The following is an excerpt from the June 3, 1999 Rule Breaker Portfolio.
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June 8, 1999
On Cutting Out the Middleman
Let's consider some arguments made against Amazon in Barron's last week. The Barron's cover story was enough to make me purchase my first Barron's in over two years. (It was fun to see that Mr. Abelson hasn't changed his tune since 19XX -- insert any year there, all the way down to 00. At least he's consistently bearish. Come the year 2000, he can just recycle his thoughts from the 1900s.)
by Jeff Fischer (TMFJeff)
Anyway, one issue raised by the Amazon article itself (not Mr. Abelson) was direct sellers -- Dell and Sony were given as examples. Book publishers could sell direct, cutting out Amazon, the article argued. We have mentioned that possibility here, too. However, it requires some thought; one can't merely toss out the possibility and then damn Amazon eternally. Barron's left out this thought.
First, the products sold by Dell and Sony are far different from books. They're much higher-end, durable items and they offer higher dollar margins, so selling direct makes more sense. With books, retailers only try to make a few quarters here and there on each sale, so a publisher isn't likely to offer a much more compelling price. Plus, there are thousands of book titles. Millions, actually. There are only dozens of core computer models. You buy computers based on brand and price. You don't buy books based on either. You buy books based on your interest and the author.
Now, most of us don't know -- off-hand -- who publishes our favorite authors. Come on. I couldn't even tell you who publishes Stephen King (not that he's a favorite, but I see his books everywhere, so he makes for a great example). The point is: I wouldn't know which publisher to visit online to buy a King book. Sure, I could search the Web for Stephen King and find a site devoted to him and find the direct book that way. But what about all of the other much lesser-known authors? You'll rarely find them that way. So what're you to do? Should you visit dozens of publishers online in search of a specific book? (Eventually you'll hit the right publisher!) Of course not. You visit a site that consolidates all books. The prices are already rock bottom.
Just because a producer/publisher/manufacturer can sell something direct doesn't mean that it will choose to do so. Many items (and I believe books are one of them) don't fit the direct model so well, because there are too many hundreds of thousands of products divided across too many publishers (in the case of books), and customers wouldn't easily know where to look to buy direct.
Barron's also said that a growing use of e-books could threaten Amazon. Of course, the author somehow forgot to suggest that Amazon actually stands to be one -- if not the -- leading seller of e-books. Amazon is already the leading seller of paper books online. E-books are little different. They still need distribution and promotion. Besides, they're even better to sell than paper books, because e-books can be sold at a much lower cost to a company than paper books. There's no real inventory involved. Just electronic inventory. Love it. E-books. I hope that they take off. Surely many online shoppers would download them at Amazon.