What Does Amazon Mean For Australia?
What Does Amazon Mean For Australia?
Annie Chapman
Amazon is coming to Australia – that much is known. What is less certain is how this will impact on the Australian publishing and book retailing sector. There is a tendency to demonise corporate giants – and Amazon certainly has its critics. The company has been described as a ‘ruthless, money-making devil, the consumer’s enemy’.
I set out to explore how the twenty-two years of Amazon’s existence has influenced the sector and what this might mean when Amazon launches in Australia later in the year.
Amazon is striking for its clarity of vision. This more than a company that has simply ridden on the back of the massive expansion in the internet. Each year Amazon’s annual report includes the letter that the founder, Jeff Bezos, sent to his shareholders in 1997, two years after the company went public. In this he talks about the need to stay in what he calls, Day 1; characterised by customer obsession, experimentation, the preparedness to fail and ‘high-velocity’ decision making. In contrast, Day 2 is stasis—followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.
Even though Amazon’s origins lie in selling books online, this wasn’t out of a love of literature: Bezos found a niche that could be a springboard for growth into an ever-widening network of products and services. Amazon is distinctive for being at the forefront of a changing landscape. It challenges existing ways of doing business by focusing with forensic intensity on its chosen markets, products and services, and making decisions on the back of sophisticated analytics and investment in infrastructure.
Like other successful global businesses Amazon has been accused of competing unfairly, taking advantage of differences in international law and tax frameworks, while regulators strive to catch up. For example, in May 2017 the European Commission made legally binding Amazon’s promise to remove its ‘most favoured nation’ clause from e-book contracts that required publishers to give Amazon similar or better terms as to those of its rivals. Also, the UK tax authorities have recently removed a loophole that allowed Amazon to book UK income through the low tax jurisdiction of Luxembourg. Although this hasn’t stopped James Daunt, chief executive of Waterstones UK, from accusing Amazon of exploiting the tax system in an ‘unconscionable way’.
But what foundation is there in Daunt’s broader accusations that Amazon is destroying the industry? Tax-breaks are not enough to do this. Yet the UK, where Amazon has been operating for over 20 years, has seen a sharp reduction in the number of independent bookstores, falling from over 1,500 in 2005 to 867 in 2016. However, attributing this solely to Amazon’s accounting practices is simplistic. This period coincided with the start of supermarkets selling new releases as loss-leaders, e-books entering the market, and the banking crisis and recession – which, together with a dramatic interest in local government business rates, have crippled many small businesses.
There is also scope for optimism. The total number of bookstores in the UK increased by 40% between 2013 and 2016 (from 2,759 to 3,862) and E-book sales have plateaued. The sector has adapted and those stores that offer a personal service are doing well. Distinctive offerings include quirky and attractive store fit outs, knowledgeable staff, subscription services, and ‘reading spas’ offering one-to-one consultations in ‘bibliotherapy rooms’ over tea and cake.
What about Amazon’s impact on publishing? Over 50% of all traditionally published book sales in the US were through Amazon by 2015 and around 85% of non-traditionally published books; trends are similar in other countries where Amazon is based. Views are polarised about whether this is a bad thing, with some commentators suggesting that Amazon gave a much-needed impetus to change in a sector that had been slow to innovate. A reduction in the number of physical sales outlets has certainly had an impact and few have yet matched the efficiency of Amazon’s distribution capability. But Amazon has also created new distribution channels for independent publishers and self-published authors. Ed Handyside, founder of UK independent publisher ‘Myrmidon’ compares Amazon favourably with other distribution channels. It is, he says,‘democratic’ – there is no front and back list and all publications are showcased in the same format—marketing is cheap and systems are efficient; payment is prompt and there are no returns, making the cost of sale cheaper than through physical retailers.
What conclusions can be drawn? Australia is a relatively isolated and small market. Amazon will work towards a long-term return on its investment and will offer attractive deals to attract readers: complacency is not an option. In April 2017 the Economist reported that ‘Amazon’s epic journey is forcing companies to lower prices and to improve products or to suffer’ (The Economist, March 2017). Publishers already work in a global market and have been adapting to international competition and technology-led change, so it seems likely that Amazon’s physical presence will have the greatest impact on book retailing. In March 2017, the Commonwealth Bank reported that only a third of Australian retailers saw Amazon as a threat, and of these only 14% had a strategy to deal with it. Although 26% of book sales now go through independent bookstores and the sector is vibrant, this can’t be taken for granted. Related businesses are already waking up to the challenge, for example Australia Post is reported to be looking at ways to support Amazon, by ‘offering a wider range of services that customers want’, including Saturday deliveries (The Age, April 8, 2017).
The Australian publishing and book-retailing sector must engage with the future and innovate – whether through creating personalised services, streamlined structures and processes, or new offerings. The sector has been given a wake-up call, and if it wasn’t for Amazon another technology-led company would be stepping into the space. Amazon has succeeded through its obsession with the customer: it offers choice for the reader, competitive pricing, effective distribution, and a platform for new and established writers. This lays down a challenge to which the Australian book retailing and publishing sector must rise.