The Amazon-Apple Book Duopoly

The current landscape, why it is concerning, and what to do about it?

Hi everyone,
Greetings from Washington, D.C.!

Recently, I’ve been trying out audiobooks for the first time. I had always strayed away from them thinking that they would be bad for retention. I don’t think I was wrong about the retention piece but I do think that there is value in being able to consume narrative-based books like biographies and novels passively. I’ve enjoyed listening to books on walks, on cramped airplane seats, and in Ubers to and from. And as everyone knows, if you want to listen to audiobooks, you probably want to use Audible. Audible, of course, is owned by Amazon.

Which brings us to today’s topic — how the Amazon-Apple duopoly on books and the infrastructure around it is one of the biggest long term threats to freedom of information. And more importantly, what can we do about it?

The landscape

In some ways, Amazon the retail giant was enabled by books. In what is now tech legend, the story goes that fellow DC resident Jeff Bezos realized that books were the perfect item category to be sold online — it had so many “SKUs” that it was impossible for even the large bookstores to stock all of them. So Amazon started off as “Earth’s biggest bookstore” and the rest, as they say, is history.

Today, Amazon owns not only a large majority of the physical books sold in the United States, but also also almost all of the digital sales. To put some numbers around this dominance, book sales totaled around $1B in the U.S. with roughly an 80/20 split between physical books and ebooks1. According to some estimates, Amazon owns up to 70-80% of this $1B pie2. Even if those estimates are aggressive, those numbers suggest some serious concentration in the market. The company is so powerful that Senators who write about the “Tyranny of Big Tech” have to end up linking to Amazon pages of their books3.

And when it comes to e-books specifically, there is pretty much only one rival. Amazon had a significant first-mover advantage in the space and have solidified that lead through the ecosystem lock-in created by the Kindle. When the Kindle first launched in late 2007, Amazon priced best sellers at $9.99 to create this lock-in. This worked – through 2009, it sold around 90% of all e-books. Publishers were scared by this since most titles cost between $12 to $30. They worried that this would “permanently drive down the price that consumers were willing to pay for all books.”

Which brings us to Apple. In the scenario above, publishers were handed a lifesaver by Apple’s iBookstore, where they were allowed to price books however they wanted and give Apple a 30% cut. When MacMillan, one of the big publishers, demanded that Amazon adopt a similar pricing structure, Amazon delisted MacMillan’s books. They ultimately brought them back and since other publishers placed similar demands, Amazon’s ability to price e-books at $9.99 became limited. This was critical to a healthy ecosystem since publishers fund up-and-coming authors through the sales of bestsellers. Reduced revenue (and corresponding reduced profits) from bestsellers would have meant that publishers would not have been able to fund new authors – a critical component of a healthy information ecosystem. Although Amazon was thwarted in its attempt, the fact that the information ecosystem had to be saved by Apple is itself a testament to the immense power wielded by platforms.

But Apple’s walled gardens don’t get a free pass here either. Their 30% cut means that publisher margins are further squeezed. Even if you buy the argument that the 30% cut makes sense for apps and games that Apple uniquely enables, the company has done pretty much nothing for the book industry in terms of enabling innovation or increased security. At least Amazon made an e-reader!

Why is it important?

These platforms are dominant across many categories. So there is a legitimate question to be asked here about why their dominance in books is particularly important.

Intellectual Institutions

Well, books are one of our most cherished intellectual institutions and they will likely continue to hold that position. When John F. Kennedy was in the midst of the Cuban Missile Crisis, he would carry around and occasionally read excerpts from his copy of Barbara Tuchman’s The Guns of August about how World War 1 was started because of European nations’ inability to understand each other’s diplomatic nuances. According to Robert Kennedy, that book had a major impact on JFK’s thinking at the time. At the risk of sounding like a luddite, no TikTok video is ever going to prevent nuclear holocaust.

If access to all or most deliberative content is controlled by Amazon and Apple, then it is possible in the future that they restrict access to content contrary to their interests. Both have showed a willingness to censor or edit their selections in the bad — Amazon for economic reasons by promoting titles published by its own publishing house and Apple by limiting access to controversial titles because it sees itself as the arbitrator of what is good.

I cannot imagine that it is good long-term for a well-functionary democracy to have this much power over one of our most prized intellectual institutions concentrated in the private hands of two mega-corps.

Lost innovation aka deadweight loss

For the more libertarian minded in the audience, here’s an economic reason why this duopoly is suboptimal. Despite the fact that I believe the academic discipline of economics to be largely hokum, the concept of deadweight loss is particularly useful in explaining "lost innovation” in industries.

Because of Amazon’s superior pricing power and stronghold on the e-book market and Apple’s control of the iOS platform, they have been able to dominate the market. So they don’t really have a reason to innovate. The Kindle’s hardware and software has remained unchanged for years (decades?) now. Over on the Apple side of things, the story is not too different. The Books app has not received too much love from Apple in-house developers.

Losing talented writers

The final issue with the current situation is that new talented writers never see the light of day. When publisher margins are squeezed by tech platforms, they are unable to aggressively fund new and upcoming writers. These new writers are funded by the profits from existing, bestselling writing that the publisher co-owns with the author. This means that publishers will be less likely to take aggressive chances with new authors, ultimately leading to lower diversity of authors.

This is analogous to what is happening in Hollywood with the proliferation of sequels. Since each movie costs an increasing amount to create and market, the bar for success (critical yes, but mainly financial success) is much higher resulting in studios increasingly choosing safer bets in sequels of established movie franchises.

What’s Next?

So how we break this duopolistic structure? Well, part of the answer is not by breaking it all and simply doing an end-run around it. Couple of quick thoughts on what this looks like:

  • Online writing: Thankfully, we need fewer gatekeepers to offer us access to our audience today than we did 20 years ago. Example, for better or for worse, I don’t need anyone’s permission to write and share this newsletter. It’s completely free for me to do. And in my own small way, I have an audience of readers who are willing to read more things from me. If I ever wrote a book, the readers of this newsletter would likely be my first customers. It’s possible that I could publish the book via a number of file hosting sites and never need to go through Amazon or Apple. If I could do something like this, other people much smarter than me could definitely do it.

  • Genre-specific mediums: Some genres of high-quality writing will likely remain under the aegis of its own gatekeepers. Think medical or law journals. It’s tough for me to envision a world in which they are controlled directly by Amazon or Apple.

At the end of the day, what is most important is that we recognize the enormous power these platforms hold over our lives, especially when it comes to the information that we consume every day. It is surprising to me that this is not a larger part of the anti-tech rhetoric in media and on Capitol Hill.

3

See Senator Josh Hawley’s tweet here