Amazon vs Hachette: Why An Axe May Beat A Hammer (Part 1)

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For those not up to speed on the war of words (quite literally) between Amazon™ and Hachette™, it basically revolves around one central theme: Amazon believes a price should be X, and Hachette believes it should be Y. So the question everyone is asking is, “Who’s right?” In my view that’s the wrong question to even begin with.

The reason being is this (and I’m not trying to be coy) both are correct if you understand what the real question and answer should be, and that is: Whomever owns the product owns the right to price. Whomever owns the distribution point (or the store) owns the right to carry it or not. Period.

For those who want to disagree you need look no further for a clear example of this than Apple™.

A distributor and a producer can agree to disagree on what their respective businesses should make in profit, but a distributor is in the distribution business, not the creation of product business. (Regardless if they create their own product within that very same business.) Their models, their strategies, their world view as distributors is not the same as what the producer or creator of a said products business model or priorities are – no matter how much they say, nor how broken they believe them to be.

There also lies within this great debate one of the greatest conundrums that no one (and I mean no one) is addressing. As broken as the publishing business model is debated and pointed to as the broken model of models, I ask: and Amazon’s model is perfection? Hardly.

I’ll follow that statement with this: It might be even more broken and in need of restructure more than the publishing industry. (Yes, I did just make that statement.)

Why would I say such a thing you’re asking? Easy: Let’s not forget Amazon has still yet to prove it can make or turn a profit worthy of its stock valuation. And that question is still up for grabs even though it just celebrated its 20th year since founded.

Some are asking why is this happening to begin with, along with why now? Many thought or believed Amazon was the greatest friend of book publishers, authors and more.

Yes they were, but as I alluded to earlier I believe something has changed in Amazon’s business model that now needs correcting. Something most just turned a blind eye towards as if it would never need to be addressed in the future. i.e., Amazon needs to start turning real profits in order to convince Wall Street that their investment in this retail experiment can actually pay dividends or profits which can be returned to share holders in the future. That future – is now here.

In my view this is just another one of the realizations I’ve warned about rearing its ugly head: Without the Federal Reserves QE pumping and the spigot almost closed, the once hot money now chases cold hard facts. i.e., “Show us the money!” If not – the hot stories will begin to get the cold shoulder, and the once darlings of Wall Street are not only far from immune –  they may have bulls-eyes painted on their backs. (Do you stay in Amazon? Or, do you move to let’s say the next greatest of the same story as in Alibaba’s IPO?)

For all intents and purposes Amazon is still “an experiment” in online retailing. And Wall Street is becoming increasingly incessant on wanting many of the “old” questions answered since the Federal Reserve has been turning off the spigot of free speculation money.

And the question that hangs over Amazon like the sword of Damocles is: Will they ever make money? Or, is this the best it gets?

One needs only look at a stock chart and notice the eery timing coincidence of its descending share price and the announcement that the Federal Reserve was actually serious in reducing the QE flow of free cash.

Remember, for as large and encompassing as Amazon is with all the wonderful things it can and has done to make shopping better; it can only last so long before selling at a loss catches up with it. And that has only been made possible as Wall Street stays committed to the story that “someday” Amazon will make money to justify their investment.

Without that narrative in place and believed, Amazon as we know it changes. Again getting back to “why this is all happening” my view and belief is that the real issue here for Amazon is: Many (including possibly Amazon itself) have forgotten it’s not 1999 anymore.

© 2014 Mark St.Cyr     MarkStCyr.com