October 28, 2013

Is Amazon in trouble?


The Vasa, stern view

As seems to be happening with increasing frequency lately, a couple of weeks ago I got invited to another country, in this case Sweden, to speak about contemporary publishing, with especial emphasis on Amazon. (In Stockholm they told me they were looking forward to Amazon entering their market because digital sales, which are still in the low single digits there, are controlled by Sweden’s largest publisher, which is also its largest retailer, and they all think this publisher/retailer is a bit difficult to deal with and could use some competition. What else could I possibly say? I told them careful what you wish for.)

While I was there Valerie and I had some time to kill before my speech and my host, the country’s hottest young publisher, Richard Herold of Natur & Kultur, told us we should visit this one particular museum that had an old ship in it rescued from the deep. Not the sort of thing we’re normally into but Richard is a very convincing guy and it was close to our hotel, so off we went.

And the damn thing was astounding. What it was, in brief, was a 300-year-old warship lifted from the muck at the bottom of Stockholm’s port, which had preserved it almost perfectly intact. It seems that in the mid-1620s the king of Sweden, which was a superpower at the time, decreed that Sweden was going to totally overwhelm its competitors (Poland, Russia) for control of the Baltic by building the biggest warship that ever was. Whereas warships of the day typically had 24 cannons, this one was going to have 64. His shipbuilders told him that many cannons, that much weight, was beyond the technology of the day. The king said build it anyway. He also told them to make it big enough to carry 450 soldiers (for boarding your ship after the cannons have hammered it), which was far more than usual. And he wanted it to be festooned with intricate woodwork and sculptures to make it an awesome site, beyond the fact that it was simply bigger than anything anyone had ever seen.

The Vasa launched quai-side to the royal palace on August 10, 1628, to huge fanfair. People thronged the surrounding docks, small craft filled the harbor, and all were treated to a thunderous salute from the Vasa’s cannons as it set off.

Then a slight wind came up, the boat listed slightly, all the cannon ports took in water, and the Vasa sank like a stone. Within minutes of its launch, it was at the bottom of the harbor.

Much as I hate neat analogies like this, I couldn’t help but think of the Vasa when I read this week’s news about Amazon. Because it was apt in a way that reflected the way many of us wanted to read that news, and because it was the kind of news that would have sunk another company.

First, there was a story in the New York Times by David Streitfeld — who continues to be the most perceptive Amazon reporter in the country — about the fact that Amazon just doesn’t make any money. Never has. I might have mentioned this before.

Then, the next day, there was the announcement of the company’s quarterly earnings — or rather, its quarterly losses. Once again, Amazon had generated mind-blowingly huge sales ($17.09 billion), but had managed to lose money nonetheless, as it has quarter after quarter after quarter for a total of 18 years now. (And yet, as another killer Times report by Streitfeld noted, “Investors broke out the Champagne. In after-hours trading, the stock was up $29, or 8 percent, to $361. The stock is up nearly tenfold since 2008.”)

Then, the next day, came a Shelf Awareness report proclaiming “big news” — that is, that it may be all over for Amazon’s New York publishing imprint (which looked a lot like a Big Six house — you know, the kind of house Amazon claimed was so antithetical to the interest of readers). As the SA report put it,

Big news concerning Amazon’s attempt to become a major force in U.S. book publishing: Shelf Awareness has learned that Larry Kirshbaum, editorial head of the company’s New York and Seattle adult imprints and children’s publishing, is leaving the company early next year and returning to agenting. In connection with his departure, the most ambitious part of Amazon’s publishing operations will be scaled back. Already several editorial people have left or been let go, and Amazon has not been a factor in bidding on major books the way it had been just two years ago.

Of course, there was a lot about that launch two years ago that was suspect to me. It came hard on the heels of the 2008 crash, for one thing, an event which had forced the Big Six publishers to curtail some of their more egregious excesses— for example, the insanely high advances that had become rampant at that point. Thus, when Amazon came in offering enormous advances for really silly books that seemed guaranteed not to earn out (Penny Marshall) it seemed clear to me that at least part of its intent was to simply destabilize big publishing — which, notably, had embraced agency pricing at that point. And sure enough, the dunderheads at the Big Six houses decided to get back in the arms race and resumed offering huge advances on deeply questionable books.

In any event, the news on Shelf Awareness swept the industry and made for a giddy Friday. I found the Twitter feed of Geoff Kloske, the head of Riverhead Books (to me maybe the most brilliant publisher in Big Six publishing and certainly the funniest) to be a very fun place that day. He rebroadcast retro article after article lauding Amazon for hooking up with Kirshbaum and the “seismic” impact it was going to have on American publishing.

Meanwhile everyone else seemed to revel in the notion that Amazon had failed as a publisher because — irony of ironies — it couldn’t get its books into bookstores. As Laura Hazard Owen noted in a report for Gigaom, “things didn’t go as planned” for Amazon because brick-and-mortar bookstores simply refused to carry its books. As Owen detailed, formerly bestselling mercenaries such as Four-Hour Chef cookbook author Timothy Ferris found themselves in trouble after joining Amazon:

When The Four-Hour Chef was published in 2012, he tried to promote it as “the most banned book in U.S. history” based on the fact that Barnes & Noble wouldn’t carry it. But it never hit the general New York Times nonfiction bestseller list the way Ferriss’s previous books had.

It was all telling in a week in which, as another devastating New York Times story from last week detailed, a new book about Amazon —- The Everything Store, by Brad Stone — detailed how Amazon founder Jeff Bezos had decreed the company “should approach … small publishers the way a cheetah would pursue a sickly gazelle.” There’s no way around it: that’s some really sick shit, and it was hard not to feel a particularly delicious sense of schadenfreude about the news that Amazon had been hoisted on its own petard.

But does this all mean Amazon is really in trouble? Or even that it’s going to realize how important bookstores are to us all? In a word, no.

Yes, the rats are clearly deserting the ship at Amazon Publishing, and good luck to them finding jobs in the houses they deserted. But also note: As Alexander Nazaryan reported on the Atlantic Wire, Larry Kirshbaum is embroiled in a sexual assault case, which may have given Amazon a ready excuse to scapegoat him.

And this is, after all, a company that doesn’t have to make money, as we’ve noted above. Given its sanctification by the Obama administration, and by Wall Street, it seems unlikely that Amazon is going away any time soon.

Still, the news last week was not nothing. Among other things, it was a reminder that the company may, after all, have to respond to financial gravity. First, there’s the simple proliferation of articles such as Streitfeld’s, above, about how Amazon is simply not making money. Surely at least a few of Amazon’s investors know how to read.

Thus it seems clear, as most financial experts acknowledge, that Amazon’s stock — inflated by over 300%, even more than that of Apple, which is the most profitable company in history — will disintegrate about five minutes after the company stops growing. (The main reason, of course, that it keeps growing as demonically fast as it can. Hello Sweden!)

And as reports circulate that Microsoft is looking to put Bill Gates out to pasture, we’re reminded that, well, every czar has his day.

So was last week’s news cause for celebration or not? Well, at the very least, it was notice that Amazon has conceivably moved on from the book business, and not without bruises. But it’s got bigger fish to fry, and that may represent a good moment of strength-building for the book industry.

Meanwhile, whatever its business — books, electronics, clothes, music, or the everything of its marketplace clients — it’s also clear that Amazon is incurring costs at a record pace. Opening warehouses in state after state, country after country. Suing each of those places in turn — suing states and entire countries — over their insistence that it should pay the same taxes everyone else has to pay, or that it abide by their net pricing laws. Then there are all the labor lawsuits … Costs, simply, are mounting, and some of them are becoming fixed. (As Andre Volgin speculates in an analysis at Seeking Alpha, “Amazon may have reached the point where the economy of scale turns negative, i.e. further growth leads to more expenses, not less.”)

The chickens will come home to roost someday, but it doesn’t seem likely to happen soon. Still, last week may have been a healthy reminder to us all that, as the king of Sweden once found out, you can be too greedy, it’s possible to have too many guns, to be too big … and hubris can definitely sink you.


Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.