It was over a dozen years ago that I spoke with Jeff Bezos at a conference in Washington, D.C. In the early years of Amazon, the company was losing money hand over fist (losing $125 million in 1998 alone) in its all-out effort to gain market share. I told him I understood the strategy, but realistically, how long could they keep it up? With his famous Jeff Bezos smile he told me, “I appreciate your concern. But there’s no need to worry about Amazon.”
Bezos has not stopped smiling in the ensuing years. Soon Amazon was far into the black. His success in gaining market share first put the squeeze on independent bookstores. Then the big chains felt the heat and Borders closed its doors. As far as ebooks are concerned, he hopes Google and Nook and Apple will never catch up.
All along the way he’s stayed with his strategy of losing money to achieve that domination. His latest effort in this regard is well-known in publishing and was nicely summarized in a recent Bloomberg Businessweek piece. Bezos is going head to head with publishers–offering huge advances to authors and promising astronomical royalty rates that no publisher can maintain.
As Brad Stone put it,
If history is any guide, Bezos, who declined to comment for this story, doesn’t care whether he loses money on books for the larger cause of stocking the Kindle with exclusive content unavailable in Barnes & Noble’s Nook or Apple’s iBookstores. He’s also got almost infinitely deep pockets for spending on advances to top authors. Even more awkwardly for publishers, Amazon is their largest retailer, so they are now in the position of having to compete against an important business partner. On the West Coast people cheerfully call this kind of arrangement coopetition. On the East Coast it’s usually referred to as getting stabbed in the back.
First the independents, then the chains, and now the publishers. Pretty soon, if all goes according to plan, only Amazon’s authors and customers will be left. Hmm . . . I wonder who should be watching their back next time? Regardless, I know Jeff Bezos will be smiling.