Back at the turn of the millennium, I was involved with Chemdex, the first successful and large B2B marketplace endeavor. The major disruption that brought Chemdex an almost immediate $6 Billion market capitalization was in displacing the supply chain with the power of electronic commerce, reducing the drag of the middlemen/distributors and providing the power of that efficiency in the form of lower costs to the buyer and higher margins to the supplier. What has become the online retail juggernaut, spearheaded by Amazon, was still young and endeavoring to prove itself, but proving for the world both the efficiencies of the new mechanism and providing a nascent model of how things might be.
More than a decade later, we're seeing what was a brave new world mature into the way things are done and the tried and true forces of the market economy are clashing. I'm referring to the battles we're now witnessing between Amazon and the traditional book publishers, specifically (and currently) Hatchette. Book publishers are the original "middlemen", the archetype of how distributors can insinuate themselves in an economic food-chain by providing a (ultimately indispensable) high value-added service to producerw of a good and its customers.
Corey Doctorow, famed author and contributor to BoingBoing.net, recently penned an article for the UK's Guardian newspaper outlining how Hatchette willingly signed over the control of their electronic books business to Amazon, a decision they now regret. Doctorow's point is that Hatchette allowed Amazon to "usurp control over its relationship with its customers", intimating that it got caught by a trap in US copyright law that gives Amazon control over the digital rights management of the content it provides on intellectual property to its customers. Doctorow's not so concealed agenda is to slam Hatchette's decision, as publisher, to force DRM onto content it publishes. While I must admit to leaning in the direction of Doctorow's sentiments that DRM is the enemy of information in a free society (and a market economy), I do think the argument is a bit too simple, pandering to the currently sky-high emotions on the subject and taking advantage of bone headed business strategy on the part of content owner/distributors and (unfortunately) obscuring the important nuances of this critically important evolving area of business, culture and law.
In short, books published by Hatchette (one of the globe's "big five" publishers) have not been available through Amazon.com as of late. Amazon has taken away the pre-order buttons on forthcoming Hachette titles, and current Hachette titles are not for sale. This situation is a result of the failure of Amazon and Hachette to come to terms on their next ebook sales-deal. Amazon is aiming directly at, and well poised for, taking over the biggest book publishers' role as the de facto means of providing content from creator to consumer. Note that I said "content" and not books, "creator" and not "author", "consumer" and not "reader". Book publishing is the exemplar, but the model of, as I'm sure you have figured out by now, the much bigger world of content that includes what we now think of as music, movies, television, et al. The fulcrum for Amazon's leverage in this relationship is that copyright control over an ebook essentially rests with the ebook retailer, the corporate persona who encrypted the content with DRM. This same principal also would apply for music or video. It means, in short, that only Amazon can unlock or remove the DRM from the content it sells *legally*. Can't an app that "cleanses" the content easily be crafted and distributed? Sure. But it is illegal. The law currently protects the provider of the digital rights management software, as codified in the Digital Millenium Copyright Act.
Doctorow (one of my favorite authors and journalists, by the way) would have us believe that it is precisely because of Hatchette's success in selling its ebooks through Amazon that is the problem; that Amazon's only contribution was to "run the book through a formatting script that locked it up with Amazon's DRM". Indeed, Hatchette is keenly aware that Amazon is head and shoulders above its competition as a successful distributor of ebooks and it s precisely this success, its reach as a distributor and retailer, that it wishes to leverage to reach Amazon's customers to further its own objectives as a publisher of content. But Amazon's contribution is not limited to just adding DRM... In fact, it is Amazon's reach that Hatchette's marketing team lusts over; the fact that Amazon has successfully created a retail juggernaut that has brought the technically uninclined, en masse, to the digital table. If profits are to be made here, hand-over-fist or otherwise, it is because Amazon has created the gravitas that brings those customers and turns the key one their desire to plunk down their hard-earned cash on content. Its about a robust retail eco-system that makes it easy to find/discover and purchase what you want, the ability to consume it easily (in fact, enjoyabley and "better" than they had previously) and at a price that caught their attention in the first place. User/Consumer-friendliness is the golden thread binding the customer here, not DRM. What Hatchette, Doctorow and all of us need to comprehend: DRM isn't the object of force here. Its usability...utility. The reason that Hatchette (and the other big publishers...and the big players in the RIAA and the MPAA) come to Amazon instead of just playing with Apple, Google, Kobo, etc, is because Amazon has the customers they covet. Amazon has spent 20 years building a customer locus with the next generation of gravitas. If you are surprised (as Doctorow appears to be) that they exercise methods akin to those of Wallmart in squeezing their suppliers, then you are naive. Wallmart puts the bear hug on its suppliers to squeeze cost (supplier and distributor profit) out of products so they can offer a more competitive/attractive product offering to their customers. As a result, they have a customer base that every supplier HAS to access. I'm no merchant, but this seems like Retail 101 to me.
While I think that, ultimately, publishers and Amazon will find that removing DRM benefits them with customers (as Amazon has already discovered with music - a move they used to win customers over to Amazon Prime from iTunes in their battle with Apple), it is already apparent that DRM is NOT what's the key attribute here that gives Amazon over the customers that they currently battle with publishers over. It is usability, convenience, price and access. In each, Amazon finds their investments have paid off in creating them.
For those of you who haven't contemplated this tectonic shift in business power with the same keen interest as the "technorati", realize that this really is the modern replay of what happened in the early 19th century with the rise of publishing interests, who held the ability to print books (a capital related concern, mostly) and distribute them to a nearly monopolistic sense. The foundations of this now awesome power are being torn down by the digital technologies we all so love and should illustrate exactly the kind of business threat ALL business leaders should ALWAYS be thinking about. That Hatchette, the other big publishers, Barnes & Noble, the major newspapers and magazines, the movie companies and television networks haven't been thinking this way after watching what's happened to the music publishing industry just illicits a big "tsk tsk" from me. Who is next? If you know, start a venture capital fund. :-)