Amazon vs. Barnes & Noble: Case Analysis

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Table of Contents

Introduction
Review of the Issue
Publishing
Switching Publishers
Having Previous Relationship with a Publisher
Acquisition
Conclusion
References

Introduction

Amazon’s aggressive strategy for acquiring exclusive rights for the representation of their writers has led to a conflict between the company and owners of other distribution outlets. This paper will analyze the battle between Amazon and Barnes & Noble.

Review of the Issue

The battle between the two publishers started in 2001 with Independent Publishers Group (IPG), the second-largest book distributor in the United States, denying Amazon the renewal of the agreement to sell Kindle titles. Amazon countered the attack from the industry by signing contracts with the two major press distributors Perseus Book Group and National Book Network, soon after the IPG’s announcement (Herther, 2012).

In January 2014, the management of Barnes & Noble decided against selling Amazon published books in their brick and mortar retail stores (Herther, 2012). The decision was taken in response to Amazon’s aggressive strategy for acquiring exclusive rights for the representation of their authors, agents, and publisher. The move was followed by the second largest B&M retailer Books-A-Million and by the electronic bookseller IndieCommerce (Herther, 2012).

The losses from the sales of Barns & Noble’s electronic book readers were offset by the revenues from the book sales up to the fourth quarter of fiscal 2013 (Trachtenberg, 2013). At that time, the company saw the 10% reduction in Nook sales and 24% decrease in earnings (Trachtenberg, 2013). The bookseller explained its financial losses by the high rates of write-downs on electronic reading devices, goodwill impairment charges that amounted to $18 million and lower sales in brick and mortar stores (Trachtenberg, 2013). According to its financial report, the company generated $475.4 million in losses (Trachtenberg, 2013). Barns & Noble decided to retreat from the competition with Amazon’s Kindle and stop producing color tablets.

Publishing

Even though around 60 percent of the electronic book market is in Amazon’s control, its share of the print book market is only around 15 to 40 percent (Herther, 2012). It means that notwithstanding the company’s dominance in the e-books business, it still has room to grow (Herther, 2012). The company’s decision to move into the publishing business was the risky one. It was related to various pushbacks from its competitors, including the resistance from the American Booksellers Association and IPG (Herther, 2012). The rapid acceleration of Amazon’s publishing program started with the publishing of 122 titles in the fall of 2011 (Herther, 2012).

The response from the publishers and resellers was harsh. The chief buyer for Politics & Prose Mark LaFramboise said that the store will not sell books published by Amazon in the attempt to deny support to company’s “publishing venture” (Krug, 2012). The decision to boycott Amazon’s titles was also followed by Barnes & Noble who prohibited storing New Harvest books on the shells of their 689 brick and mortar stores (Krug, 2012). Therefore, it can be argued that the publishing move was not wise because the company failed to predict the extent to which both large and small, independent publishers could collaborate.

Switching Publishers

On the one hand, changing a publisher is a risky venture that has to be avoided at all cost, on the other hand, a shifting digital landscape might offer new benefits for established writers, which were not previously accessible to them. The growing competition in publishing means that only the companies empowering their authors will be able to stay ahead of their rivals. Moreover, the future in the business will be reserved for those companies that are willing to reveal their marketing strategies to their writers or to provide them with the sales data (Streitfield, 2014).

When deciding whether it is worth to approach Amazon, a popular writer has to consider whether the new publisher will be able to provide them with the avenues for staying competitive and having the ways to effectively reach their readers (Friedman, 2012). A successful novelist Vincent Zandri argues that not only Amazon is able to offer those things to a writer, but that the company has made the impact on the industry that is similar to the effect of the arrival of the movable type (as cited in Streitfield, 2014).

Therefore, it is highly recommendable for the author of the popular children’s fiction to switch to Amazon, the publisher whose main focus is a writer. Moreover, while other traditional publishing companies offer only around 15 percent of a book’s cost in royalties to a writer, Amazon provides them with 35 percent or more from a digital book price (Streitfield, 2014).

Having Previous Relationship with a Publisher

A new writer working on the first book would have a better deal signing their contract with Amazon. It would be a more advantageous move from a financial standpoint, considering the high royalty rates the company offers to its writers. Moreover, Amazon does not give preferential treatment to any group of authors. Regardless of the writer’s standing with the publisher, every book could be easily found on their website. Moreover, it is Amazon’s philosophy to fundamentally change the nature of writer-publisher relationships so the authors would be more empowered (Streitfield, 2014).

On the other hand, self-publishing authors could have a worse deal if they decide to enroll in Direct Publishing platform. In 2015, Amazon decided to transform payout system so it would be better aligned with the customers’ reading habits (Chakrabarty & D’Souza, 2015). The new rules were applied to the books available at Kindle Owners’ Lending Library. Even though writers can set their own prices and edit books at any moment, the amount of royalties was tied to the number of read pages (Chakrabarty and D’Souza, 2015). Therefore, self-publishing writers might have to consider approaching one of the Big Five publishers.

Acquisition

The substantial reduction in demand for physical books aggravated by economic decline constitutes a significant threat for Barnes & Noble. Moreover, with the decrease of funding of educational institutions supported by the United States government, college enrollment rates will also drop (Best, Zeigler, Smith, Whitley, & Cornwell, 2010). This means that textbook segment of Barnes & Noble sales will become substantially smaller. Therefore, it is highly recommended for the company to make a transition from the sales of physical books to the electronic market.

Currently, an acquisition is not a feasible solution for the Barnes & Noble as it owns the largest share of the magazine industry, and has the gross margins higher than those of Walmart and Amazon. Moreover, the company’s share of the electronic market is 20 percent, which is even higher that its original market of physical books (Best et al., 2010).

Conclusion

Vertical integration of Amazon poses a significant threat to Barnes & Noble. The reduction in decline for physical books aggravated by increasing competitor pressures calls for the new economic strategies, which would retain company’s share in electronic books market.

References

Best, S., Zeigler, J., Smith, C., Whitley, J., & Cornwell, J. (2010). A case analysis of Barnes & Noble. Web.

Chakrabarty, S., & D’Souza, S. (2015). Amazon to pay self-published authors based on pages read. Web.

Friedman, J. (2012). The Future of the Author-Publisher Relationship. Web.

Herther, N. (2012). E-book Wars: Amazon Versus the Rest. Searcher, 30(1), 20-30.

Krug, N. (2012). Amazon books getting no shelf space. The Washington Post. Web.

Streitfield, D. (2014). Feed the Beast (or Else). New York Times. Web.

Trachtenberg, J. (2013). Barnes & Noble Retreats as Tablet Wars Heat Up. Wall Street Journal. Web.

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