The ethics and economics of how Amazon negotiated with small book publishers
“I don’t remember it”, testified Jeff Bezos at the Congressional antitrust hearing held last month, referring to a popular (yet infamous) project undertaken by the books’ division of Amazon back in the days when it was eyeing to build an aspirational ‘comprehensively stocked digital library’ through the Kindle. The project, as Brad Stone notes in his book on “The Everything Store”, emerged from a comment Jeff Bezos made in a meeting while discussing the on-boarding of book publishers for the digital library – “Amazon should approach the small publishers the way a cheetah would pursue sickly gazelle”. Here started, what became popularly referred to as the ‘Gazelle Project’. In this post, we take a dive into this project that helped it build the customer-convenient digital library it has today, from business and ethics lenses.
Cheetah’s business prudence
Amazon has always ensured that customer centricity is given ultimate priority. When it was building its e-library, this priority led to a quest for subsidizing book prices for customers and launching programs like ‘Super saver shipping’ and ‘Amazon Prime’. However, customer centricity did not veil its uncompromising goal of profitability. And, when these two objectives co-exist, it is the suppliers (in this case, book publishers) who face the heat. To meet the promises they made to customers under the various customer programs, Amazon negotiated with small publishers on demands of steeper discounts, longer periods to pay bills, favorable shipping arrangements. Needless to say, they were offering a platform for the publishers to reach the larger audience in return.
Well, such negotiations are nothing unique in business. Take the analogy of film exhibition industry, where film exhibitors (multiplex chains like Inox or PVR) negotiate hard with film producers and distributors on contractual terms like advertising revenue sharing, online ticketing sales sharing, etc. in the backdrop of taking the film to the audience. In fact, these contractual discussions help attain a balance between suppliers and customer promises while making money for running the business. But then, why did this Gazelle Project find a place in the antitrust congressional hearing?
Let’s look deeper.
Hunting the ‘sickly gazelle’
What was strikingly different in case of Amazon, was the power of data which it used as a ‘stick’ to decide the success or failure of a book, thereby squeezing publishers. When publishers did not comply to the demands laid, Amazon would threaten to pull their books out of its data-personalization and recommendation systems, meaning that they would no longer be suggested to customers. In fact, in a letter in July 2015, the Assistant Attorney General for Antitrust division of US Dept. of Justice, wrote that Amazon can, at any moment, remove the buy-button from a title on its site and cause sales of that book to plummet by 50 percent or more at once!
‘Gazelle Project’ was not only putting pressure on publishers but also identifying which publishers to be pressurized first and how! Amazon would categorize publishers (based on the data they possessed about them) in terms of their dependency on Amazon for surviving and then hunted the most vulnerable ones.
Now, doesn’t this smell of a monopoly-like behavior, or, to be more specific – a ‘disguised monopoly’ behavior? One wonders how did Amazon get away with antitrust laws.
Was the hunt ethical?
The employees in Amazon’s books’ division were given special negotiation training and educated on the limits and flexibility of the US antitrust laws. Not only did they find a way to go about the law, but they also educated staff to go about the law. In other words, they wholeheartedly pushed publishers for compromises in a ‘dutiful’ manner. Now, does this not question business ethics? I will leave it up to you to ponder.
Let’s also consider that when Amazon passed on savings to customers in the form of shipping deals or lower prices, it had the effect of increasing the pressure on physical bookstores, including independent bookshops. Hence, apart from small publishers even small physical bookstores became prey to the cheetah.
The Gazelle Project was undoubtedly a pivotal one in writing the success story of Amazon’s Kindle. Interesting to note, Lynn Blake, who was heading the project, soon left Amazon and later admitted that she wanted to “do business where both parties feel like they are going to get something valuable out of it”. Nonetheless, the cheetah continued to prey on its gazelles, but with a new name due to their lawyers’ recommendation - ‘Small Publisher Negotiation Program’.
Jeff Bezos, once addressing these fears in a talk show, said, “Amazon is not happening to book selling; the future is happening to book selling.” Maybe. What do you think?
About the author: This post is written by Aayush Jhawar with edits from our editorial team. Aayush is a graduate from SP Jain Institute of Management & Research, currently working with BCG. All views expressed in this post are personal and not relating the org to which the author belongs.