Big tech won't save you

Audiobooks, Amazon, indie authors, and the need for a more competitive market

Big tech companies like to strike a benevolent tone. Flush with high gross margin revenues, the largest — read: wealthiest — technology concerns do quite a lot to appear more wholesome than mercenary.

Some of it is even sincere. Microsoft’s call for gay marriage to be legalized in Washington state back in 2012, for example. That was early by corporate standards, and even by mainstream political views at the time.

Mostly, however, big tech companies become more like other big companies over time, jealously guarding historical wins and working to extract more value from their market. We dug into this matter the other day, discussing customer surpluses, and why startups matter when it comes to attacking incumbent corporations to ensure that value distribution is protected through the churn of creative destruction.

Today we’re discussing just how far big companies — tech or not — will go to lever their scale to power continued growth, and therefore relevance to the investing public. Naturally, we’re going to talk about Amazon.

First, disclosures. I am a long-time Amazon Prime subscriber, Amazon shopper, and a recent convert to audiobooks thanks to Audible, an Amazon subsidiary.

As a new parent who often needs something now for the kiddo, I don’t want to admit how many deliveries from the company have arrived at our house in recent weeks. I have made some peace with the fact that Amazon is an inescapable part of my personal consumer life, much the same way that it’s not too useful for me to fret about how Amazon is monetizing AWS; it’s part of life, so you get on with things.

Audiobooks, however, are a little bit different. They deal with art, and often small-time producers of art struggling to generate meaningful income from their creations.

You could argue that Amazon’s warehouse culture is ethical, that its anti-union agitations are simply capitalism in action, and that the company’s debasement of its online store into an obfuscuated advertising engine is just how things go. I don’t agree, but that’s not too important.

Books, though. Recently mega-author Brandon Sanderson discussed his publishing choices regarding his latest work, his reader-backers, and why they won’t be on Audible. The following paragraphs kicked up a lot of dust:

If you want details, the current industry standard for a digital product is to pay the creator 70% on a sale. It’s what Steam pays your average creator for a game sale, it’s what Amazon pays on ebooks, it’s what Apple pays for apps downloaded. (And they’re getting heat for taking as much as they are. Rightly so.)

Audible pays 40%. Almost half. For a frame of reference, most brick-and-mortar stores take around 50% on a retail product. Audible pays indie authors less than a bookstore does, when a bookstore has storefronts, sales staff, and warehousing to deal with.

I knew things were bad, which is why I wanted to explore other options with the Kickstarter. But I didn’t know HOW bad. Indeed, if indie authors don’t agree to be exclusive to Audible, they get dropped from 40% to a measly 25%. Buying an audiobook through Audible instead of from another site literally costs the author money.

How does Amazon get away with such injurious rates? Massive market share. Estimates vary, but it appears that Audible controls around two-thirds of the domestic audiobook market, and perhaps more in other countries.

Even more, authors are likely loathe to annoy Amazon over audiobook rates given the company’s massive position in the print books space, where its market share continues to grow. As audiobooks are a fraction of the larger books market, perhaps it’s not worth rocking the boat too much if you are an author who does well in print. (Points to Sanderson here for taking a public stand.)

That doesn’t excuse the rates that Amazon charges for audiobook distribution. Its payment scheme is brutal, and selfish, and born of the fact that Amazon is a monster in other areas of the market; a lack of functional competition in audiobooks, thanks in part to Amazon’s fabulous wealth and parallel power in other parts of the books world, allows it to reach into the pockets of indie authors and effectively take most of their potential revenues.

The Maya Angelou rule that when someone shows you who they are, you should believe them is useful here. This is how Amazon acts when it has the clout to do so. And Amazon is not taking on other corporations here, moneyed foes who might be able to fight back. Instead, Amazon’s taking indie authors to task, essentially forcing them to forgo alternative distribution options if they want to be able to collect a slightly less miserable royalty rate so that they want to reach audiobook consumers, which the company is working to corner.

What a bunch of ghouls.

We often consider the power of big companies through the lens of their ability to crush or buy competition. Perhaps we should spend more time considering what the largest, wealthiest, and most distributed companies out there can do to suppliers as well. (This is related to why we should care about how Amazon externalizes the massive human costs of its delivery system, effectively outsourcing exploitation through third-parties. But we digress.)

What we need are controls halting companies from getting too big, and a wave of startups hungrily circling incumbents at all times. The bigger we let the wealthiest tech companies get, the more customer, consumer, and supplier surplus they will consume.

Amazon is not alone in its worrisome, and never-ending need to swallow more GDP. Microsoft is currently busting hump to to buy Activision-Blizzard for around $69 billion. Why does Microsoft, an enterprise software company, consumer hardware concern, operating system builder, search engine provider, and more, need to own an even larger chunk of the gaming market? Because the bigger Microsoft gets the harder it is to topple.

It may seem unfair to say that the Amazon audiobook example is a good argument for why Microsoft shouldn’t be allowed to buy the makers of Starcraft, but it’s worth recalling that Audible was once its own company. Now it’s a usurious fief of a company too big to stop. The lesson here from those of us not employed by a massive technology concern — hey mom, look at me! — is that we need a stronger national regulatory posture to ensure a more competitive market. From startup founders to indie authors it’s better if we don’t let any company get too big as it will just work to get bigger, at the expense of others with little that can stop it.

The featured image on this post is an excerpt from a piece of Mayur Deshpande’s work, whom I wish to thank.