Out of the Past

A few years ago, the president of an educational publishing   company told me how much business his company did with Amazon. I was stunned.

I don’t know what percentage of the publisher’s sales was to Amazon, but I would guess it had to be something in the neighborhood of 20 percent. What was even more surprising was that the company frequently buys its own books from Amazon. If the publisher is running low on a title and doesn’t want to go to the considerable expense of reprinting, it simply buys back some copies and uses them to fill orders. Apparently the company gets a big enough discount from Amazon that it can make a profit on the transaction, in addition to the profit it made selling the books to Amazon in the first place.

But what about Amazon’s profit? Can it be profitable to be the middleman in this scenario, when you aren’t even in the middle?

The answer is that it doesn’t matter. Amazon has never been about profit, it has been about acquiring customers. I generally read books on a Kindle Fire tablet, for example, which has an estimated manufacturing cost of twice what I paid for it. Over the course of a typical year I might buy 30 or more books, so presumably Amazon recouped its investment within a couple years.

That long-game strategy has been going on for 22 years now, since former Wall Street executive Jeff Bezos founded an Internet retailer named “Cadabera,” which he operated out of his garage in Bellevue, Washington. Investors were warned that the online bookstore would not move out of the red for five years.

Within 12 months he changed the name to Amazon, a name he picked out of the dictionary because it sounded large and exotic, and put him near the top of alphabetical lists. By that time he was selling into all 50 states and 45 foreign countries, and before long was expanding from books into CDs, videos and electronics. In 1997 the company was among the first online merchants to serve a million customers.

Over the following two decades Amazon grew at a phenomenal rate, from $1 million in revenue to $90 billion. During that time, virtually all of the gross profits have been plowed back into the company, building distribution centers, acquiring businesses and spending God-knows-what on website development. It also racked up $8.3 billion in debt.

As you know, Amazon has long coveted the school supply market, and I think it would be fair to say that it has had a huge impact on virtually everyone in the industry. This summer it announced an ambitious new program through which it hopes to take another large bite.

According to a June 27th article in The New York Times, “Amazon Inspire” will provide thousands of free lesson plans, worksheets and other instructional materials in time for the back-to-school season. This will not be the first portal to offer free teaching materials, of course, nor is Amazon the first huge tech company to dream of cornering the school market.

In 2015, public schools spent $5 billion on nearly 11 million computers, including tablets, laptops and desktops. More than 40 percent of those dollars went to Apple, but the most popular device was Google’s Chromebook laptop, with more than 5 million
unit sales.

The richest men in America, from John D. Rockefeller to Bill Gates, have been the ones who realized early on that the real money wasn’t in the machines themselves, but in the stuff the machines ran on. The market for educational software in the U.S. is already over $8 billion, and the gap between hardware and software is likely to grow much wider.

I think that Amazon gets that, which explains its willingness to lose money on Kindles. In the New York City school district alone, Amazon has a contract to provide approximately $10-million worth of e-books per year.

In spite of my preference for pre-World War II technology, and the fact that I make my living in print publishing, I’ve been more responsible than most people for the success of e-books. I could give you the reasons for my disloyalty, but I’m sure you already know what they are, and basically it boils down to laziness. Even so, I wouldn’t describe myself as totally won over.

Last winter I was sitting in an airport somewhere, reading my Kindle, when someone walked by me, placed a paperback book on top of a trash can, and proceeded to board a plane. A few minutes later they announced that my own plane was boarding, and as I walked by the trash can I noticed that the book was by an author I had been wanting to check out. It felt a little like dumpster diving, but I thought, “Why not?”

So I took the book on vacation with me, and for the next week it was my waterside companion. It was the first print book I had read in several years, and I felt as though I had reconnected with an old friend. The difference in the experience is hard to describe, but it’s like finding a radio station that plays your old favorites, after years of contemporary popular music.

Apparently, I’m not the only one who misses the oldies. In a June 17th article entitled, “As E-book Sales Decline, Digital Fatigue Grows,” Publishers Weekly reported that sales of e-books among traditional publishers were lower in 2015 than 2014, and the slide was continuing.

The Association of American Publishers estimates that trade publishing e-book sales fell 14 percent in 2015 from the prior year, and that market share dropped from 23 percent to 20 percent. A survey conducted by the Codex Group determined that e-book unit sales for the entire book market dropped from a market share of 35.9 percent in April of 2015 to 32.4 percent in April of 2016.

I’m sure that Amazon has been concerned about those trends for some time, but the Codex study presented some details that must be ringing alarm bells in Bellevue. Ownership of e-readers has been stagnant for three years, and those owners are using them less. Overall, 14 percent have reduced the number of books they read on the devices, and 25 percent want to cut their use going forward. Most of those people give as their reason that they simply like print better.

Surprisingly, the younger the respondents were the more averse they were to e-readers, with 37 percent of 18- to 24-year-olds wanting to reduce their usage. The share of print books purchased versus digital was also the largest among that group, at 83 percent.

All of the above probably has something to do with the fact that the number of brick and mortar bookstores in the U.S. has been increasing, slowly but surely, for the past several years. Perhaps there is hope for humanity yet.

In case you’re wondering, when my vacation was over I took that paperback novel with me to the airport, and left it on top of a trashcan. I hope someone enjoyed it as much as I did.

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