I can imagine Amazon CEO Jeff Bezos in Seattle this morning, reading the Justice Department's antitrust lawsuit on a gigantic Kindle Fire XL prototype, and grinning ear to ear, savoring every word.
When he's finished, the grin comes off his face but lingers around his eyes. He quickly sets the tablet down, takes a sip of water, and says, to anyone and no one: "Okay. Let's get to work."
[#contributor: /contributors/59326a4644db296121d6acfa]|||Tim is a technology and media writer for Wired. He loves e-readers, Westerns, media theory, modernist poetry, sports and technology journalism, print culture, higher education, cartoons, European philosophy, pop music and TV remotes. He lives and works in New York. (And on Twitter.)|||
Between the DOJ's lawsuit against Apple and publishers and the settlement three of five publishers have already agreed to, I'd go so far as to say that Bezos is having an even better week than Instagram CEO Kevin Systrom.
Sure, Systrom might be pocketing as much as $400 million in cash and stock from Facebook's acquisition. But Systrom and his team have to figure out what to do with that windfall. They're a tiny startup who suddenly have to answer to someone else. Now under Zuckerberg and with millions of new users, they have to figure out what's next for them and their product. And what's next for them is far from clear.
Jeff Bezos knows exactly what to do next. Jeff Bezos doesn't have to answer to anyone any more. Everyone else, including his most powerful counterparts across the negotiating table, will have to answer to him.
Officially, Amazon's response to today's news is fairly measured. "This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books," writes Amazon spokesman Drew Herdener in an e-mail.
If you read the text of Justice's proposed settlement with e-book publishers, it sounds like an argument for Amazon's business model.But if it's "a big win for Kindle owners," it's a huge win for Amazon. If you read the text of Justice's proposed settlement with e-book publishers, it sounds like an argument for Amazon's business model.
The settlement gives Amazon everything it wants in its dealings with publishers, and enshrines it as part of an agreement with the federal government, and compliance with antitrust law.
With publishers who agree to the settlement, Amazon will have the right to set final prices of e-books for customers, including the right (within some limits) to set those prices below cost. It enshrines Amazon's ability to charge publishers for promoting their e-books and to factor those costs into its total balance sheet with each publisher. It allows Amazon to stagger negotiations over time, so that it can't be pressured by every publisher asking for better terms all at once.
Sure, Amazon loses the ability to negotiate its own most favored nation agreements with these publishers — but the agreement prohibits those publishers from establishing such an agreement with anyone else. Ultimately, Amazon's market share let it pursue lower margins than its most robust competitors, so that's a net win for Amazon, too.
In short, the settlement forces publishers who agree to it to go back to the negotiating table with Amazon while systematically taking away every piece of leverage those publishers have had — whether ill-gotten or not.
At the level of perception, too, Amazon comes off in these documents as a positive protagonist. It is not the tough-as-nails, dominant player in the e-book market that we all know Amazon to be. Instead, they are a white knight, nobly pursuing the interests of customers against an illegal cabal of fearful publishers and a predatory Apple.
Amazon's beneficence even extends beyond its own customers: "consumers benefited from Amazon’s $9.99-or-less e-book prices even when they purchased e-books from competing e-book retailers," reads the Justice Department's report.
"Quickly, Amazon came to realize that all Publisher Defendants had committed themselves to take away any e-book retailer’s ability to compete on price," according to the report. "Just two days after it stopped selling Macmillan titles, Amazon capitulated and publicly announced that it had no choice but to accept the agency model."
We even learn (without much supporting evidence) that's Amazon e-book sales have always made a profit for Amazon, and that publishers were primarily motivated by well-justified fears that Amazon would soon becoming a publishing powerhouse of its own and put them out of business. You know, just in case shareholders were worried that Amazon was too noble.
Meanwhile, Apple, darling of both Wall Street and the blogosphere, get its dirty laundry thrown in the street.
What's left out of the Justice department's lawsuit might be even better news for Amazon than what's included. There is no broader look at any of the anticompetitive vagaries of the e-book market beyond publishers' negotiations with retailers in the period before and after the launch of iBooks.
The suit blasts most favored nation agreements without noting that Amazon has aggressively pursued MFN agreements with publishing partners, including partners whose books it sells wholesale. It's completely silent on retailers' and device manufacturers' use of DRM to lock customers into a single bookstore. Amazon is purely a market innovator, not a budding monopolist, even as the DOJ notes that Amazon's pricing power helped determine pricing power across the industry.
Blogger Mike Cane wrote a powerful email to attorneys at the Department of Justice listed in the lawsuit titled, "Dear DoJ: You Need To Sue Apple Again." It cites Apple's in-app purchasing rules that prohibit Amazon, Kobo, Barnes & Noble and other retailers from offering books for iOS devices on the same terms that Apple can offer in iBooks, without browser workarounds.
This, Cane says, "is every bit as much restraint of trade as the collusive price-fixing that made the Department bring Apple and its co-conspirators before the court for remedy."
But it's actually great news for Amazon that the DOJ isn't opening up restrictions on in-device purchases. Once thrown, that stone bounces back to hit Amazon in the face right away.
Not only does Amazon not permit purchases from other e-book retailers on its Kindle devices, it doesn't permit them to read e-books from other retailers on its devices, at least if they're sold with DRM. And even Apple blocking other retailers from selling directly through iOS apps indirectly helps Amazon. As the biggest retailer on the web, boasting the biggest e-bookstore, Amazon's web site becomes the natural second choice for most customers, if not the first.
Android's permissive policy even allows Amazon to offer its own app marketplace on unforked non-Amazon Android devices. Now, Amazon offers its own in-app purchases, which just like Apple's program, takes a 30% cut.
So the Justice department's findings turned out to essentially justify Amazon's business model. Publishers setting fixed prices across all stores bear the sole blame for driving up e-book prices, and are tossed out. Device manufacturers locking in customers with hard or soft restrictions? Perfectly acceptable.
Bezos, a libertarian, has probably never had more reason to love the federal government than he does today. The only thing that could have made this better is if sales tax on Amazon purchases were permanently waived forever.
Bezos should send Eric Holder a Christmas card. And start calling the Attorney General "Santa Claus." He got everything on his wish list more than eight months early.
Photo by Victor Blue for Wired.
Opinion Editor: John C. Abell @johncabell
