Amazon Vs. Hachette: Fewer Middlemen Equals A Better World

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AnandTech Founder Anand Lal Shimpi Retires From Writing

Editor’s note: Josh is a Venture Partner investing in technology start-ups at Sigma West. Josh was the fourth employee at global online freelancer marketplace oDesk, where he was in charge of sales, marketing, product marketing and business development.

By now everyone is well aware of the ongoing battle between Amazon and publisher Hachette. The thing is, we all know how this story ends; we just don’t know when it will be over. This one does not have a David vs. Goliath ending. Goliath is going to win — and that is a good thing for the world.

An investor in oDesk once said, “Two middlemen seems like one too many.” It was a pivotal statement that solidified the early focus on providing direct connections between employers and freelancers anywhere in the world. Everything we did in the early days of oDesk to support and benefit these direct connections paid off. Everything we did to accommodate other middlemen in the process was a waste of time.

I’ll be the first to confess that I know basically nothing about the book publishing industry and look forward to being enlightened by readers’ comments. Until then, this is how I see it as a marketplace investor with Sigma West.

Hachette is a middleman. So is Amazon. There should be only one.

The arguments for Hachette go something like this: without great publishers, there will be fewer great writers, and emerging talents will have a harder time establishing themselves. For at least 900 authors, this is a scary proposition. Publishers do provide valuable services of talent discovery, quality control and distribution. But let’s look at each one of these points and see how things could be better with fewer middlemen.

Discovery

Take a look at Apple’s App Store. They’ve effectively destroyed the old guard of video game publishers. It’s only in the last few years that an independent game developer from Vietnam could end up with the No. 1 game in the world. That developer probably never would have been discovered by EA. Platforms like the App Store or Amazon can do a better job of talent discovery than the status quo, because they lower the barriers to entry for aspiring app developers or authors. They give everyone a chance. I don’t hear consumers complaining about the lack of good games available. On the contrary, mobile gaming is hotter than ever.

A platform like Amazon will get data about user conversion rates and user ratings much faster than anyone else and can let the cream rise to the top. Granted, they will not discover authors before they ever write a book, but as soon as a title is available for sale, Amazon can take care of the rest. An aspiring author that self-publishes a title that resonates with readers will rise to the top of the charts in a meritocratic platform like Amazon. We should be embracing meritocratic platforms.

Quality Curation

Others have argued that Hachette and other publishers are necessary for quality curation. They do have many great editors. However, I can assure you that platforms like Amazon and all other marketplaces consider quality curation a top priority. Amazon demonstrated this priority in 2005 when it acquired a company called BookSurge, which provides editing and printing services to independent authors. BookSurge has since merged and rebranded as CreateSpace. CreateSpace may not be the best service, but as with many things at Amazon, they start with an experiment and improve the service over time. Platforms like Amazon want to make it easier and cheaper for anyone to publish great quality content. They have a long way to go to improve the service, but either they will get there or a new marketplace for high-quality editors or independent publishers will spring up.

Distribution

Amazon is unquestionably the best distribution platform for authors. Nobody else is even close. The value of being able to distribute across various different brick-and-mortar bookstores is diminishing every day and the ability to intelligently optimize digital distribution is now of paramount importance.

The bonus for authors should be increased earnings over time. This is critical – great authors must have the incentive to work with fewer middlemen. Increased efficiency in the process means that prices can come down and authors can make higher earnings overall. They will sell more and retain a higher percentage of earnings since there are fewer big hands in the cookie jar. See here for a review of Amazon from a small independent publisher and their payment policies.

The bonus for the world is that eliminating middlemen makes the world more economically efficient and maybe even more educated. Prices come down and the amount of reading goes up.

The lessons for other marketplaces here are straightforward. Align the incentives of the buyer and supplier and, if possible, ignore the incentives of other middlemen. Provide the tools necessary for individuals to thrive and help them achieve their full potential. Empower aspiring professionals, lower barriers to entry, let the cream rise to the top, and make sure you’re the only middleman left standing.

Featured Image: Maglara/Shutterstock