Will Amazon Wipe Out the Competition?
It’s no secret that the case of Apple (NASDAQ:AAPL) and book publishers versus the U.S. Department of Justice is turning out to be all about Amazon.com (NASDAQ:AMZN). But will a judgment against Apple make things worse for Amazon’s bookseller rivals already struggling against the online retailer’s largesse?
The bookstore Borders declared bankruptcy last year, and though Barnes & Noble (NYSE:BKS) has put up a brave fight, buoyed in large part by the launch of its own e-reader, Nook, it is increasingly under more and more pressure e-book sellers undercutting it on prices, and has already cut its guidance for this year. If Apple loses or settles and Amazon is allowed again to set its own e-book prices, which before Apple’s pricing model were often $9.99 or less, its rivals will have a tough time staying in the field. After all, not everyone can afford to shoulder low margins on high volumes as part of a long-term strategy.
“Cutting book prices has been their strategy all along,” BCG Financial technology analyst Colin Gillis told CNNMoney. “Everyone’s hyping this [suit] up as some good move for Amazon. All this means is that they can sell e-books at a loss. And they’ll do it.”
That would mean there is a very real possibility of Amazon turning into somewhat of a monopoly in the e-book space, giving it even more power than it currently has. It may or may not use that power to eventually raise prices to levels of profitability, but it will certainly have the power to determine which publishers appear on its store and which don’t.
That may also translate into a limited choice for book authors as well as consumers. “The DOJ’s suit focuses entirely on helping the consumer in the short-term, but we need to look at authors and retailers,” Navint Partners’ Rob Sullivan told CNNMoney. “If you fundamentally limit their choices, they may not ever get books published. And that translates to a losing situation for consumers, too.”
So, while the current scenario makes it seem as though the lawsuit is in the best interests of the consumer, in the long term, the opposite may prove true. And that would spell bad news not just for readers, but for publishers and sellers as well.