used and antiquarian books continues strong, and in the case of used books may be intensified by weakness in the economy.

    A Challenge

    Despite my earlier comment that online booksellers should recognize Amazon’s likely staying power and adapt to that reality, we are not without choices. Many booksellers may function like the ants studied by Steven Johnson or the irrational traders studied by Nobel Laureate Smith, carrying crumbs or books to the post office or offering them for sale at inexplicably low prices, and some at least of the former category will survive. But I still believe that the world of online bookselling today is a hospitable one for many sellers to thrive if they are willing to spin free of traditional models and develop new supply and marketing approaches aimed specifically at providing a higher level of income. The key is to identify your goals for your bookselling efforts and to organize your business to meet and surpass those goals. If that sounds simplistic and smacks a little too much of Dr. Phil, let me elaborate: my suggestion is that a seller should establish a clear business plan, spreadsheets and all, with a clear sense of the supply lines and selling venues he will need to develop to meet his income goals, and review the plan and performance on at least a monthly basis. The dizzy pheromone-driven behavior of ants may work well for the system of the ant colony, and it may even work well for the overall system of the marketplace, but for sellers who want to thrive, it’s all about fighting the dizziness.

    Over the past year I’ve seen plenty of booksellers complain about changes in the market, while others have restructured their business and now list fewer books, but at significantly higher prices. The tools available to help sellers with this kind of restructuring are becoming more sophisticated every day, from wants and Buyers Waiting lists to data mining and other software, as well as the well known search engines. Some of these sellers depend heavily on book scouts and loose networks of other sellers, and others undertake a fair amount of book arbitrage online. Some have altered their businesses to build in a significant amount of affiliate traffic from their website and, of course, some of us have augmented retail bookselling efforts by publishing books or software aimed at helping other sellers. All of these strategies tend to make the market more fluid and drive customer traffic, and in the long run that will help not only these cutting-edge practitioners but also the wider community of sellers.

    Windwalker

    Windwalker

    Despite the aforementioned bogeymen, we’ve probably come far enough to establish that the bookselling wars are not primarily about the big eating the small. If there’s going to be any eating done, the challenge for all of us is to be the fast who eat the slow, and the key to that challenge lies in our ability to be active students of our business: to stay informed about changes in our business, to know what we will be able to sell tomorrow, where we will be able to sell it, and where we will be able to get it, and to stay ready to adapt daily to the changes we perceive.

    Meanwhile, a little Amazon bashing never hurt anyone, and as King of the Hill, they’ve got to be able to take it. But just make sure it doesn’t keep you from a clearheaded analysis of what’s really going on in this business of bookselling.

Stephen Windwalker

Author: Selling Used Books Online: The Complete Guide to Bookselling at Amazon’s Marketplace & Other Online Sites

Website: Online Bookselling Resource Center

The Standard: The Journal of the Independent Online Booksellers Association

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